Flippers ‘Likely To Get Burned’: NAR
Some housing bubble reports from Wall Street and Washington. “U.S. home prices will probably fall temporarily as the housing market corrects, the National Association of Realtors said Thursday. ‘This year sales are slowing, homes are plentiful and sellers are negotiating,’ said David Lereah, chief economist for the real estate group. ‘Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory.’”
“Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points. Buyers who plan to stay in their homes should see those gains, but ‘people who purchased last year with the intent of flipping are likely to get burned,’ he said.”
“‘The shift we’ve seen lately results from psychological factors with buyers on the sidelines trying to time the market,’ NAR President Thomas Stevens said in explaining the sharp shift in the group’s forecast.”
From Bloomberg. “KB Home, the sixth-largest U.S. homebuilder, and Beazer Homes USA Inc. said profit will fall short of earlier forecasts as demand wanes. ‘The housing bubble is breaking pretty hard here,’ said (analyst) Michael Bugno.”
“Beazer cut its fiscal 2006 forecast yet again on lower sales and higher contract cancellations in a weakening U.S. housing market. The company said it was selling fewer homes in the current quarter and purchases were being delayed or cancelled as buyers were unable to sell their existing homes.”
“The company also said it was aligning its overhead structure and capital spending in the wake of deteriorating business conditions. Today’s forecast cut by Beazer Homes was its third in just over four months.”
“Short-term housing investors, so-called ‘flippers,’ are exiting the market in droves and putting their properties up for sale, making for ‘an increasingly challenging housing market,’ KB Home Chief Executive Bruce Karatz said in a statement yesterday that detailed the builder’s 43 percent drop in new orders.”
“‘Our earnings expectations for the third quarter and full year reflect an increasingly challenging housing market, where the supply of new and resale home inventories has built up in recent months in markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years,’ said Karatz. ‘Further intensifying the unfavorable conditions in the housing market is the weaker than expected demand for new homes.’”
“Bank of America analyst Daniel Oppenheim attributed the rise in cancellations to declining home prices and small deposits, adding that cancelations would not likely stabilize anytime soon.”
“Competition among builders to sell homes has led builders to accept smaller deposits during challenging times, worsening the industry’s woes, Oppenheim wrote. ‘We expect cancellations will remain at elevated levels as long as sequential pricing trends continue to worsen,’ Oppenheim wrote. ‘We should expect to see high levels of cancellations as long as buyers see that they could purchase a home for less today than their agreed upon contract price.’”
“Home builder Hovnanian Enterprises reported yesterday its profit sank 36 percent for the third quarter as the company struggled with higher costs, slower-paced orders and increased cancellations in a slowing real-estate market. CEO Ara Hovnanian said, ‘We are making decisions today with the assumption that current conditions will persist for the foreseeable future.’”
“(Analyst) Alex Barron said that’s the right outlook if it means the company figures the cancellation rate will remain high, home prices will drop and builders will have to keep offering costly incen tives to persuade people to buy. ‘A lot of buyers are not willing to close homes any more because they think they’re afraid they’re going to lose value,’ Barron said.”
“‘I think you’ll expect more pre-announcements, more lowering of guidance, more missing estimates, orders coming in below expectations, yada yada,’ said Barron. ‘It’s just starting. It’s only the 3rd inning of the downturn.’”
“A U.S. housing sector downturn may last for years because of excess supply and faltering consumer confidence stemming from worry over U.S. foreign policy and federal government competence, the head of nation’s largest builder of luxury homes said.”
“Robert Toll, CEO of Toll Brothers said the current slump in prices and sales volumes was more severe than the ’soft landing’ for housing predicted by some analysts. He said the market recalls the recession of the late 1980s when prices took more than three years to recover. ‘This isn’t a soft landing, it’s harder than a soft landing,’ Toll told Reuters.”
“The current downturn is mostly the result of a ’severe overhang’ in supply that Toll estimated at 15 percent to 20 percent more than the market can easily absorb. That was driven by ‘tremendous speculation’ by home buyers who never intended to occupy seeking a quick profit from a rising market, and by builders who constructed homes before securing buyers, he said.”
From one of the Bloomberg links:
‘The U.S. inventory of unsold existing homes rose to 3.86 million in July, the highest ever, according to NAR. The number of new homes for sale reached a record 568,000, according to Census Department data.’
“This isn’t a soft landing, it’s harder than a soft landing,” says Robert Toll.
That has to be the quote of the week.
“Who could have seen this coming?! Certainly not I. Now if you’ll excuse me, I have to go count my money, 99% of which I cashed out last summer.”
- “U.S. home prices will probably fall temporarily as the housing market corrects, the National Association of Realtors said Thursday.
Whew! Thanks goodness, it’s only a temporary fall!
I think in the back of David Liar’s mind, he actually wanted to say “home prices will probably fall temporarily for the next 5-10 years.” But too bad he his last name is too closed to the word liar.
Me Too!
From Bob “land shortage” Toll, it’s the quote of the year!
I get a laugh outta that Toll quote some time back where he shrugged his shoulders and said that it would be “commonplace for people to live with their parents well into their 30’s” in the coming years because of the rise in housing “values” and the idea that it would take more years to save up for a downpayment.
Boy he sure changed his tune.
Ah, somewhere between hard and soft…what’s that? Poached?
Interested.
Fifty-ish.
(This is just too-good bait for Hollywood Squares-type answers.)
Clearly, Bob Toll is done selling his Toll Brother shares and is now able to really speak his mind. Love it!
What I would love to see is a list of his quotes of the last few years lined up against the timeline of his sales of Toll Brothers stock. I’d bet the bullishness ended just about the same time that most of his selling was done.
I would love to see whether he (or the hedge fund where he parked his dough) has invested in puts on the builders…
This isn’t a crash landing, it’s harder than a crash landing.
Comment by auger-inn
2006-09-07 14:14:06
This isn’t a crash landing, it’s harder than a crash landing.
You Nailed it Auger! My gut tells me this is going to be way worse than anything since 1929. I pray it does not top that, but it will be bad. Something like Japan but sharper and shorter (than 17 years and counting) We will face up and turn it quicker…. but still 5-7 years?
This like a burrowing bunker-buster with a Nutron USBucks Warhead….It will kill (BK) all the people and leave all the bulidings standing.
You have stated many times the stages at which the ARM landminds will go off from perhaps 500 Million too 6 Trillion and still counting. Starting now and 3 years out. BTW they are still underwritting these frauds.
cheer up,it isn’t just option arms,how about a 50 year amortizing 30 year note (adjustable) for 80%,then a 5 year teaser rate balloon for the other 20%.with a fico score of 525…the apr on the second starts at 12.25%…
Several of the big HBs (TOL, KBH, PHM) rallied today (again!), in the face of more bad news on future HB earnings plus new saber-rattling about future rate hikes by the Fed. At what point will a critical mass of negative fundamentals tip the balance against whatever unnamed source of market power props up these share prices on bad news days?
P.S. It is fairly obvious that someone is going long on these shares to fend off negative news releases, but I cannot determine from where I sit whether it is hedge fund activity, permabull contrarians who buy-the-dips on every bad news release about the builder sector, or some other factor.
It’s BIG-DUMB-LONG-ONLY-’VALUE’ MONEY buying homebuilder shares.
Just wait till the homebuilders are forced to write down the value of land they own. Book value for the companies isn’t what it seems. There’s more downside.
Does the BIG-DUMB money consist of primary purchases by sheep, or is it BIG-DUMB institutional fund managers who have nothing to lose if a bunch of hapless retirees lose their life savings when the HBs all tank, or some other BIG-DUMB group?
Stucco, read this thread for some insight.
http://bigpicture.typepad.com/comments/2006/09/home_builders.html#comments
GetStucco “Several of the big HBs (TOL, KBH, PHM) rallied today ”
Pure “Suckers Rally”
“At what point will a critical mass of negative fundamentals tip the balance against whatever unnamed source of market power props up these share prices on bad news days?”
Easy. The day after election day.
Maybe Toll didn’t take enough Viagra the first time around. Doen’t it get hard enough just before it crashes?
ABC News just reported that the the bursting bubble is Bill Clinton’s fault.
LOL
GetStucco,
I heard one of the talking heads on CNBC speculate today’s bounce in HB stocks might be short covering. I don’t know if this theory makes sense, however.
Short Covering and why it makes sense for HB stocks to rise on bad news.
Getstucco,
As you know, to short a stock you borrow it from a broker and immediatly sell it in the open market at a high price. Sometime later in the future, you buy it at a low price and return it to the broker, profiting the difference.
Now, suppose 6 months ago you borrowed 100 HOV shares at $50 and today it trades at $25 a share and you want to realize a gain. In order to realize this gain, you have to go in the open market and purchase the 100 shares you borrowed to cover or close your position. To maximize your gain, you wait until sentiment is at its worse (like when HOV announces bad news) then you buy the 100 replacement shares, closing or covering your short position.
Now, suppose their are many other short sellers like you simultaneously trying to close or cover their short positions and there are’nt enough long sellers willing to bail on the stock. The result is temporary upward pressure on the stock’s price. As a result, you see a bounce in the stock’s price on bad news.
“Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points. Buyers who plan to stay in their homes should see those gains, but ‘people who purchased last year with the intent of flipping are likely to get burned,’ he said.”
Yeah, right DiaLereah. WTF are you smoking? Or, maybe just a friggin spin doctor? This markret is headed for more pain…it’s the top of the first, with no outs!
Nah, this is his way of saying subtly “Please no more sellers, no more sellers, we gotta keep pricing up”.
THE JERK IS THE PRESIDENT OF NAR!
I am all for normal 1-2% + Inflation appreciation but how about abnormal appreciation for past 10 years? Shouldn’t we estimate the appreciation from that point and figure out what the house price should be? By the way here is that estimation and that is not pretty
http://photos1.blogger.com/blogger/3791/1451/1600/ShillerIndex.jpg
Why should housing go up faster than the inflation rate? Does a used car go up faster than the inflation rate? Does a dock, port, Walmart, lighthouse, manufacturing facility, airplane go up faster than the inflation rate? Do carpets, molding plywood, cracking concrete, granite countertops, fraying wires, and rusting plumbing connections go up faster than the inflation rate? Housing is a depreciating asset which should LOSE value. The only logical explanation for housing to go up is the scarcity value of buildable land. There is no good, logical reason that the value of an average existing house should go up; it should go do, and over the next many decades this will be proven out.
sorry: “it should go down”
Good question. It’s a very complex thing. The main driver I think is what you stated - that land availability is the main cause. Some areas it’s not an issue, e.g. the midwest, Texas, etc. Some areas though it’s a really big issue, e.g. many areas of California; basically any coastal area or other area that has some form of restriction, be it geographical or political. Such areas see higher increases than others, and pull the overall average up. Eventually you get to extremes like Hong Kong, Japan, Manhattan, who have extremely high prices for a given house or lot size, simply because there isn’t much room there.
Wear-and-tear though does play a negative role. However offsetting that is that many homeowners actually improve their properties over time, by replacing cheap fixtures with nicer ones, better carpet, better landscaping, etc. Also in general more mature landscaping (trees) adds to the value of a home.
Also one thing that seems to be usually overlooked is simply that houses are built bigger today than they were years ago. I’d love to see stats (I’m sure they’re out there somewhere). So that’s why $$/sq ft is more important than general median prices - I wish agencies who quoted median prices and used them as measurements would do it in $$ / sq ft instead of absolute $$; the stat would be more meaningful.
Another factor, probably the biggest overlooked fator is simply the size of lots. In most areas lot sizes are decreasing over time - it was rare to have lots smaller than .3 acres in the pre-80’s, whereas now anything over .3 acres is a rarity. So that actually should drive prices down over time, for new homes at least.
Real estate prices will generally increase faster than inflation if purchasing power increases faster than inflation. If there’s broad-based real (i.e. inflation adjusted) income growth, people can afford to pay more for houses. If income growth is limited to the wealthy, the wealthy have more money to invest, some of which is made more readily available to lend to mortgagors, thus lowering either interest rates or lending standards or both. Either way, an expanding economy makes more money available for home purchases — which, in the absence of corresponding increases in supply, drives prices up.
If you don’t keep pumping money into an existing house, the value will go down. It costs a lot to keep a house maintained in good condition.
The link doesn’t work.
Hmmmm, is that the same information he includes in his immensely popular books? What happened to the “15% is in the bag” crowd? I hope they are all invested & leveraged and they all get taken down hard.
Stupid buyers are trying to “time” the market. Just WTF were the flippers trying to do?
I once had a goal of buying a house withing a couple of years but now that prices keep dropping, I don’t have that goal anymore.
As Peter LeFleur said in Dodgeball: “I found that if you have a goal, that you might not reach it. But if you don’t have one, then you are never disappointed. And I gotta tell ya… it feels phenomenal.”
funny….and relevant to that crap “time the market” comment. Obviously a nasty critique of us potential buyers, trying to do what all smart people like him know you shouldn’t attempt, “timing the market”. Indeed, exactly, WTF were the flippers trying to do?! Now, though, since so many more of us are convinced there is pain to come, we can happily shelve our ‘goals’ and sit, save, wait til the whole ridiculous house of cards collapses, and actually *stop* trying to ‘time the market’ and instead wait til we can buy houses that we’d want to live in and that wouldn’t make us broke.
http://davidlereahwatch.blogspot.com
Love the blog. Lareah has gone from “what housing bubble?” to “soft landing” to “flat appreciation” to finally admitting that prices are on the decline. The next quote will be something like “get outta the way, I gotta sell!”
Can we all start referring to David Lareah as “Pinnochio?”
Or David Pinnochio. The man made of wood(with no God given brains) who has a nose that grows larger every time he opens his pie hole.
People who bought in 2001, or even 2002, will see “those gains,” i.e. inflation + 2-3%, even if prices drop 50% from the peak, prices have spiked so high.
Seriously — if prices in Orange County had only increased at 7% per year from 2000 onward, houses that sold last year for $800,000 would go for $400,000. Lereah is actually suggesting the market could truly crash. (What else would you call a 50% haircut?)
But see they’ll only crash temporarily. Go have a cappucino or something — prices will probably bounce back by the time you’re done.
Now, given the size of cappucinos they serve around here, that might not be bad advice. It takes forever to get the bottom of a double super grande primogargantuo mochalatte.
“Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points.”
OK, then don’t we have to subtract out the “over appreciation” over the last 5+ years? Or does real estate get to keep those gains forever?
A key question: WILL falling interest rates support housing? So far they haven’t, at least not according to the Mortgage Bankers Association’s figures. You can read more analysis here, if you’re interested…
http://interestrateroundup.blogspot.com/
Yeah, like anyone should believe the NAR. Check out their forecasts from Fall 2005 for 135 different US markets (which is still available on their site).
http://tinyurl.com/ej43j
Obviously, they did quite a bit of cut and paste on these reports (as they contain many of the same graphs, and even the same typos). My favorite part, though, is the “stress test” results for each market (the bottom of page 5 of each report), wherein the NAR reports what combination of interest rates and job gains/losses would be required for a 5% price decline. An example: Las Vegas would require interest rates of 8% AND 152,00 job losses for prices to decline by 5%. Considering that these reports are dated Sep./Oct. 2005, it would seem that their stress test methodology might need a little tweaking.
Someone get the quote from Bob Troll about how we would be like Europe and have loans for life or some other bull crap
“It’s all just logic,” Toll said. “In Britain you pay seven times your annual income for a home; in the U.S. you pay three and a half.” The British get 330 square feet, per person, in their homes; in the U.S., we get 750 square feet. Not only does Toll say he believes the next generation of buyers will be paying twice as much of their annual incomes; in terms of space, he also seems to think they’re going to get only half as much. “And that average, million-dollar insane home in the burbs? It’s going to be $4 million.”
Someone should also find the SEC records for the next day where Toll was selling millions of his shares.
From yahoo finance, under symbol TOL, Insider Transactions. Sales for the last 2 years, not counting dispositions, and adjusintg for 2:1 split in July ‘05, I calculate he sold 7,344,400 shares for $315,856,900.
But but but, why would he ever sell a single share when the average Toll Bros. house is going to be worth $4 million in just a few short years? I be confuzed.
OMG, wow….
Day-um….
THANKS!!!!
Not that I’m question the fact, but how the hell are people in England paying 7 times salary for homes. Are they all interest only loans? Are their rates that low there. That just sounds unsustainable. And for how long have they been averaging this, since the Victorian age or more like the last 10 years?
Well, in London they are. Yet what is being counted is the median house price versus the median salary, and in my time there, it seemed fairly common for unrelated adults (usually 20’s/30’s) to team up to buy a house. And not just two, we’re talking three or more, just to get onto the housing ladder.
There’s been quite a bit of chatter in the UK about whether all this is really sustainable over the long term, and (IMO) the jury is still out. I’m personally amazed it hasn’t all fallen in a heap already, but these things usually take far longer to work out than we expect. In any case, what with BBC near-monopoly avoiding too much talk of a bubble (much less a crash ahead), there’s not the psychological shift by buyers that we see here.
But that said, their charts look not much different than ours, only peaking and bottoming at different times. Check out things like http://www.housepricecrash.co.uk for more info.
interesting, and no doubt Toll knows exactly how the demographics and restrictions are different in London and the UK right now, but will still compare that situation to the US averages and make it seem that we should expect things to head to 7 times income and such a premium on space, or that we’re actually cheap, or whatever insidious little ruse he was trying to pull.
Two old ladies -sisters - are sueing Tony Blair (et.al.) because the estate tax issue discriminates against non-married, non-ss couples or others who share homes for financial reasons. (Today, NPR)
So maybe UK loses its tax benefit of having several folks community together on the home.
Maybe that will help folks a little.
Thus the nick.
3.5x income? Where? Maybe in Icehole, North Dakota. Here in California it’s 7.25x per the most recent info I’ve seen.
In addition to that “one million dollar home being four million” comment, didn’t he in the same article say something like “those that are children now will live with their parents until they are fourty years old because they won’t be able to afford to move out”. lol!
absolutely! the famous sunday nytimes mag. cover feature about toll bros. in july 2005 — just as he was starting to sell his stock.
If my children try to move back in with me I will be arrested for murder.
Wait a minute - don’t they get more because they measure in ‘Litre’s”
Bottoms up, as in beer.
“‘I think you’ll expect more pre-announcements, more lowering of guidance, more missing estimates, orders coming in below expectations, yada yada,’ said Barron. ‘It’s just starting. It’s only the 3rd inning of the downturn.’”
And I thought I was bearish.
So the question is, do we go into extra innings?
I agree with his analogy, we’re only in the warmup phase. 2Q2007 (as others predicted well before me) is going to be when things get really interesting.
‘This isn’t a soft landing, it’s harder than a soft landing,’
Ya think?
Neil
The fat lady just sung the national anthem. The teams have been introduced and its the 1927 Yankees (Murders Row) vs. the Youngtown, OH 7 year old little league team. Let the ROUT begin!
Can I be Gehrig? I want to hit the flipper’s first pitch (offer) out of the park.
I liken it to the musical score that would precede a “Jaws” shark attack. We’re just hearing the first low pitched “Baaaa-bump”
“The fat lady just sung the national anthem”. Not to nitpick, but it seems you have your expressions confused. The fat lady doesn’t sing the national anthem, her singing indicates the game is over. Carry on.
The fat lady hasn’t even started warming up her vocal chords yet.
Sorry for the confusion - I meant she is singing, as if the real estate game is over and the ROUT is about to begin.
I wanna hear Rosanne sing the national anthem when this whole thing is declared “dead.”
The carnage…its going to get harder and harder to watch.
I’m already starting to feel that way. This stuff is really kind of depressing. I mean, the downturn needs to and has to happen, but I really wish this whole bubble had never happened in the first place. Also, it’s depressing to see the degradation of human nature.
About the “inning” metaphor, I think we’re more like in the middle of the second. The game’s definitely underway, but lots of people are still oblivious to how bad it’s gonna get.
Just wait until the fourth or fifth inning. That’s when the opposition bats around twice and scores like 15 runs, and you have to bring your right fielder in to pitch.
and by builders who constructed homes before securing buyers, he said.”
__________________________________
HOLD ON. They said this time was different they learned from the last downturn and WOULD NOT MAKE THE SAME MISTAKE!!?!?
Excellent point. They repeated that mantra for all of 2005, while they borrowed billions to buy up land and throw up subdivisions.
Throw up subdivisions? Unintentionally funny. Most of them do look like they were vomited up.
“Throw up subdivisions? Unintentionally funny. Most of them do look like they were vomited up.”
Even worse, it’s that tacky novelty plastic vomit.
Actually overpriced pink stucco vomit here in FL… practically zero lot line for some of this crap they have thrown up in the last 4 years….
I thought you were over that problem tx.?
Yes, I remember reading that many times last year. I think I lost at least one keyboard because of that claim
you should sue them!
You know why they’re coming out and saying this now, right?
They’re preparing people for the August home sales reports which they now know will probably show YoY negative prices.
very good point!
YOY declines, an on-going fall-off of sales and increasing inventory. Soon will come the hue and cry…”Dear God! When, oh when will this ever end?!”
And Liareah will be there every 3 months to proclaim, this is the bottom. Just like the realtors did in the early 90s.
We’ve already heard on many occasions that this is the bottom and 2007 will roar right back to the gains we saw through the beginning of the decade. We just need to work off the excess inventory, that’s all. No problem. Not even the continuing torrent of new inventory added every single day. And this is at a time where interst rates are at historically low levels. I suppose if rates ran up to above historical averages that wouldn’t be a problem either… Or if regulators impose stricter standards and money gets tight that won’t be a problem either.
2007 will be the worst year ever for residential RE. How’s that for a prediction?
To be followed by an even worse 2008.
Sorry AZ… I disagree.
Our governor here in Ca is secretly working on making Mexico officially part of Ca. We will soon have millions of new home buyers. Lets see the math - 12 folks per home … well, you get the picture.
Long overdue. President Polk should’ve taken all of Mexico in 1848, and incorporated it as fifteen or so new states. Can you imagine what Mexico would look like if it hadn’t had to put up with corrupt, unstable Mexican government for the past hundred years? Phoenix or Austin, that’s what.
BTW, I’m not sure making Mexico officially part of California would have any effect on the local housing market, since pretty much every Mexican inclined to come here, already has.
Don’t be so sure that all of the Mexicans that arrive on this side of the border have any intentions of staying here. Many (MOST) have every intention of going back. Most are busy repatriating most of their $$$$ so their families can buy homes - in MX. There’s a hard working landscaper that works in our subdivision. He sends $$$$ and goes back every year to tend to his father’s ranch.
And, as you know, at $600K, not many illegal or legal MX immigrants for that matter can purchase a home. They have more pressing concerns. Most can barely scratch together bus fare…
“Don’t be so sure that all of the Mexicans that arrive on this side of the border have any intentions of staying here. Many (MOST) have every intention of going back. Most are busy repatriating most of their $$$$ so their families can buy homes - in MX. There’s a hard working landscaper that works in our subdivision. He sends $$$$ and goes back every year to tend to his father’s ranch.”
Actually knew a Guatemalan who was here, making good money, and was sending back enough dough to his family in guat to built/purchase several homes.
Have known many other Latino immigrants, mostly Mexican, who were sending back money to their home villages to buy land and property so that they could have a place to retire to or to take long “vacations” on their frequent trips back to their home villages or cities in mexico, guatemala, ect.
The frequent crossing and recrossing back to their home countries by Mexican Nationals(or CentralAmerican nationals) was a very common occurance back in th 80’s and 90’s, as the illegal immigration issue was moot back then. Once went on a trip to Mexico for a week and it was surprizing how many Mexican’s had lived or Worked in the US, maybe 1 out of 7.
What is bothersome is that indeed many immigrants do indeed plan on returning/retiring back to their home countries and never intend to make the US their permanent home. They are here only to make money and extract as much in free Benefits as possible. Some stay only a few years before returning, other many stay 10-20 years while sending as much money back to Mexico/CA as possible. When they have built up a sizable “nest egg”in their home country is when they go back to retire and live in grand style(expatrated dollars are worth 7-10 times purchasing power in Mexico/Ca).
The July Pending Home Sales Index plunged like nothing we have
seen so far in this cycle.
It is a preview of other indicators for the coming months.
NAR Pending Home Sales Index
“Flippers will get burned” is quite a statement from Liareah.
Great chart. That is an ominous looking plunge and I wonder, what on earth is going to turn it around? This little dip in oil/gas prices helps (no mind it’s gone from $20 to $80 now back to $65 per barrel) but I don’t think it will be enough. You pair that with still a lot of inventory in pipeline and it will be tough to be a seller
“Flippers will get burned ”
The statement should be ” ,We will all get burned because of the Flippers and Frenzy that created inflated inventory and inflated prices .”
DL is attempting to do damage control by stating loss is limited to recent flippers . He should just come out and say the market prices have declined and inventory levels are at a all time high making it impossible for gains for years . Instead DL goes into a rap about expecting normal appreciation rates at over 2 % above inflation . We decided to take our appreciation on houses for the next 10 years in the last 5 years . What a joke .
“A U.S. housing sector downturn may last for years because of excess supply and faltering consumer confidence stemming from worry over U.S. foreign policy and federal government competence, the head of nation’s largest builder of luxury homes said.”
Well, at least we have the comfort of knowing that Bob Toll has figured it all out and the blame is squarely upon the shoulders of the federal government…
“..worry over U.S. foreign policy and federal government competence.”
Oh come on. “Gee honey, that’s a lovely house. We could pay all cash and live happily ever after. But our President is an idiot so we’d better hold off buying.”
Can’t blame the: weather, lack of inventory, lending standards (since there aren’t any), economy (not just yet anyway), so it’s gotta be Bush.
Who is paying all cash today?
“Who is paying all cash today?”
That’s the point. Builders pretend as though affordability isn’t an issue. Of course it is THE issue. Prices are simply too high.
Befuddled eye-crossing gibberish.
These insiders are stunned! They have nothing else to grasp. So, the hand-wringing begins.
Yeah, we might as well blame Equador or something.
‘Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory.’”
No big deal, just the first time it’s happened in what, 57 years?
i guess it depends on how you define ‘temporary’….
The Great Depression was, after all, only “temporary”.
Yeah this is a good point. Technically he’s right. An 8 year nosedive in prices will eventually hit bottom and begin the claim back upward. But like the stock market the RE sector will be a pale shadow of its former self for many years after this.
OT-Anyone know how to find how a much a homeowner has in mortgage debt? Maryland to be specific.
Run a title search in the land records. That will show any secured debt, i.e. mortgages or deeds of trust.
I picture a burning flipper running around the neighborhood screaming and setting every other house on fire.
Flippers are not “exiting” the market. They would if they could but they cannot. Welcome to Condotel California… such a lovely place, such a lovely place. You can check out any time you like but you can never leave. … I’m sorry sir, we haven’t had those prices here since 1999…
Sorry, flashbacks. Anyway the truth is that flippers are in the market just on the other side of buy/sell. The first rotting corpses are going to fester and stink up the comps. Sow, reap. Where’s the mystery?
The mystery, at least to me, is how endemic these problems will be. In your humorous analogy, how long will the burning flippers run and how far will the fire spread? In another analogy, is this a house of cards, a pile of gravel or something in between?
Robert,
Question for you I have a niehibor who’s forclosing In Huntington Beach California. They bought for 290k borrowed and now owe 575k hasn’t gone to full forclouser yet but they are moving out fast. Lucky there Moom and Dad live across the street and now they are using Mom and Dads Fifthwheel.
Well my other nieghbor thinks he can make an offer to the bank for 500k plus and flip it using Arm’s. Home’s seem to be dropping in price in our area 92646 zip code, Is this a smart move?
The cheapest SFR in 92646 is $630k. I don’t even see the need for a short sale. If the bank(s) take $500k it is a great deal. Banks won’t take $500k however and at $575k it becomes a near thing in a declining market. By the time the bank is willing to accept $500k it won’t be worth $500k. When elephants have sexthe grass gets trampled. These same banks next year are going to be entirely different entities with different attitudes but thisexact deal will be long gone. Just like it took the stupidest buyers at the top, at the start of the decline the stupidest buyers will get the first deals. We need to run out of stupid buyers yet again before the deals reveal.
Robert,
Thanks your S**T !!!!!
I listen to everything you guys say!!!
Mike D
I ment your the S**T
This is good?
“Flippers are not “exiting” the market.”
it’s more they all leapt from the ‘buy’ to the ’sell’ side of the ship — which has now capsized.
there’s a Motivated Sellers website for Philadelphia…most of the properties listed are rehab/flippers walking away from the homes
I recently drove through a new (2005) Central Valley, CA development - about 100 homes, all two-story 2000+sq.ft. with 8 ft. setbacks. 25 are for sale, and some front yards are looking bad, real bad. Anyway, at least half sport Bay Area phone numbers and are priced at 2005 levels. The last house to sell here was April this year(by Zillow comp’s). Looks to be a bloody mess.
Give a flipper a fire, he’ll be warm for a night. Set a flipper on fire, he’ll be warm for the rest of his life.
ROTFLMAO!
Hah, mate, you brought tears to my eyes…
OT, pullet, but you wouldn’t happen to be in SoCal, would you?
That one always works for me too.
“Condotel California”…funny!
Leareah reminds me of Monty Python’s “just a flesh wound” as his arm is chopped off” : “just a temporary decline in prices”, nothing to worry about, move along…
NAR’s pronouncements lost credibility a long while ago. Each one is successively funnier.
Come back here and buy or I’ll bite your bloddy kneecaps off!
Sadly, the MP black knight is a good metaphor.
Actually, he reminds me more of Yossarian tending to Snowden in Catch-22.
Refresh my memory. Doesn’t Snowden get decapitated by the propeller of a plane?
Loathing Negative Carry
By Tony Crescenzi
RealMoney.com Contributor
9/7/2006 2:13 PM EDT
URL: http://www.thestreet.com/p/rmoney/tcrescenziblog/10307738.html
Those who remain bullish on Treasuries and believe that yields can stay below the funds rate in perpetuity miss the fact that Wall Street dealers are currently having to finance their fixed-income inventory at around the fed funds rate (the repo rate is normally 5 basis points below the fed funds rate). As a result, the dealer community is incurring daily losses from this negative carry situation.
This is why over the past 16 years the 10-year has dipped below the funds rate on only three other occasions, in all cases within six months of an interest rate cut. Deep inversions, in fact, have been associated with an imminent rate cut. Basically, Wall Street dealers and other leveraged players loathe negative carry; it won’t finance a home in the Hamptons.
Proof that the market is priced for a rate cut can be found in the fed funds and eurodollar futures.
Bond bulls seem to be speaking for the wildly bullish speculators in the trading pits in Chicago, where large noncommercial traders are holding a record collective net long position and where negative carry is not an issue.
And the past 16 years aren’t really even a good comparison to what could happen. We haven’t had a decent recession during that whole time. I was a money market trader in the early 80s and huge negative carry (to the tune of several hundred basis points just on 6-month paper at times) was a fact of life - I wouldn’t call this inversion too deep yet. Also, even though negative carry is very costly, most of the time it took place during a rally in longer rates, so traders will live with it.
I agree that the Fed will cut rates sooner rather than later. One month: recession becomes apparent. Two months: wailing and gnashing of teeth and a call for Bernanke to “do something” (especially with elections and 3-month bills trading at 4.50 and bonds below that). Three months: Fed begins to cut short rates.
Four months: long rates are in a steep climb; dollar is in a freefall
Five months: MainSt USA says wtf, why is everything more expensive than just yesterday
Six months: there is a formal request made to rescind Greenspan’s medal of freedom
prices never go down”
LIErah - learah- LYrah
rinse repeat
“KB Home, the sixth-largest U.S. homebuilder, and Beazer Homes USA Inc. said profit will fall short of earlier forecasts as demand wanes”
And the HB’s magically levitate on this news….
From another blog I frequent; discussing the Palm Beach housing market:
You read that a median income of 70K can afford a home here? Where did you read that? Its more like 125-150K to afford the median home here; here are the calculations:
70K gross income Net take home pay (monthly): $4,261.16
350K loan, 30 year fixed at 6.5%: $2,212.24
So, with a 70K income, your already at more then 1/2 your take home pay on your housing expenses (safe rule of thumb is no more then 1/3 of your take home on all housing expenses).
Now, add in taxes (figure 6,000/yr or 500/mo), and insurance (lets just call it 200/mo, as this has already made its point):
Monthly housing costs: $2,912.24
Take home pay: $4,261.16
4,261.16 - 2,912.24 = 1348.92
That leaves you with $1,348.00 per month living expenses. I don’t think so.
Calculators used:
http://mail.uis.net/mortgage_calculator.php
http://www.paycheckcity.com/copaycycle/netpaycalculator.asp
Feel free to check my numbers.
Not to be a DINK… Wait a sec I am (Dual Income No Kids) your income calculations are incorrect if this is a salaried borrower, reason is as a result of timing of the pay periods… Standard calculation UW is as following
Gross Annual Salary/52 times 4 gives a gross of 5,384.62
Not being a troll as I have been reading this blog off and on for awhile and I am a proud renter to boot however I wanted to take you up on your feel free comment.
That being said at 50% back end DTI that would leave an FB with 2692.31 in total debt service (including proposed PITI) for qualifying… bottomline if the guy didnt have any other debts he still couldnt afford PB much less any of the other median prices on either coast of Florida… tax and insurance increases anyone??
just my 2 cents
Might be that Fink meant $70K is average annual household income, which would obviate DINK as a factor.
I suppose it’s a given that the majority of flippers financed with I/Os. Here’s a sobering quote from Bankrate’s article today on loans:
In July, National Mortgage News reported that an unidentified lender took a random sample of 100 stated-income loans, looked at the borrowers’ tax returns and discovered that 90 of the borrowers had lied. Thirty exaggerated their incomes by between 5 percent and 49 percent, and 60 borrowers had puffed up their incomes by 50 percent or more. Just 10 told the truth. The lender didn’t say how many of these stated-income loans were option ARMs.
Bottom line: If you lied about your income, you’re more likely to find that you don’t earn enough to pay your debts.
OMG…wow!
you can find more about this at MBARL.org
Bottom line: If you lied about your income, you’re more likely to find that you don’t earn enough to pay your debts.
Liar, liar, pants on fire! Hanging on the telephone wire!
a summary related to hov,bzh and kbh
http://www.thestreet.com/_tscfoc/newsanalysis/homebuildersconstruction/10307674.html
hard to believe that the homebuilderindex is up 2,4% and hov after a lousy call is up over 6%.
they refuse to say if they will be cashflow positive.
obviously good news…….
I love watching thoses flipper shows on cable. The newest ones are funny as all hell cause @ the end they get burned so bad after doing all that work.. The newest one which is called Million dollar listing is also enjoyable. I like seeing ethical realtors back stab each other plus the seller and buyer.
Million Dollar Listing is the best show on TV, period. There is nothing better than seeing the dollar signs in those realtors’ eyes, and then watching their dreams get dashed when all their hard work (about 10 hours sitting at open houses and shuffling paper around) is for naught as the deal falls through.
Lereah : ‘Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory.’”
Strange… You would think he would be blabbering the already cliche “sellers need to be more realistic” line if he were trying to revive a dying market. Instead, his statement seems to promote the “standoff” between buyers and sellers by assuring sellers that any price dip will be temporary.
Could be he’s trying to scare up the few remaining GF’s (buy now or forever be locked out), but at this point how many GF’s can be left?
I think Lereah is introducing the new cliche realtor mantra they will repeat ad nauseum to potential buyers: “The dip is temporary. It’s a great buying opportunity”. Rinse and repeat all the way down.
Jon
Not new, just hasn’t been used for about 10 years.
Not so strange, really. There’s a limit to the number of times they can get away with saying, “Real estate is headed up” and then have it fall again. This way he gets to say, “We predicted this ‘temporary softening’ of the market. So that means we’ll be right this time and things will head back into the stratosphere.”
I’m thinking maybe we’re at a point where there aren’t too many GFs left, but there might be a couple in his price range, since they don’t have to worry as much about losing some.
Still, interesting to see him *not* trying to revive a dying market. He’s likely got different motivations than a realtor, who needs a commission to eat! And he has lots of people who bought houses with the understanding that prices never go down who might be pissed at any talk about getting ‘realistic’.
Interesting take.
There is one small area we keep our eye on, for a bargain (which just means 2009’s rational price). We’ve told our buyer’s agent that we are waiting for offers from the sellers of the few places that got our attention. Not sure that it has fully sunk in, yet, but it will sooner or later. “Entertaining offers” as a buyer soon will not be any sort of joke at all, much less an absurdity.
skip the agent and go door to door- I’ve done that and made good deals-
07 and maybe even sweeter in 08. Sellers want to avoid the process and BS too
Unfortunately, it is out-of-state. Local, I’d contact direct.
“‘The shift we’ve seen lately results from psychological factors with buyers on the sidelines trying to time the market,’ NAR President Thomas Stevens said in explaining the sharp shift in the group’s forecast.”
substitute “psychological factors with buyers” for “potential buyers with common sense”
- we’re just waiting until the market makes more sense. We’re waiting until prices make sense - as David Lereah put it - “…home prices typically appreciate at the rate of inflation, plus one or two percentage points.”
We’re not trying to time the market and get rich like so many of the flippers in the last couple of years. We simple want to own a mortgage for a nice place to live with a fixed mortgage rate to avoid our rent going up every year. Our rent went up 10% this year to in OC, CA.
remember these gems from mr. toll?
“New York and Washington and Phoenix and San Fran and L.A. and Las Vegas and Naples and Boca” - were about to slow down painfully. “Investors will get creamed, and they’ll get out of the deals,” he said, noting that a subsequent recovery would take anywhere from 3 to 10 months. But beyond that - a catastrophic crash? “Why can’t real estate just have a boom like every other industry?” Toll asked in complaint. “Why do we have to have a bubble and then a pop?”
…
The company expects to grow by 20 percent for the next two years and then will strive for 15 percent annually after that. Those estimates suggest that the company’s expected production of around 8,600 houses this year will expand to at least 15,000 houses by 2010. Individual Toll developments now range in size from a few dozen to 3,000 houses.
…
In the past couple of years, Toll and his deputies have begun analyzing European housing data to see if they hold any lessons for a maturing American housing market. Toll has been talking up the research to stock analysts and the financial press for the past year. His conclusions carry a whiff of new-paradigm thinking, but he nevertheless seems convinced that Europe’s present-day reality is America’s destiny. I asked Toll what our children - my kids are both under 8, I told him - would be paying when they’re ready to buy. “They’re going to live with us until they’re 40,” Toll said matter-of-factly. “And when they have their second kid, then we’ll finally kick them out and make them pay for the house that we paid for. And that house will cost them 45 to 50 percent of their income.”
I grew alarmed. Was he kidding? He assured me he was not. “It’s all just logic,” Toll said. “In Britain you pay seven times your annual income for a home; in the U.S. you pay three and a half.” The British get 330 square feet, per person, in their homes; in the U.S., we get 750 square feet. Not only does Toll say he believes the next generation of buyers will be paying twice as much of their annual incomes; in terms of space, he also seems to think they’re going to get only half as much. “And that average, million-dollar insane home in the burbs? It’s going to be $4 million.”
Chasing Ground
vs. my latest toll comment saved.
“‘It appears that the current housing slowdown is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,’ said CEO Robert Toll. ‘Instead, it seems to be the result of an oversupply of inventory and a decline in confidence: Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction.’”
“‘On certain land deals that no longer work due to today’s weaker market conditions and slower sales paces, we are willing to let options expire if we are unable to renegotiate the land purchase,’ Toll said. ‘We have seen an increase in our cancellation rates in a number of markets, including Orlando, Northern California, Palm Springs, Las Vegas, and Phoenix.’”
http://www.thestreet.com/_googlen/newsanalysis/retail/10302574.html?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA
There is a higher probability of unrest in the street, than the scenario Toll describes.
Toll had a perfectly understandable vested interest –the bottom-line of his business — in making such outrageous claims. The person I fault there is the journalist, for not call Toll on his sh*t. And I blame the journalist’s editor, for not saying to the journalist after reading the article: “Get Toll on the phone, and call him on his sh*t.” As it stands, the NYT just looks painfully gullible.
The NAR concedes flippers will get burned. They will get burned first. Homeowners with exotic mortages and unaffordable HELOCs will be burned second. Those who bought near the peak and are forced to sell for the usual reasons — job loss, move or divorce — will get burned third.
Those who bought before the bubble, or who buy afterward, will not get burned.
For NAR to even concede a temporary fall in home prices is significant. A paradigm shift.
NAR has floated theory after theory to not face the facts on the current overpriced market. There is no way to hide these numbers any longer! To me, this means that the numbers must be truly, truly bad—with more to come.
Shocking.
“Lereah said home prices typically appreciate at the rate of inflation, plus one or two percentage points
I don’t know if that’s true. My parents have lived in the same home on Long Island for the past 41 years.
I just punched in the price they paid, and caculated the increase based on the average inflation rate over that period (from InflationData.com — the 70s were murder!)
According to my math, to keep up with inflation, the house would have gone from 27,000 when purchased to 235,000 today.
According to “Zillow” (probably high!) the house is “worth” 350K. Let’s discount that 6% to account for transaction cost. That leaves us with 329.
329-235 leaves us with 94K “Profit”.
Now, if the cost of taxes and maintanence haven’t exceeded 2292 a year (94K / 41), then they may have “beat inflation.”
Let’s face it, HOUSES over the long term track inflation. They simply can’t do anything else.
Sure some people will make a quick buck from a “greater fool” but that’s good for some risk-taking speculators. It’s not something to base an economy on.
(And if you choose to be a risk-taking speculator and lose your bet, please don’t come CRYING! You gambled and lost. Take it like an adult.)
“Other” Robert,
Have your parents kept the house in original condition? 1965 so they had 60amp electrical without groundwire. No cableand a single phone outlet. They never insulated? Never replaced the windows? Do they still have a 45% efficient oil heater?
Take all those improvements and recalculate.
I think that was my point. A lot of $$ went in to just making the house “keep up with inflation” not to mention getting ahead. (And I added an ending initial to my name so we can tell each other apart.)
…though they didn’t get rid of their rotary wall phone in the kitchen until about a year ago! I sold it on eBay.
Robert S.
The email you provided automatically returned my message to you. Please stick with Robert S., and don’t use multiple screen names. The software rejects it.
Don’t you get your (equivalent) “rent” back?
If they’ve lived in the house for 41 years, then ZIllow is probably too low (of course, whatever price Zillow gives is probably what the home would sell for in a year or two).
Another small problem with Tolls thoughts on what the future generation will be paying for their “Smaller” McMansions is that In the uk They have approximately 250.18 People Per SQ Km of total land area where as in the us we have 30.71 People Per Sq km now this isnt the only reason I see a problem with his theory just one of the many holes
St. Joe quits homebulding!
http://biz.yahoo.com/ap/060907/st_joe_homebuilding.html?.v=1
wow
nice find
Even the patron saint which i am presuming they took their name from cant save them….
So why on God’s green earth did Hovnavian go up 6% today — and most of the other builders show increases?
Value investors buying the dips? Or dips catching themselves falling knives?
read:
http://bigpicture.typepad.com/comments/2006/09/home_builders.html#comments
Attn MSM, Floppers, NAR, please note that ‘exiting the market’ doesn’t actually happen until you sell your house, NOT when you enlist the much needed services of a highly qualified and ethical realtor.
There is an old Army Airborne Jump School song about a trooper that had a rather HARD landing when his parachute FAILED called ” BLOOD ON THE RISERS”. It was sung to “Glory, Glory Hallelujah” I feel that the Risks that “CHERRY” Flippers take are no less than New paratroopers and so I took the liberty of butchering it to fit the occassion. Like my old Pl. Sgt. Willie McGruder tell me, ” If they don’t say NO!..Then IT’s a YES !”
BLOOD ON THE HUMMER
“Is everybody happy?”, cried the Banker looking up,
Our Hero feebly answered “yes,” and then they stood him up,
He leaped right into the House, his common sense unhooked,
HE AIN’T GONNA FLIP NO MORE!
(CHORUS)
He counted wrong, he counted long, he waited for the bucks,
He felt the need, he felt the greed and waited for his gain,
He jerked his HELOC, spenting all those bills and bought himself new trucks,
HE AIN’T GONNA FLIP NO MORE!
(CHORUS)
The holding costs wrapped around his neck, the creditors at his door,
The credit lines were snarled and played, around his silly plan,
The happy home became his shroud, it hurdled him to the floor,
HE AIN”T GONNA FLIP NO MORE !
(CHORUS)
The days he lived and loved and laughed kept running through his mind,
He thought about the Job back home, the one he left behind,
He thought about Suzanne and wondered what she would find,
HE AIN’T GONNA FLIP NO MORE !
(CHORUS)
The Repo-man was on the spot, the Cops were running wild,
The bubbleheads jumped and screamed with glee, his neighbors merely smiled,
For it had been a week or more since last another “Flipper” died,
HE AIN’T GONNA FLIP NO MORE !
(CHORUS)
He’d hit the ground, the sound was “SPLATT”, Flipper blood went spurting high,
David Lereah was heard to say, “A Helluva way to die”,
He lay there rolling ’round next to the assests in his gore,
HE AIN”T GONNA FLIP NO MORE !
(CHORUS)
There was blood upon the Hummer, there were brains upon the door,
Intestines were a’dangling his investment working boots,
They picked him up still clinging to his prize and still he wanted more,
HE AIN”T GONNA FLIP NO MORE !
(CHORUS)
GORY, GORY, WHAT A HELLUVA OF A WAY TO DIE,
GORY, GORY, WHAT A HELLUVA OF A WAY TO DIE,
HE AIN’T GONNA FLIP NO MORE!
GORY, GORY, WHAT A HELLUVA OF A WAY TO DIE
Hilarious!
Wonderful song! This entire website makes me so very thankful that I was raised by Depression-Era parents! Yeah, it kind of blew during my teen years - but damn am I grateful now. The American Dream has been betrayed - the sheeple simply SHOP. SPAWN. & DIE. You want proof, walk through a cemetery some pretty fall day and see all the tombstones - they had the latest and greatest cars, homes, clothes etc. Where did it get them? Worm feast! Dead, dead, deadsky!
On the flipside, a nice tanking of the market is about the best thing that coulda happened for those out of college and in their later twenties…who may be purchasing homes in the next five years but would never have been able to buy a home had values kept appreciating disproportionately to incomes…