‘There Might Be A Better Deal Later’
The Gazette.net reports from Maryland. “The financial incentives that homebuilders are dangling before suddenly reluctant buyers may get even more enticing as the slumping home sales market crawls to 2007. ‘Builders will find every conceivable way to boost their sales’ to unload inventories during the slowdown, said Gopal Ahluwalia, for the National Association of Home Builders.”
“Some builders in Maryland are offering luxury cars, said John Kortecamp, CEO of the Maryland Home Builders Association. Such gifts, while they may seem significant to buyers, are minor expenses to builders charging $1 million or more for a house, Kortecamp said.”
“The program eases the concerns of gun-shy buyers, said John Lavery of Woodmore North homes. ‘We found that the concern among buyers was that there might be a better deal later,’ Lavery said.”
“Incentives are also being offered to condominium buyers. Builders lost ’significant’ confidence in that market in the second quarter, according to Ann Marie Moriarty, a spokeswoman for the association. ‘Responding to a set of special questions, 82 percent of condo developers said they had noticed buyer resistance to current prices and, of those, more than one-fourth reported that they have reduced prices,’ she wrote.”
“Ahluwalia said, ‘Lots of investors came into the marketplace and pushed the prices up the past few years and now prices are coming down to where they should be maybe.’”
The Baltimore Sun. “Greg Siciliano first put his Ocean City bayside condo on the market for $699,000 in May. By August, he had dropped the price of the two-year-old, two-story condo to $550,000, and had thrown into the package two WaveRunners and the pier out back. ‘I’m just a little discouraged with the lack of interest,’ said Siciliano.”
“He and other sellers have found their properties stuck in a glut of condos and townhouses that have flooded the market. Siciliano’s condo is one of nearly 1,700 condos for sale in Ocean City, and there is nearly twice as much inventory as in July 2005. In the first half of this year, 528 condos were sold in Ocean City, 42 percent fewer than in the first half of last year.”
“Linda Moran, a real estate agent in Ocean City, said she started noticing the slowdown in October. ‘It progressively has gotten worse, with more and more people putting properties on the market and less and less buyers,’ Moran said. ‘We’re at the saturation point of listings at this point, but they’re not selling.’”
From the Connection. “Statistics show the exurbs have been hardest hit by the region’s cooling housing market. ‘The further out you go, the more significant the decline in contract activity is,’ said David Howell, broker in McLean.”
“In Washington, D.C., home contract activity fell 7 percent in July compared to a year ago. In Montgomery County, Md., activity slowed 24 percent. In Arlington County, activity slowed 23 percent. In the City of Alexandria, activity fell 28 percent. For Fairfax County, activity was cut by more than a third. In Loudoun County, contract activity slowed more than 40 percent. In Prince William County, activity slowed nearly 50 percent compared to last year.”
“Ernie Miller, a broker in Springfield, said the market decline started from the outside and worked its way inward. ‘I’ve been doing this for 34 years, and when it slows down, we see slowing from outlying regions, and then it starts to creep in,’ said Miller.”
“He thinks the real estate boom of the past five years pushed prices up too fast. When homes were selling at the peak of the market, buyers overreached, taking out adjustable mortgage loans and buying at the top of their ability. In addition, speculators entered the market hoping to profit off higher home appreciation rates.”
“Last month, inventory was more than double what it was the same time last year. Together the two trends have put buyers in the front seat, but many are being patient. ‘Some [buyers] are just waiting for all this to settle down,’ said Miller. According to MRIS, home appreciation in July dropped 4 percent in Northern Virginia compared to last year.”
“‘Some people are forced to put their homes on the market,’ said Lawrence Yun, senior economist with the National Association of Realtors, adding that many sellers may no longer be able to cover their mortgages after being squeezed by adjustable interest rate loans that had extremely low introductory rates. ‘They may not be able to service these debts,’ said Yun.”
“Several realtors have noticed the same thing. ‘All of a sudden interest rates have jumped up and it’s just taking its toll. There’s nothing left for groceries and so on,’ said Miller. ‘We’re seeing foreclosures now like you can’t believe.’”
‘Bubble was a word that came up often when resort business leaders got an end-of-the-summer update on the area real estate market this week as the raw numbers appear to indicate supply is now outpacing demand. The most recent data available from August 2006 shows there are nearly 1,700 condominiums for sale in Ocean City alone compared to just over 900 at the same time last year, representing an increase of just over 84 percent. 709 contracts for Ocean City condominiums have been written through August of this year compared to 1,300 during the same time last year, representing a drop-off of 45 percent.’
‘The 1,700 condominiums currently listed for sale in Ocean City do not include all of the development projects underway or in the planning pipeline. For example, the resort’s Planning Commission on Wednesday approved site plans for the redevelopment of the old Ocean Plaza Mall property on 94th Street, which will add 380-plus units.’
‘Economic growth in the Washington area is slowing as the federal government begins to temper spending on local goods and services, according to a report released yesterday by George Mason University. The era of heady growth, fueled by billions of dollars in federal security spending, may be on the wane, said Stephen S. Fuller, an economist and a director of the GMU center.’
‘Homeland Security, for example, has basically bought what it needs to do their job, so spending by them has been moderated,’ he said. ‘There is nothing else to pick up the pace.’ That, in turn, could affect the housing market, Fuller said. ‘The salary increases are getting smaller each year,’ said Alan Chvotkin, of the Professional Services Council of Arlington, which represents companies that provide services for the federal government. ‘There are more companies chasing fewer dollars. That translates into bidding wars, which usually means lower prices.’
I been taking my family to Ocean City for years. This is not a place that you would think paying anything over 500k. More like in 200’s for 2 bedroom in Ocean front condo. Ocean City is not Hawaii and will never be one. Expect to see prices go back to normal which is calucated by rental income. Place like Ocean City realestate prices always been dictated by rental income.
More like in 200’s for 2 bedroom in Ocean front condo.
The coastal market will probably revert to cash money, aka $50/$100k once the momentum picks up for casualty insurance providers to stop underwriting policies for places which can get trashed via a Cat III ‘cane.
“Siciliano, the owner of the 94th Street Ocean City condo, blames a surge in construction of condos and townhouses in the resort town and in the vicinity, which he says makes it especially tough for sellers of existing homes. About 600 of the 1,700 condos on sale in Ocean City are new construction.”
We were just in Ocean City too. There’s too much building in the area. It’s causing more crowding and it’s changing the charm of the whole place. Who needs an upscale Ocean City? Better yet, who’s going to pay the $600,000 + that all these new developments are charging?
Amen sister! We went to OCMD this year - for the last time. 600K for a condo there? They’ll be gettiing painfully repriced in the coming year.
dd
August 2006 Northern Virginia Market Reports are out.
http://www.nvar.com/market/marketstats/aug06/index.html
I’ve found that the NVAR numbers are very questionable in a few respects -
- They often change last year’s numbers on this year’s reports. For instance the August report show’s last year’s August median as 515k for Loudoun county, however last August’s report shows the median as 495k
- Normally the NVAR numbers closely match the MRIS numbers, which makes sense since the NVAR claims to get their data from the MRIS, except in their median numbers - for whatever reason they are often different by sometimes 10’s of thousands. However the difference is random - sometimes its greater for one and sometimes for the other, and when averaged over a few months the values are generally really close. [b]However[/b] since last summer, the median values (averaged over a few months) have been slowly diverging - with the NVAR numbers slowly increasing, and the MRIS numbers slowly decreasing. Over the last few months NVAR shows the median for Loudoun to be 515k consistently, while MRIS shows the median to be around 470-480k. I smell a rat. I think NVAR is fudging their numbers to make it appear that home values are still increasing slightly, when in reality they’ve been declining slightly - a big difference when you’re trying to market homes.
A NEW post is up!
Have a great weekend…
SoCalMtgGuy
http://www.housingbubblecasualty.com
You have read the stories about the appraisers that are getting together because they don’t like the pressure put on them to ‘hit values’. That pressure can lead some people to find that slippery slope that is talked about above. If you do the right thing, you get less business. You hit a number here and there, and you become a ‘go to’ appraiser. Then before you know it, rounding up a few grand has turned into getting values tens of thousands of dollars higher.
Hey, hey, hey…Sums it all in a nutshell.
Good link SoCMG
I am late in finding your post, but I’m glad I did. Great example of why some seemingly affordable mortgages can be just plain unaffordable when you factor in the additional costs of owning.
Interesting comments from the UK.
http://www.dailyreckoning.co.uk/article/080920061.html
* 23 percent of all American houses bought last year were for investment and in Miami, one speculation hot spot, 70% of condo buyers are investors/speculators.
* Last year, 42 percent of first-time buyers – and 25 percent of all buyers – put no money down.
* In California, 60 percent of all new mortgages this year are interest-only or negative-amortization.
It’s going to be a rough ride to the bottom!
Apparently Homeland Security needed vast tracts of brand new McMansions and condos, judging from the surrounding DC counties.
The people in trouble should have never been approved for loans in the first place. They got sucked in by the low teaser rate and the perception that renting is making a landlord rich and your throwing money away.. I just checked out fixed rates and to my surprise they are low..
1)30 year fixed 0 Points is @ 6%
2)15 year fixed 0 Points is @ 5.5%
These F.B. can’t even refi cause they cant afford these rates… The loan originators should be taken out back and shot.
should skippy the not so honest appraiser get whacked along with the originator?
Fookin’ ay right he should…These MF’s have a made a fortune.
It usually takes about 6/8 hours to do a properly researched and analyzed residential report. In a stellar week, in my heyday I might be able to get out 8 reports a week @ $325 per.
Then I used to go to meeting and hear about guys doin’ 15/20 or 3 a day. GED diploma’s holder’s making a cool quarter mil right of the gate…
Anything wrong with this picture?
As I have done a few reviews in my time, most of these hacks are so goddamn illiterate, they can’t even write a cohesive paragraph.
The content of their work is nothin more
than canned computer hash, they’ve probably lifted from the reports from the previous honest guy who quit because he would acquiese to the pressure to hit a pre-determined number.
But it’s the lender’s who hired these schmucks…All should twist in the wind at the end of a hangman’s rope.
it doesn’t work that way; in my country a 30-year fixed is around 4.5%, 15-year fixed around 4%; because of HMD that means effectively about 2%. But this simply gets translated into higher home prices / valuations, so many people still need to lie to get the loan. And of course, in the current lending climate most people choose the most expensive home they can get which is usually way above their head. As long as there is crazy lending, fundamentals like interest rates or whatever don’t matter.
This is high ! The rates are still low at 6%. The price is too high and fundamentals to income is so far out of wack something has to drop. I dont think it will be the rates.
Trying to close that tag!
Realtor Group Cuts Sales Forecast
It also predicts prices will temporarily drop below year-ago levels but end 2006 up slightly
http://tinyurl.com/jsjl4
Yeah, right — this time is different then the evidence in David Lereah’s own powerpoint presentation, which showed that it took a minimum of four years for the market to tank in previous housing busts.
Gotta love those Realtors
We continually hear of ‘Sales Activity Drop’.
- At what point will the real truth of ‘Sales Price Drop’ become the headline?
if sales activity drops alot, the median sales price might increase because of a huge shift in the type of properties that get sold …
absolutely. buyers approach the mkt with a fixed expectation of what they will spend. they are now finding they can quite a bit more for their money than 1 year ago. but that bigger bang for buyer’s buck doesn’t show in the median price at all.
… or they may in fact be willing to pay 10K more than expected to obtain a perceived increased value of 100K over 2005 price/value.
Which is why the S&P/CS indices are much better indications of valuation that median or average selling price… At least IMHO.
Jon
“We continually hear of ‘Sales Activity Drop’.
- At what point will the real truth of ‘Sales Price Drop’ become the headline?”
I hear that. This is honestly moving painfully slow as far as I am concerned. I don’t have any plans to purchase in the near future, but still, all I see is a market flooded with overpriced POS’s selling for near 2005 prices if at all. I want to start seeing asking prices that are far less than 2005 which is not even the case yet. There are tons of properties for sale right now, most of which, if sold near the asking price, would put hundreds of thousands of dollars into the sellers pockets. This is not a market crash. We have so far to go. We have not seen anything except a flooded market rife with greed and people complaining that their POS has not sold within a few weeks of listing, thus cramping their greedy lifestyles.
“The program eases the concerns of gun-shy buyers, said John Lavery of Woodmore North homes. ‘We found that the concern among buyers was that there might be a better deal later,’ Lavery said.”
Evidence like this of deflationary psychology in the housing market seems rampant in the MSM. The Fed, which does not much care for the prospect of deflation, must be sweating bullets…
The stock market has limits on the rise in prices - but when it drops there can be no limit, all the way to zero.
Although housing will not drop to zero, it can and will retreat mightily.
Need we repeat: in stocks, you get a “margin call” when your equity is less than 50%. Your stock is then immediately sold if you can’t pay up. In the illiquid housing market, you may start with 20% or even 0% equity and quickly own much less than nothing. Remember the bankruptcy reform? You will be a slave forever.
The homebuilders have opened on yet another bizarre price movement in the wake of Lennar’s announcement — what I call “share price bungey jumping.”
Krikey! I can hardly wait until somebody really figures this out and explains it to the masses.
Am I the only one realizing that no matter how many incentives you throw a buyer on an overpriced property, its still an overpriced property?
Just keep layering the lipstick on that pig…and maybe…
About these incentives… if a builder gives you a new car for buying their house, isn’t there a tax consequence? IOW, the IRS will equate this with income. So the retail value of a $30,000 car will be treated as income to the new homeowner and taxed accordingly.
Anyone know for sure?
I am not a tax lawyer, so take the following with large grains of NaCl, but I would think that it’s pretty clear that this is a car purchase, not a car gift, so it wouldn’t be taxable when received. However, when you sell the house, the basis should be reduced by the value of the car, so that you would have a higher capital gains tax (if you have big enough capital gains) when you sold the house. How IRS will know about the non-housing incentives is beyond me, but I think that’s what honest tax accounting (can you say “oxymoron”? I knew you could) requires.
mort_fin,
You got it exactly right. I tried to explain this in a thread a few months ago, but your way was much more eloquent. This is a purchase of a car, rolled into the purchase of a home.
No, you’re buying the “free” car when you buy the house. The interest on your “car payment” will be tax deductable. And you will pay for the car, every month, for thirty years.
Wow! Thirty years of payments on a car! Where do I sign up? I need to buy a car now before I’m priced out forever!
I predict in the year 2012 Supreme Court will be ruling on a number of housing issues .
I predict in future IRS will be clarifying in writing how car gift incentive is to be treated tax wise .
The bubble is a good thing in one way: Stupid people are being removed from being financially relevant. Stupid money skews markets, like having a n00b blackjack player sitting at your table. They make a lot of wrong decisions that mess up the logical predictability, the sanity, of things.
When the stupid people are all dirt poor because they were caught in the real-estate net like fish are harvested in the sea, sanity will return.
Wally - good one - “stupid people . . . caught in the real estate net like fish are harvested in the sea” - I like the picture
What’s happening right now will tell the story if the builder stocks implode, or if they market their way into more money buy screwing even more unsuspecting buyers who think they are getting a deal with these miniscule incentives. My guess is that it will hit them in the end all the same, because there is little way to presell the pipeline probably at this point, and even if they work off some inventory now at discounted prices (which seem heavy to potential FBs, but the builders know they still make a killing at these inflated&discounted prices) they will get hit later. You can see why there marketing operations are now at full throttle. I just feel sorry for anyone who falls for this. Every person who is looking at the homebuilder promo adds and is thinking of buying, should instantly go and short that sellers stock and do themself a favor.
you gotta be shittin’ me. $699K condos in baltimore? i used to live in virginia so i’m familiar with the area. that’s shocking. hell, i’ll be surprised if those prices don’t ultimately end up around $375K. jesus, how things have changed.
They are running out (if not totally out of) fools.
Buying any “investment” based on the price appreciation of the recent past, without regard to the fundamentals that rationally support the value of the investment, is a prescription for financial disaster.
If the market you are in is driven by this dynamic you are totally at the mercy of finding the “greater fool” when you chose to exit. But as credit standards tighten, and supply overhang lingers (because, at the margin, many people and banks have to get out) there simply cannot be an increase in buyers. Fewer “natural” buyers, no fools and no appreciation history to create “urgency” means personal real estate will not be an “investment” (other than the growth in equity as you pay down your mortgage) for a decade or more.
Until prices fall back in line with equilibrium affordibility you won’t be able to find but a few brave, stupid, or very rich souls who will take the plunge because even most fools know when NOT to get into a market (when prices are clearly falling).
What weve seen is the inverse of this fact. Take a rapidly appreciating market, add easy money, unsophisticated “investors” and you bake of cake of “frenzy”….or bubble, everytime. Historically, in the stock market, prices have fallen as much as 90% post bubble. Unlike the stock market, however, real estate is both illiquid and an essential, personal, commodity. Prices will fall to an affordable, equilibrium, level. Only this time, I have the feeling that home appreciation (post bubble) will revert to its historic rate; that of some small margin over inflation and in relationship to increases in household income.
This, I submit, will be a good thing. Homes are places to live, build equity and raise a family. That they appreciated mightily in the 80s and 90s due to the growth in duel incomes, inflation, speculation and favorable tax treatment are all factors unlikely to similarly “improve” in the future. While a lot of people on the margin are going to get torched, ultimately, a “quiet” housing market will benefit society tremendously.
Fine up until: “Only this time, I have the feeling that home appreciation (post bubble) will revert to its historic rate; that of some small margin over inflation and in relationship to increases in household income.”
No way! It still sounds just like, “Oh, after the correction in NASDAQ from 5000 to (4000, 3500, whatever) we’ll return to a more normal market with increases of 8-10% a year.”
You “build” equity in a house because it has residual value after a normal mortgage is paid off. It is not a SOURCE of equity. This value is determined not so much by the structure itself but by improvements made to it, the lot, the neighborhood, and the political and economic situation in the town, neighborhood, country, etc.
30 years from now we will all see the myth of housing somehow mysteriously having the ability to just magically appreciate.
Did anybody catch the cancellation rates on these homebuilders? I only spotted one for BZR, a whopping 50%. In the face of this, It’s strange though that their new orders are only down 5%. What’s this all about? Are people just putting down small deposits and still gambling, figuring they will walk again, if prices don’t improve?
One aspect of these giveaways I haven’t seen mentioned is they’re distorting the LTVs. Someone buys a house for $400,000 and get’s $30,000 in giveaways. He borrows enough to pay the $400,000, but what is the value the lender uses to calculate LTV, $400,000 or $370,000? I think it’s a safe bet lenders and brokers are using the higher value.
“He thinks the real estate boom of the past five years pushed prices up too fast.
DUH…
Amazing these random statements of insight and perspective after the fact.
Anybody with half a brain could tell this was all a lender’s scam 2 years into the ride, simply from the divergence from incomes to housing valuation levels.
This is the most irritating part of the whole thing for me. All of a sudden there is no shortage of real estate professionals willing to go on record about how out of control prices/lending got. like they just realized this. Up to recently these guys were tantalizing people with stories of how much equity their last client made on the house down the street. I don’t solely blame any one camp for the run up but it annoys me to hear these guys act like they are just stunned by what’s happening. On top of that they are now attacking the same people they sold the houses to two years ago because they won’t reduce their price and forego the appreciation they led them to believe they would enjoy. Everybody has a right to make a living but there is a decent way to go about it. My real estate agent helped me buy a house in 2004 but she was never a super cheerleader, encouraged me to buy something I could afford and was more than willing to discourage me from buying in a “transistioning” neighborhood (still trapped in transistion) because she thought it was overpriced.
Anyone who buys a house with incentives is making a huge mistake out of the gate. First off, if incentives are being offered, the property is obviously overpriced at where you’re buying it. Secondly, incentives like luxury vehicles are guaranteed depreciating assets. So not only are you guaranteed making a losing investment on your property, the payoff you just took is going to evaporate like water unless you sell it right away and put the money towards principle to head off the land depreciation. Then there’s the whole issue of taxability of said incentive.
Obviously the reason incentives are included is to prevent - on paper - depreciation of the developer’s existing assets. Not to mention the fact that Joe Homebuyer in 2005 just watched his developer de-value his house by 10% or so, which doesn’t make for good PR. But at some point, the incentive game is going to run out of steam, and the next step will be reduced prices with price protection - which does nothing for the guy who bought in ‘05, but may be enough to convince some fence sitters that the water is shallow enough to wade in.
greg’s condo is already 21% off his asking price. imagine if you owned 3 condos in that building or around the area and you read that? he still can’t sell it either!
Buy the house , get the Jaguar, live in house three months, mail house keys to bank, drive away in a three month old car.
Buy three houses ,get three Jaguars,mail keys to bank, sell two cars , pocket cash, drive Jag to open Houses, Buy three house…
Dammit- I closed that tag!
At least it wasn’t bold.