Price Declines ‘Are Not Over’
The Boston Herald reports on the latest numbers. “New figures confirm the Bay State is in the throes of a fierce housing downturn. Data released yesterday show Massachusetts is facing its steepest house-price drop since 1993 amid growing foreclosures and the slowest August market in more than a decade.”
“Market watchers say the latest numbers all point to a housing sector in big trouble. ‘There’s no question the market is in decline,’ said housing economist Karl Case of Wellesley College. ‘Demand has dropped, inventory is building and people’s houses aren’t selling.’”
“Warren Group CEO Tim Warren said prices are dropping because ‘buyers are tasting blood, and they’re starting to get more aggressive (about) pricing.’”
“Employment numbers already show that the construction industry, which played a huge role in propping up the economy during the recent downturn, has lost about 2,500 jobs since the start of the year and since the housing market switched from red-hot to one where sales and prices are both dropping.”
“‘We’re in for some more weakness,’ said John Bitner, economist at Eastern Bank in Boston. The surplus of homes on the market will take months to sell, he noted. One of the concerns is that consumer spending, which recently has relied on homeowners taking out home equity loans to pay for items, could decline if the housing market dips farther into the negative.”
The Boston Globe. “‘Things are not over in terms of the price declines,’ said David Iaia, a senior principal for a Lexington economics consulting firm. He said sellers will feel more pressure this fall to drop their prices. Iaia said the state’s price declines would continue in 2007 and possibly into 2008. ‘I don’t think you’ll get a good sense of the impact until next spring,’ he said.”
“‘Now you’re at the end of the major selling season, and people who’ve had their house on the market all summer and haven’t sold it are getting concerned, so there are probably more price declines coming this fall,’ he said.”
“David Wluka, president of the Massachusetts Association of Realtors, blamed soaring appreciation during the boom for making it difficult or impossible for many first-time buyers to afford a single-family house. Without them, homeowners are unable to sell when they want to trade up.”
“High prices are ‘creating a clog in the system,’ he said. ‘People trying to buy houses can’t buy until they sell houses they own, and unless they price houses they own correctly they’re not going to sell.’”
“‘I also see buyers holding back and waiting for the bottom,’ he said. Buyers ‘need to bargain hard,’ because ‘they’re in a very powerful position.’ Wluka predicted prices could stabilize this fall, if homeowners who aren’t serious enough about selling to reduce their prices take their houses off the market.”
From New Jersey. “North Jersey real estate agents say that with more houses on the market, buyers are negotiating more aggressively, and many sellers have cut their asking prices.”
“‘There have been a lot of price adjustments,’ said Robert Abbott in Ho-Ho-Kus. His office, in fact, is planning a ’sale’ Oct. 15 and 16. Sellers will be asked to lower their prices by 3 percent to 8 percent for two days only, to create a sense of urgency among buyers. The last time the office ran such a promotion was in the mid-1990s, Abbott said.”
“Rosemarie Knick said prices have leveled off over the past year, although homeowners who bought at least three years ago still have healthy gains in their home values. Knick said many sellers want to test the market by starting with a high asking price, just in case a buyer will pay it, but most sellers are willing to cut prices if they must.”
“‘Sellers are pretty realistic once they see the overall market,’ she said.”
The Hartford Courant from Connecticut. “Developers want to scrap their plan for a second condominium building in the shopping, entertainment and housing district because rising construction costs will push the prices of the second set of condos so high that they will take much longer to sell, if they sell at all, in a market that is starting to go soft.”
“Condominium builders across the country are backing out of projects and returning deposits to buyers because of an inability to sell enough units, said Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania. In August, a developer canceled a plan to turn a 12-story building in Hartford owned by the city into a few dozen luxury condominiums.”
“‘It’s the wrong time to be building luxury condos,’ said Robert Wienner, a managing partner with BBS Development.”
For Mass this August:
3.5 home/condo sales for every 1 home begining the foreclosure process
Sept. 2004 it was 11.3
Sept. 2005 it was 6.4
‘Foreclosure filings in Massachusetts rose 72 percent last month as a growing number of homeowners were put in financial distress by the housing market’s sharp downturn. ForeclosuresMass.com said there were 1,812 filings last month against borrowers who were past due, up from 1,055 filings in August 2005. Foreclosures ‘continue to escalate at levels we haven’t seen since the housing crash of the early 1990s,’ said ForeclosureMass.com’s president, Jeremy Shapiro. The August filings bring the total for the year to 11,214, just 279 filings short of the filings made in all of 2005.’
- Iaia said the state’s price declines would continue in 2007 and possibly into 2008. ‘I don’t think you’ll get a good sense of the impact until next spring,’ he said.”
FINALLY …somebody starts to get it. Unfortunately, So Cal is lagging behind the reality curve.
Quote from the real estate creeps in article:
“Sellers will be asked to lower their prices by 3 percent to 8 percent for two days only, to create a sense of urgency among buyers.”
This very kind of gimmick is what created the mess they’re in now. So thats right…. keep on keepin’ on with the same rusty BS.
“Sellers will be asked to lower their prices by 3 percent to 8 percent for two days only, to create a sense of urgency among buyers.”
No, no, no… correction! Sellers will be asked to lower their prices by 30 to 80% for 7.5 months only, to reach the necessary plateau.
- Morons.
This kindas reminds me of the car stereo store chains that where around in the early 1980’s (but now are all history). They would tell you “TODAY ONLY the price is $ xxx.” So if you try to buy it the next day or the day after the price goes up by 25%? This type of selling is targeted more to teen agers and twenty somethings, not mature adults. Or am I missing something?
Such claims for readily-replaceable inventory do seem a bit immature, but for a house, where there is one seller and (potentially) many buyers, such a price reduction can help the seller. As long as you can instill a sense into the potential buyers that, “Yes, we’ve hit a soft spot, but prices might start skyrocketing again next month,” they might feel they need to get in now, with this little decline, before the other buyer snatches up the “deal.”
Personally, I’m more patient. Having been watching this bubble in SoCal closely since early 2005, I know we aren’t going to see price appreciations anytime soon!
And if the house doesn’t sell, you’re going to raise the price back up?
That’s a great strategy! What a stupid idea. As a buyer, I’ll just wait for you to lower more.
It’s called “Hohokus Pocus!” Sorry…couldn’t resist.
You know, this kind of thing is good from the standpoint of it wrings and flushes the remaining idiots from the market. We don’t need ‘em. Let economic Darwinism do its work.
The trouble is that the politicians will not let “economic Darwinism” run its course. To court votes they will appeal to debtors and the rest of us will get stuck footing the bill. They like to say we live in a “free market” - but don’t kid yourself - we don’t. It is only a free market when it works for them - otherwise they run and hide behind appeals for shared sacrifice and other patriotic/historic nonsense.
It reads like these sellers are blindly searching down below for the market’s bottom. If their homes do not sell using the 2 day discount gimmick, they will incrementally lower the price point 3 to 8 percent and repeat the process.
last Friday I looked at some condos. The next day I got an e-mail about a price reduction on one of them: 199k reduced to 196k.
(four other condos are for sale in that community, so I guess the owner is feeling the heat)
not hot enough yet I imagine
From lowellsun.com:
‘Below Assessed’
By TOM SPOTH, Sun Staff
“We (RE agents) find ourselves in the unenviable position of using the sales from 2005 to show the market going up, knowing full well the calendar 2006 market is a softening one,” he said.
LeMay said she will try to assess Lowell homes at roughly 95 percent of market value, to reflect current pricing trends.
“We’d rather have them assessed lower than the sale price,” she said. “People just don’t think it’s fair they’re getting assessed for more than they paid for. That does not go over well with them.”
Alas, HB Babylon!
BTW, I went to some Capitol Hill open houses on Sunday.
Good to see some more realistic assessments from the east coast. My daughter and her husband live in Boston and both work in the medical field (as a pschoterapist and an MD). My son-in-law will be finishing his residency in two more years and they will decide to stay in Boston or move elsewhere. At that point they may be looking for a house–IMO–their timing looks good/lucky.
As long as they ignore the many false bottoms over the next couple of years, they’ll do fine.
What will all the tax-happy east coast governments do when assessed rates fall? They’ve already raised every tax that can be raised.
When the valuations decrease then they will simply increase the rates, no matter how much these rates have already been increased. These governments have bloated bureaucracies with totally worthless people and this must and will be paid for.
It’s a good thing that the so-called “stand-off” between buyers and sellers survived the selling season intact, so that there’s no momentum going into the slow months.
This should lead to growing tension and growing inventory over the winter, and by next spring a “sell no matter what” psychology could be in place among sellers.
Assuming buyers are still recalcitrant come March (which they will be unless the economy somehow takes a turn for the better — highly doubtful), we could see something approaching “panic” in the housing markets in ‘07.
I hope this is what happens, because the alternative, a decade-long dribbling down of prices, is the kind of correction that helps none of us in the current generation.
If I owned 2 homes, old and new primary homes that is, I’d be feeling pretty darn desperate by next spring.
“I’d be feeling pretty darn desperate by next spring”
I’d be feeling pretty darn desperate *now*. I’d be feeling pretty darn in foreclosure ny next spring. Many of these people are trading UP to more expensive houses, and are using bridge loans, etc.
I have no compassion for a FB who is trading up from a 1,600 sfh to a 2,900 sfh. I hope they all screwed themselves so bad that they will feel some pain for a long, long, time.
Agreed LT. A slow correction will do the most damage to the economy. We need ’shock therapy’ to deflate this bubble and get the market moving again.
Why does nearly every economist on CNBC say that the economy will be fine since consumer spending will pick up now that gas prices have gone down but don’t mention the impact of declining home prices on consumer spending? Do they really believe that saving $5 on a tank of gas will outweigh the loss of thousands of dollars in home prices? Are homeowners that unrational? Plus, gas has only been declining for a few weeks, who knows, the next few weeks may see an increase.
That’s a very good point, Observer. I’m so tired of being lied to by cheerleaders.
CNBC has got to be in a league unto themselves. These people are seriously delusional, shared by the headline grabbing public. Leading the way is Larry Kudlow, aka Cocaine Larry who will always tell the world how great things are, even when challenged with the glaringly obvious trends that indicate the forecast is quite gloomy.
I note the August housing numbers didn’t rate a mention on Kudlow’s blog yesterday.
Good God… Kudlow has a blog? You mean the traffic-less http://www.moneypolitic.net?
Errrr, no (unless that maps to
http://www.kudlowsmoneypolitics.blogspot.com )
They seem to be the Fox or “Faux” news equal as a financial channel. Could they possibly be influenced by their corporate sponsers as well? Nah! just fair and balanced.
For years I was amazed at how the voodoo/supply side cheerleaders were able to have so many bright, sensible people on their side. It finally dawned on me that they were in fact all profiting from the smoke and mirrors they were offloading on the general public.
Needless to say, I haven’t been all that impressed by them anymore.
huggy
I watch FOX news continuously and I have to tell you that I have heard at least as many if not more opinions warning about a housing market bubble than cheerleading. Especially on the four financial shows on Saturday morning.
Do they really believe that saving $5 on a tank of gas will outweigh the loss of thousands of dollars in home prices?
Realistically, the only ones who will actually lose thousands of dollars in home prices are those who have to sell. And of those selling, the only ones who will lose are those who bought during the bubble - or have tapped their equity dry.
“or have tapped their equity dry”
I would hazard a guess that this is more people than you think.
Your guess would be correct. Prudent homeowners are the new minority.
What’s more, I read recently that although baby boomers are quickly approaching retirement age, home-owner equity is at an all time low; the opposite should be true, no?
And yet it’s the baby boomers moving and buying retirement houses that will “save us”…in ALL of the housing markets.
CNBC always been cheerlearder for any business that brings in ad revenue. I wouldn’t listen any of their guest or experts appearing in the show. They were one time biggest tech cheerleader leading up to tech bust.
Right on SC3. But somehow, Creepy Kudlow garners much undeserved credibility from the general public. To further that, he excuses and defends those responsible for the last 25 years of voodoo economics. On a brighter note, I hear fewer and fewer apologies for “supply side” economics lately. It’s payback time and the supply side cheerleaders have disappeared with the exception of the few delusional idealogues.
I gave up on the MSM for any good unbiased news about anything years ago. My TV is only used for classic movies on TCM and NY Yankees games on ESPN, and the only mag subscription I get is Consumer’s Reports
because Joe 6 pack believes in the multiplier theory
$ 50 per month equals $ 20k in spendable equity ona 0 down never pay i/o basis
Thank God for the Internet. If we had to rely on the TV media for the truth we’d be hosed. Fortunately, with so many no-spin economic websites, a thinking head can disseminate fact from fiction. This is one reason why I think the Fed/Govt manipulations of the past will fail to decive in the future. We’re on to the “game” now.
There was a guy on the PBS Nightly Business Report program yesterday who when asked if there was going to be a slow down of the economy because of housing prices dropping kept repeating that people still had a lot of equity in their homes so spending should not slow down. I wanted to yell at the TV, “but isn’t this same equity also supposed to be used for retirement, major medical expenses, take care of you in case of temporary job loss, so now its also suppose to pay for day to day expenses?” I guess every ones house is suppose to come with its own gold mine, I guess I will have to start digging and find the one under where I live.
One of the things that I find advantageous about renting is that I am not being pestered by friends or relatives or other financial geniuses about getting equity out of a dang house. Also, when these people start talking about how they are spending their equity then I do not say anything anymore. They will find out soon enough.
Ah yes, buy that tank of gas and that Happy Meal with your equity, so that you can pay for it over the next 30 years.
“so that there’s no momentum going into the slow months” —>> Forget the selling season analogy, desperate people do desperate things, like sell their house at any cost or lose it in foreclosure. I don’t think the bank that hasn’t gotten paid works on the same time table as the realtor’s “selling season” Momentum is all down hill, and 6 months to go until the start of the new season will seem like an eternity if you can’t pay your new mortgage.
Agreed, an individual under financial pressure can’t try to time his efforts at self-preservation.
I was talking about the broader market though, which, while affected by these individual crises, is mostly made up of people with a little more control over their destinies. Most of such people tend to put their houses up for sale during the spring and summer months, and my point was that most who plan to do so in ‘07 are in for an anxious winter and, hopefully, a fearful rush to the exits come spring and summer.
The historically consistent model for the end of a bubble is hysteria to the upside - panic buying, followed by orderly price declines and, ultimately, panic. The declines at this point appear orderly in most places. We shall see going forward….
OK. I need some help here. Someone please tell me what the big deal is about the news yesterday. I mean a 1.5% decrease in the price of an average home from last August is big news?
The house I sold in ‘99 for $245,000 was selling last summer for $800k. Now, the sky is falling because the price came down by 12k. I’m sorry, I don’t see how this is big news.
If the price came down 50%, I may take a look but it’d still be over priced in my book.
Am I missing something here?
Any clarification would be appreciated.
Thanks.
It’s the trend, my friend.
Every year the swallows come back to Capistrano. But still, one is never quite sure until the first swallow arrives, usually several days ahead of the main body. Then, it is time for the fiesta.
This is the arrival of the first swallow.
… from the verb ‘to swallow’
Once home prices start declining they tend to decline for years and have a huge secondary economic impact.
When home prices go negative this suddenly traps homeowners who need to sell and scares lenders (who can no longer rely on loans being fully secured) away from home loans.
Plus we’ve had a huge unprecedented run up in home prices. The implication is now that we’re at the beginning of a long and steep slide (i.e. the bubble has burst).
History and economics support the notion that we’re at the beginning of a major downside event.
The prices will come down much, much more. The current decline is significant not merely because of the current dollar decreases in prices (which as you mention are still tiny compared to the irrational runnup of the past few years), but because it indicates that the price trajectory has changed - from up to down. Now that it is clear that prices are no longer rising (and are actually declining), buyers’ sense of urgency is gone. These declines are just the beginning of a much larger correction.
Realtors can’t say tht prices never go down now ,(they shouldn’t of been saying it before because they have gone down). The realtors lose the sales pitch of buy now prices are going up so buyers do not feel a urgency to fear/greed buy .
Buyers than back off from the market waiting for homes to bottom while the inventory continues to increase causing prices to go down more . Lets face it ,it’s silly to pay 800k for a 250k house .
An old quotation I recall applies to the current housing market “IN THE LAND OF THE BLIND THE ONE EYED MAN IS KING”.
But sometimes things work out the way they do in H.G. Wells’ story, “The Country of the Blind.”
Jackie,
I agree. I think the loss for the owners is much greater. There are a lot of people who buy homes and dump a lot of $$ into them to improve them. There’s a decline their that we don’t see.
When you add a new bathroom and hardwood floors and then sell the house for the same price you bought it, you’re taking a loss on the improvements, but the realtors will say the price didn’t decline.
How do we measure that loss? I dunno.
And what about homeowners like us who have added a premium roof, central air, al-new ekectrical and insulation, etc. Over $125k.
“I mean a 1.5% decrease in the price of an average home from last August is big news?”
The decrease means your “no nothing” real estate shill can’t use “Buy Now, Prices Never Go Down”…or “Buy Now, Before You Get Priced Out of the Market”
Note that the decline from July to August was the second largest decline recorded over the time that these data have been reported since the 1980’s. Take a look at the data in Data Quick, which shows weekly data on mean home prices. Although some people say that housing data are highly variable, the trends for individual markets seem very smooth.
Declines of a few % per month will mount up quickly. A negative year over year value for the country has some psychological impact.
The house you were selling for 800K last summer would have only been so if you had actually sold it. This month it dropped 1.5%, next month it’ll drop 3%, the month after 6%… Take the 1999 price add 3% a year, compounded, for three years, and you’ll get the true value of your house.
“I mean a 1.5% decrease in the price of an average home from last August is big news?”
Several things:
1. This is a *national* decline in price. The realtors had been saying that any drops would be localized to “bubble areas”, so most potential homebuyers need not worry (even though the bubble areas had a sizable proportion of the population). Now it will be harder to say, “buy now, don’t worry”.
2. If the national trend is now down, what does that mean for the more bubbly areas? Now there is less hope that “the wealthy” from the non-bubbly areas will ride in on white horses and bail out the bubble areas.
3. With the down trend going national, more people will become aware of the price trend, and adjust their buying (and possibly selling) expectations accordingly.
Jackie you are projecting yourself onto the broader market. Home purchases are made by others with underlying assumptions and expectations of their own. Most of the buyers over the last 2 years were assuming and expecting price to continue its upward trajectory.
Since price has flattened and is now heading down the right side of the revenue curve, buyer expectations will go unfulfilled. In fact, recent buyers (the last 2 yrs were record sales setting yrs) are going to experience a lot of financial pain not pleasure; the opposite of their expectations. You my friend are not part of this statistic and should consider yourself lucky.
“Developers want to scrap their plan for a second condominium building in the shopping, entertainment and housing district because rising construction costs will push the prices of the second set of condos so high that they will take much longer to sell, if they sell at all, in a market that is starting to go soft.”
After, perhaps, downtown Rochester, NY, downtown Hartford is the last city in the U.S. you would want to be an urban condo pioneer.
Not sure about the condo pioneer thing for Rochester, NY but I have to practically hold my jaw shut when I see Syracuse is still trying to rope its taxpayers into that stupid mega mall: Destiny USA
The fact that what’s going on with our national economy is starting to hit the mainstream (and that our local leaders are supposedly intelligent enough that they should have seen it coming anyway) just shows this is about personal profit. And all too many voters can do is complain that the delays in construction have prevented those amazing low skill retail jobs from helping our economy. Oh, Lord, save me from the idiots!!!!
This headline article from USA Today (shows up in the print edition) contains some very grim quotes:
http://www.usatoday.com/money/economy/housing/2006-09-25-existing_x.htm
Some of the coverage today is really dire. Panic inducing maybe.
Arrghhhh! What a bunch of mass media drivel! OK, they have some good points regarding the housing downturn, but then they have to turn around with crap page-filler like this:
“This may be the most overanticipated and overanalyzed downturn in history,” Fisher said. “One prominent CEO told me the only situation that’s received more intense analysis than the housing market was the birth of Brad Pitt and Angelina Jolie’s baby.”
Oh please! OK, I know nothing about said baby (nor do I care to know), and such a stupid comparison just makes me cringe. But as for “the most overanticipated and overanalyzed downturn in history”, did this guy fall off the turnip truck? Where was this bozo as we headed into the dot-com bubble? (Can’t even have been out of the country, since it was all big headlines out there as well, both in the lead-up and the crash.)
How can you “overanticipate” something that actually happens?
“This may be the most overanticipated and overanalyzed downturn in history”
And yet, many ‘experts’ have been taken by surprise by the extent and the speed of the downturn.
“Fisher went on to say that ‘everyone knew E=MC squared before Einstein ever began his work’, and that quantum mechanics was ‘just common sense, so what’s the big deal’.”
“The median-priced U.S. single-family detached home — half cost more, half less — fell 1.7% in August to $225,700, compared with a year ago.”
Whooooa, Nelly. I thought prices never drop nationwide.
“I thought prices never drop nationwide”
Officer Barbrady: “Move along people, nothing to see here, move along.”
Oooh! And a Lereah Quote:
“”If we have prices drop for the rest of the year and sales also continue to drop, then we will have a bad situation in housing of balloons popping rather than air coming out,” Lereah said.
Either way, he says, “It’s a buyer’s market.”
Super!
Treasury announced in Saturday’s Financial Times that they are considering allowing Fannie/Freddie to INCREASE their portfolios of mortgages held directly (in violation of their original charters, by the way) from the current approx. $1.5 trillion. The ONLY reason I can conclude for such an announcement is to use Fan/Fred to soak up more and more FBs mortgages.
Next up is the rumor that Treasury is looking into a mortgage bailout (of the banks of course, but it would actually benefit the FBs as well) whereby ARM debt (approximately $3 trillion on the books) would be swapped out for 30-year treasury debt.
And the Fed? Well, let us not forget that they recently added Countrywide financial to the “old boys club” of primary securities dealers which means that Countrywide can simply had their worthless MBS over the Fed and get “temporary” (TOMOs) loans, which will then be converted to “POMOS” (permanent loans).
Oh, and by the way, the Fed can do the same thing with Fannie/Freddie/FHLB MBS as well.
And let’s not forget that Congress WILL enact “RTC II–The Sequel”. For all you boys and girls out there who are too young to remember, the original RTC (Resolution Trust Corporation) was created by congress to address the PREVIOUS real estate bust of the 1990’s during the $500 billion S&L crisis. The madate of RTC was to take all the shi*box properties and projects from the FBs and sell them off in an orderly manner.
Also, at the same time, Greenspan was just getting warmed up in his massive money-printing-bail-out machine and dropped interest rates dramatically in 1990 to help bail out the banks (and Fannie/Freddie too) who were sitting on hundreds of billions (gee, that amount seems so small now!) of impared MBS.
Good point- but whatever the Gov’t does J6P according to BLS makes $277. per week income. You do the math-just how much debt can the average american carry- not much…
“Next up is the rumor that Treasury is looking into a mortgage bailout (of the banks of course, but it would actually benefit the FBs as well) whereby ARM debt (approximately $3 trillion on the books) would be swapped out for 30-year treasury debt.”
David Cee,
Or then there is this: (Wondering what freebie I can ask for for buyer a smaller home and using a fixed!)
Kenneth R. Harney wrote in this past Sunday’s syndicated column “Better deal could just require a phone call”
Andy Hallmark and his wife faced the same financial squeeze now bringing pain to thousands of homeowners around the country: Their floating rate home-equity credit line had risen to uncomfortably high monthly payment levels - the direct result of the Federal Reserve’s interest rate increases over the past two years.
The Hallmarks, who live in Annapolis, Md., knew their standard options: Hunker down, stick with their $70,000 credit line and risk further payment jumps n the months ahead. Alternatively, they could refinance their first mortgage and pull out an additional $70,000 to pay off the credit line.
That’s what’s known as “cash-out” refinancing. Acoording to Freddie Mac, the congressionally chartered mortgage investment giant, roughly nine of every 10 refinancings this year involved cash-outs-many of them to pay off variable rate credit lines.
But the Hallmarks decided to try something different- something wildly improbably in their view-and in so doing bumped into an important change under way in the American home-equity marketplace. They telephoned their lender and asked to convert their variable-rate credit line into a fixed mortgage note with a fixed term. …..
…..But the answer was even better than yes: The rate was fixed well below the 8 1/4 percent bank prime the floating credit line was tied to, and there were no fees involved. No appraisals, credit checks, title or closing costs, either, and it all got done almost overnight.
Though many lenders aren’t actively publicizing it, what the Hallmarks discovered is the new industry standard: Most major players in the home-equity arena will now allow credit line customers to escape the Fed’s rate increases and freeze their rate on a portion-or all of their outstanding balances.
Some banks will even turn your floating rate credit line into a smorgasbord of tax-deductible financial planning choices, fixed-rate and variable-rate.”……
from September 24, 2006
Syracuse Post Standard
Yay, more mortgage fraud for everyone? Why lend money honestly when you can just give it away to people who have no chance of paying it back, then waiting for your federal bailout? Free Hummers and Escalades for everyone, what a country!
You forgot REPUBLICAN in front of Congress, Treasury, Government and Greenspan.
In Yahoo Finance this morning:
“The bright side of the housing slump
Housing prices are falling for the first time since 1995, says Peter Coy in BusinessWeek Online, but don’t “punch that pulsing-red panic button” just yet. The decline in the number of homes sold isn’t as steep as it was in the summer. Taken together, the data suggests that sellers are adjusting to the reality that the housing boom is over, and they’re finally cutting prices “to move the merchandise.” Things may “get worse before they get better,” but the market will begin to turn around by the second half of next year.”
http://tinyurl.com/zzmrq
Second half of next year? Yeah, I’m sure that will make all those people happy who are trying to sell or have to sell now. Gawd, talk about rubbing salt in the wound.
“but the market will begin to turn around by the second half of next year.”
In other words, if you’re thinking about buying, wait until late next year. Buyers waiting while almost 4 million homes sit on the market is precisely what is going to turn this “slump” into a “rout”.
Right, and with hundreds of thousands of foreclosures on their hands lenders wont have the capital, much less the will to keep lending over market value. I believe it is easy credit that got us in this mess and hard credit that will lead us out. How much a buyer can pay is how much they can borrow in most cases, and I predict in a year or two getting credit will be harder than it has been in many many years. I can remember the whole call to your employer, last years tax returns, bank statements for the last year etc and you had better not have so much as a smudge on your credit report anywhere being the way it was and I believe will be again.
And don’t forget the mandatory 10% or 20% downpayment. If that comes back into vogue, prices won’t hold 15 minutes.
This something no one has explained to me….the lenders dont have the forclosures on their hands. Fannie Freddie and the MBS do. Who exactly is going to take back the keys when Joe Sixpack defaults on the Mortgage that CountryWide wrote and then sold off into the (cess)pool.
Who ever is servicing the loan will get the keys back….but then what??????
Just a year. Just 12 more mortgage payments. Insurance payments. Maintenance on your overpriced POS. OUCH!
Friend of mine is already hurting from trying to sell LAST year! He was unsuccessful at getting anyone to pay his inflated asking price, which was not quite twice what he paid years ago. Nice profit, yeah, but he wants more.
So in a fit of petulance, he and his wife decided to “just keep” the house, despite having relocated to another city!! What was he thinking??? (Answer: Thinking greed.) Almost a year later, as his mortgage payments and other costs eat into his savings at the rate of over $2k/month, and a parade of worthless renter-wanna-be’s roll through but can’t afford the rent he demands, the house is off the sales market and not even rented, either. He’s wondering how long this “gator” is gonna keep eating at his wallet.
Yet another year, and then sell at what, an even lower price? “No way, we’ll definitely just keep it!” He’s already trying to justify leaving the house empty and paying the mortgage and upkeep, while pretending this is an “investment” for his retirement in 10 years. Oh boy. Niiiiiiiiice retirement investment plan, dude. Yeah, gotta be better than having a measly $100k+ profit in your hands and putting the wasted $25k/year into other investments. Sigh.
As the saying goes: Don’t panic, but if you’re gonna panic, be the FIRST to panic.
This twelve-months-until-the-return-of-real-estate-bliss attitude is going to get people hurt.
BTW, wish someone had told me the panic rule before y2k.
Sell it at what you can and think of the remaining debt as a student loan. That makes it fun.
You pay a lot of money to learn a good lesson.
Thinking of losses as a student loan–that was pretty much my attitude after catching a few small NASDAQ knives on the way down 5 years ago. Since they were small, it was damn cheap tuition, really, and helped teach me not to catch knives in the future. I’m standing well back from the RE knives, and in fact hoping to profit from it on the way down instead.
Jon
Just curious. What are the numbers he’s asking for sale and rent?
Sale numbers he wants $320k but will take $310. Dozens of people looked through his house; few even made offers. (Sign of being overpriced?)
For rental he wants $1800/month — which bases on his mortgage payment of $1750 rather than the price of competing rentals, which are roughly $1500. Arrghh!
I think it’s not a good rental investment even if he could get $1800, but he can’t, not from anyone who looks like they will pay the rent.
He wonders why all the good tenants find someplace else (and some even call him to tell him where and how much — hint, hint!) while he is left with sub-500 FICO deadbeats who can’t even document their income. I tell him the reason he gets those people is that they are being un-chosen by the cheaper landlords, and they’ll rent whatever they can find. Not that the price is a barrier to someone who won’t pay the rent anyway.
Now obviously, if he goes down to $1500, he’s taking a monthly beating for the duration of the 12-month lease or longer. So he holds out for the $1800! And in the end loses multiple times that, every month!
Good thing he has a good job and money in the bank to keep that going, eh? Sad thing is, he’s thinking he might need to cut back on his 401k contribs now.
The dude who owned the house in Dallas I was in (would sell for around 240K) tried to bump the rent from 1600 to 2000. That’s when I told him to take a hike.
Well, even $2,000/month on a 240k house might not be enouugh to make it a decent investment for the owner. That’s what I’ve found when I was working on acquiring rental properties.
But the rental price isn’t set by how much the landlord has invested (or what he owes) — it’s set by market competition. And if the market in your case was $1600, you’re right! Take a hike, buster! It’s not your fault he’s losing money.
Well, I have to say I’ve pretty much given up on buying rental props for the last five years. I don’t even look anymore. There might be some deals around, but *not* here in the DC area, and I just can’t/won’t compete with fools who buy a place and plan to lose money for the next 8 years. Nor will I buy an out of town rental.
Friend of mine in Pittsburgh, though, managed to snag an old place with half a dozen units, admittedly in need of repair, but only $150k at 6% mortgage — and rental revenue of $35k/year. Now THAT’s getting more like it.
“So in a fit of petulance, he and his wife decided to “just keep””
Yeah, wow, really showed the potential buyers what for. All of the potential buyers are probably thinking “boo hoo hoo, that took that wonderful house off the market, what *ever* are we going to do?”
Talk about cutting off your nose to spite your face…
Yeah, like there is no other castle nearly as nice as his. What on earth is a buyer to do now that the last remaining glorious castle is not available??
Whoops, dunno if my comments to txchick57 got posted.
Here’s an abbreviated version:
He wants $320k for the house, will take $310k.
Rental he wants $1800. (Seems low versus the $300k.)
Yet even if his rental seems low as a proper investment, his rental price is still about $300 over market rate for that type of house, but he bases his number on his mortgage payment of $1750. I guess he wants to say (somehow?) that he’s paying the mortgage off with the rent?
Sadly, all the good renters go tot he cheaper places, where they are welcomed with open arms. Some even call him to tell him where and how much (hint, hint, dude!). He gets annoyed when they tell him thanks, but they found a similar place in the same area for $1500 or less; he figures they are just trying to lowball him and get him to come down.
He is left with sub-500 FICO deadbeats who can’t verify their income, and they probably don’t mind his rental rate because they won’t pay it anyway! At least he’s not so stupid as to accept them as renters and have them skip out on rent and tear it up.
He’ll figure it out when he sees prices dropping next spring.
Right now there is a little realtor in the back of his head telling him this is a temporary slowdown and spring will be back to 20% a year and that’ll bail him out and make him rich.
Greed is going to be his downfall.
It’s these empty houses of people who “won’t give it away” that I’m expecting to give the market a real kick in the teeth in the spring. After 6 months of straight Y-o-Y price declines, many 2-mortgage folks will begin to realize they are no longer getting the appreciation that they need to make up for the negative cash-flow bleeding. And small-time landlords who are cash-flow-neg will start to panic as well.
Jon
Future news from the fall of 2007:
“The housing market continues to decline but we expect that home prices will pick up by the spring selling season.”
Very soon this will stop being called a standoff and will turn into a rout. Do I really want that? No. But I do understand the fundamental affordability of homes and until they get back in line with wages… forget it.
Neil
“Very soon this will stop being called a standoff and will turn into a rout. Do I really want that? No.”
What’s wrong with a rout? Housing is quite unaffordable right now. Would I like to see it become more affordable? Yes! There’s only two ways to do it: wage hyper-inflation or housing depreciation.
Take your pick.
I DEFINITELY want to see a rout! The bigger the rout, the better for our long-term economic health.
The faster it corrects on the way down, the faster we get finished with the pain.
What we DON’T want is to have it take a decade or more to get through it, like Japan.
Jon
Did the piece change since the above was posted? The quote above does not resemble anything printed in the article referenced by the link. That “quote” above, however, does seem to be pieced together from portions of the article.
I’ve spoken to the author of this piece, Peter Coy, on many occasions and I don’t believe he would have made any kind of predition on his own. That quote about a recovery in the second half of next year comes from Global Insight, not Mr. Coy.
Please be more careful when quoting articles.
jb
New Jersey Real Estate Report
You’re right. Here’s the snippet from the article:
“Make no mistake, housing is slumping, and things are probably going to get worse before they get better. Global Insight, the forecasting firm, wrote, "The housing slowdown is about a year old. It probably has another year to run." The firm expects that existing-homes sales will drop nearly 10% in 2006 and nearly 15% in 2007, and begin to turn around in the second half of ‘07.”
Actually sounds worse to me. 25% down by the 2nd half of ‘07. By then, with the ARM resets, I’m not convinced that it’s going to get any better. We’ll see be seeing empty homes owned by banks with the keys dangling from the locks.
As a follow-up, the quote that I put in the original post came from finance.yahoo.com - I didn’t put it together.
posted ” but the market will begin to turn around by the second half of next year.”
Like TxChic said “what year”…. but I do love happy talk!
The latest gimmick. I heard a real estate radio show talk about a new incentive program, offered by new home builder. The builder will sell you a house, then you can lease it back to the builder for up to three years. Investors can rent the house to someone else during that time, so they can collect double rent I didn’t get the name of the builder, but it sounded like one of the national builders. Shows how desperate they are to get rid of inventory of their books. Sounds like a future accounting scandal in the making.
Wow. So the sold price stays high, but the builder is paying the mortgage for three years, which works out to call it a 20-25% discount, which the buyer will probably go spend on hardwood floors and granite countertops.
Sweet.
Another gimmick. At a Mexican restaurant I picked up a color pamphlet advertising homes for sale written in Spanish. All over this thing were offers a 25% return in cash of the commision if you bought from this particular agent.
A lot of articles about MA lately. I guess we’re getting more attention than Florida - maybe the bubble popping is getting to be old hat there.
Spoke to a friend this morning who said his manager just bought a house for $380. Talked them down from the mid-400s. Took a bit of work to negotiate. Then he told me
that they hadn’t sold their old house yet. Oops.
That is going to kill him. I know of many people that are in that same boat, and generally they lead the downturn. They are more aggressive slashing prices as long as they have equity, because they really need to sell the albatross.
I saw a house in that same scenario go from low 400 to finally sold at 319. It was the lowest comp in the neighborhood, and it lowered all the other comps around them. Unfortunately for the sellers, they had bought a 900K mc mansion, and that 80K is going to raise their mortgage quite a bit. Not that I feel bad, as they originally bought the house in ‘94 for 125k. That is the measure of the insanity that is going on! Before 10 or 20K in the price of a house was a lot of money, and the difference between houses was rather big. Now 10 or 20 K separates identical houses, with similar floor plans.
Simultaneous Owner/Buyer.
Simultaneous Owner/Buyer
SOB….Love it! A new acronym.
BayQT~
> A lot of articles about MA lately. I guess we’re getting more attention than Florida - maybe the bubble popping is getting to be old hat there.
Florida will have a crash, it’s a done deal. Not much wealth is created down there, and speculation with a crash might be not so surprising. CA and MA and NY, on the other hand, represent much more of the economy and of the total housing wealth in the US.
“Warren Group CEO Tim Warren said prices are dropping because ‘buyers are tasting blood”
Blood in the water? Just wait until all of those ARMs reset next year…
Appreciation has become depreciation (so much for the cash-out refi collateral,) and the cost of debt service continues to rise.
Drip, drip, drip.
no problem- we’ll just cut out your commision
why use a realhore ? got net ?
“Sellers will be asked to lower their prices by 3 percent to 8 percent for two days only, to create a sense of urgency among buyers. The last time the office ran such a promotion was in the mid-1990s, Abbott said.”
A sad story to relate to y’all. A recently married friend and his wife decided last month to buy a new Toll Bros. townhouse being built in Loudoun Co., Va. She received some money with an insurance payment from her deceased mother. They obtained an 80% first mortgage, with a 10% second mortgage, and put down another 10% from the insurance settlement.
Obviously, when the TB salesman saw them coming in early September, dollar signs lit up in his eyes. TB then threw in granite top counters, upgraded lighting, etc., about $15K in “free” extras. Anything to get them to closing, which happens next month.
Talking with the wife made me realize she was driving the transaction. When I found out they obtained a 6.5% 5-yr ARM, it was very hard for me not to chide them for what they have done to their financial future. They plan on staying in the house for about five years, so perhaps they will break even when they sell in 2011. Buying today as the market heads for a serious decline will not make them any money five years from now.
After relying to her that building equity only happens when housing prices go up, she said she wished she had talked to me before she signed all the paperwork. She’s still assuming the old financial models still apply. And I would suspect that her emotional need to own (”like all adults do”) instead of sensibly rent today like they had been doing is taking my friend and her down a tragic path.
It’s too late to change their minds, unfortunately, so I kept most of my opinions to myself. Why rock the boat; I gain nothing from it. But it made me wonder how many other financially ignorant couples like this are still driving today’s RE market…
So, do they qualify for the unenviable moniker of “FB”?
There are still people buying, even in the more bubbly markets. I can only assume that their story is being played out multiple times.
> closing, which happens next month. (…)
> she said she wished she had talked to me before she signed all the paperwork
How expensive would it be for them to back off? Be a friend and ask them to look into that possibility.
I will find out how much. My guess is that emotion will rule reason on this one, unfortunately. But it cannot hurt to try; no one wants to see a friend lose their shirt.
It’s the strangers who can take the financial bath, of course… ;^)
40% of the RE sales is not coming back: Impact on prices and inventory is beginning to be felt:
from CNN money:
“Allan Hardester, a senior executive with a Maryland-based lender, Havenwood Financial Corp, says most of the demand for homes is in the affordable price range - $200,000 to $300,000 - and that’s where lower interest rates will help. Many buyers are stretching the limits of their budgets. Lower interest will make those limits a bit more elastic.
But in Hardester’s opinion, even if rates do drop further, it may not be enough to offset another factor that was a feature of the boom - the decline speculative investing. NAR reported that 40 percent of all home sales in 2005 were purchased primarily for investment (28 percent) or for second homes (12 percent).
Many of those speculators have stopped buying. Some have even put their properties on sale, helping to fuel the inventory glut (see table). There were 3.9 million homes on the market in August, up 38 percent from a year earlier.That will work against sellers trying to keep prices from falling further.”
“Allan Hardester, a senior executive with a Maryland-based lender, Havenwood Financial Corp, says most of the demand for homes is in the affordable price range - $200,000 to $300,000 - and that’s where lower interest rates will help. Many buyers are stretching the limits of their budgets. Lower interest will make those limits a bit more elastic.
There were lower rates in 03 and 04, but what did people do?. They took out the toxic loans. I get angry when I hear that rates are lower now, as if the majority of FB’s are taking out 30 yr fix rate mortgages.
“There were lower rates in 03 and 04, but what did people do?. They took out the toxic loans.”
Plus instead of buying the $300,000 house, they bought the $600,000 house.
I can’t make this stuff up. Look at what a local female teacher turned into after having sex with her students in San Diego:
http://tinyurl.com/fte3z