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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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I noticed today (Australian time) that the NAR’s going to announce September’s Existing Home Sales numbers on the same day (25th) as the next FOMC decision.
Apart from the obvious likelihood of fun and games on the trading floor, is anything likely to flow from this coincidence?
Maybe my “10% down = crash” meme is gaining some traction, if a real hitter like Zandi’s using the same number :D.
This is an interesting view of the San Franciso (where prices will never fall) market.
A Veritable Collection of Crap
I like that guy. He “gets” about 50% of what is going on. For a realtor, that’s second only to Bob Casagrande.
Don’t forget, that is San Francisco. Prices will still decline by more than the optomistic homeowners ever imagined, but a nice home WILL probably sell at the right price.
Now a ticky-tacky sh-tbox in Idaho, Arizona, the Panhandle, or 20 miles from the Vegas Strip (for example), might NEVER sell! At ANY price! For a long time!….because nobody REALLY wants to live there….
It seems that “soft landing” is continuously being redefined downward. I have heard a 15% to 20% price drop referred to as a soft landing (Lereah). I wonder how big a crash we will have before the RE pundits admit it’s not a landing but a crash?
Actually, I think a 15-20% price drop would be a soft landing. Prices will have to drop 30%, and I think they will, before I will start calling it a crash.
That’s funny, because last year they were saying that prices staying flat or only a few percent point increase was a soft landing. Now, anything under a 30% drop if soft.
Price in NYC dropped 20% in the early 90’s “CRASH”. I guess it was really a soft landing:-]
Newtonian physics: if the floor that you’re about to hit is moving at approximately the same speed that you are, then it sure won’t feel like a hard landing. but hard or soft is secondary. what matters is how far you fall.
My personal view 10~15% is still “soft landing”. It takes time
to reach full crash stage.
We need more panic selling…like boiling water, initially bubbles are small and burst slowly, then…….
I like Zandi but it seems to me that he softened his view in this last report, at least for my area. He refered to the Chicago area as “highly overvalued” but then said that it would only dip 2.4% and then flatten for a few years there after. If it’s highly overvalued then 2.4% seems like a drop in the bucket.
“Soft Landing” is such a fuzzy, imprecise term that it can only be applied to the psychology of the situation, and not to some precise economic underpinning. In other words, if the general population feels that things will still be ‘ok’ with a 2% decline in prices over 5 years, that is a “soft landing”.
However, with this definition of “soft landing”, be prepared for the benchmark to change. As the general population goes from bullish to bearish on real estate, expect the definition for ‘ok’ and “soft landing” to trend downward.
For example, during summer 2005, while the boom seemed to still be going strong, “soft landing” meant price increases of ‘only’ 2%-5% per year. When it was obvious that things were slowing down, “soft landing” was revised to 0% appreciation.
Now I’m hearing from people that 2%-5% *depreciation* per year over 3 years is a soft landing. As things get worse, people revise what they are willing to consider ‘ok’…if it’s *only* a 2%-5% decline per year, things will still be ‘ok’, so it’s a soft landing.
I’ll be interested to see what happens in the Washington DC region over the next couple of months. Contrary to the way it works in the rest of the nation, our housing market basically shuts down during the summer since Congress is out of session and so many people leave town on vacation. We’ve been ‘back in business’ for a few weeks now (since Labor Day), and it will be interesting to see how the numbers shake out. I’m curious whether the YOY numbers will get even worse around here, since prices were still going up last fall, even as the number of sales was declining.
The Washington Times had some very dismal numbers out for inventories, sales, and “sales chances” in northern Virginia.
Sales chances being defined as inventory divided by sales, they’re looking at 9% to 10% sales chances in some of these counties. Numbers for “Average time on market”, however, are much lower, at just a few months. That’s probably due to relisting houses, I would bet.
The 9% figure means that a fair number of people will end up waiting a whole year to sell, and I can vouch that that’s the case because I drive by places on my way home from work that HAVE been listed for a year — and a different broker every few months.
If I find a link to the data, I’ll post it.
Two forces are emerging that may intersect soon: Online videos and real estate.
With sellers of residential real estate desperate to get buyer’s attention, I expect online videos of RE for sale soon. I’d much rather sit on my lounge chaise couch with my laptop watching online videos of real estate then walking through a house with a Realtor.
The idea and technology is already there. All that is needed is a website with a lot of traffic and a real estate focus….hmm.
I’d much rather sit on my lounge chaise couch with my laptop watching online videos of real estate then walking through a house with a Realtor.
Yeah, but you don’t get to enjoy the CUPCAKES!
( http://www.angryfrozenhead.com/articles/October2006/sellfast2.html )
Somebody must post on this blog whenever “cupcake lady” sells her house. I’m really curious to know if she’ll ever get her insane wishing price for it.
Dude they already have them. It is called a virtual tour. They are on about 30% of the listings in our area.
How many markets are currently ‘gapped down’? That is, where there are sales offers considerably below the last sale price, but no transactions and hence a false comparison base.
For example, I noted this one from Ocrenter’s blog a couple of days ago, but posted it late in the day.
http://www.bubbletracking.blogspot.com/2006/09/home-sweet-home.html
On the face of it that looks like it’s priced about $180K (=22%) below the most recent comps without getting a bite . . .
I know that in my very, very local market we definately are in that situation.
My condo is on the market for 280K, there is another, identical unit on the market for 199 (just reduced for the 3rd time, started at over 250). Neither are moving; so who knows. Perhaps the sale price is even lower.
I just know that when the unit sells for 199 here, its going to be murder on the comps. Condos are great, because there is no “unique” factors that make one worth more then another. Just tell me what unit type it is, and I will go and get all the comps.
Either way, 280K was not “that” high last year. So I think I can realistically say we are already 80K off peak in my condo complex (West Palm Beach, FL - CityPlace).
I do hope “my condo” means “the condo I rent”, rather than “the condo I’m trying to sell”.
Come on now! Of course I rent (the new mantra of the upper class in the this country ~2009). Actually, my rent on that unit (which my landlord was so nice to offer to me at 280K; before it hit the market even!!) is 1250 a month. So, approx 1/2 the carrying cost (probably a little less actually, I am east of I95; and the HOA is high here to cover the insurance).
My god, if I owned a condo in S. FL… Well, lets just say, I would be telling anyone that right now.
I would rather admit to being a pedophile.
Of course I rent (the new mantra of the upper class in the this country….)
actually I think the new upper class mantra will be “What mortgage?” which will also include those that own outright.
“Gapped down” = price freefall (aka “crash”)
Does anyone have linkable data that shows that historically that median income can afford median home price, and also, that median home payment equals median rent?
I know both of these mantras are just “common sense”, but I was wondering if there was a graph out there anywhere, or a linkable source with that data.
The reason I am asking, a few family members have told me that I am crazy, and that those ratios never existed. Rent has never covered the morgage on homes… They drank too much kool aid, and I need to help them on the road to recovery.
Thx!
Michael,
If you Google the US Census Bureau website you can see median income/ home prices for all states and metro areas. I checked Palm Beach County awhile back. I believe on 1/1/00 the median income was about $45K and the median price was $135K. I think we will see a ratio of 3:1 again as our economy doesn’t warrant $400K median prices. Hope this helps.
You can look at a chart that shows the ratio of home prices to rent at:
http://www.thestalwart.com/the_stalwart/2006/05/the_house_price.html
As you can see the ratio has never been so high as far as the chart tracks, back to the 70’s.
This site has a price to earnings graph:
http://www.macrovestor.com/homevaluation.html
Weekend topic: Favorite statistics, charts & graphs!!!
I believe the NAR Affordability Index shows how much median house the median income buyer can afford on a nationwide basis. As you would expect, it is at a record low now.
Yesterday, there was a thread about boomers and their spending everything they earn. I would like to know if there are many other boomers like me (tail end - born in 1962). I finally got a house in a less bubble area and I have no desire to ‘own’ all of the toys that go with it. I just want to save money, pay off the house, and live simple. My cars are paid for, have several hundred thousand saved, go into the mall and no desire to buy anything, absolutely abhor debt to the max, etc. Are there many others like me still left, or am I abnormal because everyone should own a Hummer, boat, exotic vacations, designer clothes, etc - and have big debt to go with it? I would welcome any other perspectives. THnks fellow bloggers.
I’m the same. I never got into owning things. Maintaining them is too much trouble. I’ve never had a balance on my credit card, paid cash for all the cars I have ever owned (kept my Volvo 240GL for 20 yrs!), never had any debt other than a mortgage (sold house last year). Vacations are fun though but there are all types…I usually go to visit friends who live in exotic locations.
Here’s another frugal one from that much-ballyhooed boomer demographic. And I can blame my parents for my frugality . Their motto: Don’t spend money you don’t have for things you don’t need.
Like you, I’m a younger boomer and to answer your question, I feel exactly as you do. I also have a lot of friends around our age who do not fit the stereotypical “boomer” description. Frankly, I think that the boomer generation is simply too large and spans too many years to categorize so easily.
I drive a car that’s 12 years old, purchased it new. It’s nothing fancy, just what I could afford at the time without making a car payment. I hope to drive it at least another 10 years. My husband and I don’t own a home right now because we just moved and current home prices just don’t pencil out for us, but we’re paying for our apartment with earnings from our savings. And yes, I mean savings, not “housing windfall.” You know, money put away after years of hard work.
We do spend for enjoyment as well as necessity, but whenever we make a major purchase we plan for it. Impulse buying is not part of our happy lifestyle, and we don’t miss it. Having no debt means we sleep very well at night.
P.S. Ben, I am using the same screen name but I’ve had to change my email address due to the move. If you also need me to change my screen name please let me know.
I’m a relatively early boomer (1949), and I don’t spend wildly.
I live in a house that I bought for a little over 1x my salary at the time, refinanced a couple of years ago into a 5% 15-year fixed with no other debt of any kind. I drive a 17-year-old car to work every day and have a “new” 5-year-old car and a 10-year-old truck (our house is out in the country and we need a truck sometimes). We have quite a bit of savings and conservative investments; if I got laid off tomorrow, we could pay our essential expenses for many years without too much difficulty.
If everyone was like you and me, we wouldn’t be in the economic mess we’re in.
A related question: How many boomers out there plan to sell their existing houses and move to “retirement nirvanas”: coastal communities, desert comumities, less expensive communities, etc?
I constantly hear that “rich baby boomers will sell their existing houses and move here to retire”, and that “*that* is what will keep prices from falling”. What percentage of baby boomers are looking to do this? And of those, what percentage of them will move to nirvana, zanadu, and shangri-la with prices being so high? Or will they want to downsize and retire to less expensive (ie non “retirement nirvana”) areas? And what percentage will have to stay put and not retire at all, due to not having enough saved?
I plan to retire to a small community, but I doubt 1 in a thousand would ever retire to this area! I grew up there and if there was any work - would never have left. The population for the county is less than 20K and the nearest city over 50,000 people is ~100 miles away. On Saturdays we would pile into the Nomad and spend 2 hours driving to do shopping and movies etc. I currently spend three months a year up there. I consider it a retirement Nirvana. Chaque a son gout.
To Need to leave CA re: boomers
I’m 1961: Curious if that several hundred thousand in your account was saved up over time or equity from bubble area. (Don’t mean to pry. Please ignore if you’d like)
We penny pinch and are proud of it. I usually rant at the youngins making broad suggestions about boomer spending. There are plenty of penny pinchers like us out there. I know a couple 8 years younger than us that are 3 years away from paying off their mortgage. (That means before 35 they own their home!) These people are not heirs but work and save very carefully.
That being said, I know what the boomer bashers are speaking of….I see that most younger boomers DO genuflect to the $$$$$ and image pressures. Funny thing is, till I had my kids I did the same: the latest fashions, gym memberships, sailing (hole in which to pour $$$ into), spa/pedicures, lunches out. It was funny how many friends I lost when I decided to stay home and live a simpler life. I do believe those people were embarassed by our choices….some friends!
Monday I am heading in for a second cancer removing surgery and if that doesn’t do the trick we’re looking at chemo/radiation. No one will ever understand without having been in these shoes how thankful I am that I’ve been home with my children the past 10 years. The gift that is to us from this perspective: Priceless!
“Monday I am heading in for a second cancer removing surgery”
Our thoughts are with you…good luck!
“Monday I am heading in for a second cancer removing surgery and if that doesn’t do the trick we’re looking at chemo/radiation.”
You and your family are in my prayers, Carrie.
Sorry, meant to say Carrie Ann, not Carrie.
CarrieAnn,
I’ve been meaning to ask how things were going with you. Been thinking about you a lot (didn’t know it was actually diagnosed). You are in our prayers!
You are right about staying home with your kids. Please let us know how things are going.
Thanks to all who sent well wishes.
I’m begining to think there are more people like my husband and myself on this site than living around us.
lately, I see many more of those H3’s crusing around town here in Reno. It seems no one wants to make due,or are on any sort of budget. The “I wants” brag about buying new clothes, furniture, cars, electronics etc…. and quirp “how much” their houses are going up. my husband and I - we like the simple life, we believe quality is more important an quanity, with no desire to have the “newest” or “best stuff” on the market.
The sheeple are followers, and wont change their mindset until its forced upon them. I can only hope the times will change and being frugal will be whats hip and driving an older car thats paid off will be admired instead of looked down upon because it’s not “new”.
Then again, the sheeple never can be true to themselves and will always follow what everyone else is doing.
Anybody have thoughts/insights/magic 8 ball thoughts on when and how hard commerical RE is going to get hit? I’m starting to hear rumblings from previously very bullish commercial builders/brokers that not only are sales down, but they can’t find tenants.
I’ve heard anecdotal evidence from several sources in RE that there has been a large influx of individual and pooled investors buying commercial real estate using HELOCs and cash out refis from their primary residences. In other words, lots of Joe Sixpacks using phantom equity money from their primaries have been partially responsible for bidding up (existing) commercial real estate.
Ding! Ding! Ding!
When I was in the States this past summer a guy I know who was fairly successful in condo flipping and development lot speculation was about get involved in building a commercial building in Destin. He was a bit higher up the food chain than your run of the mill flipper so the source of financing was a bit more sophisticated but the shift from residential to commercial RE is the same. Interesting.
Commercial is getting interesting, especially the multi-family and small cap. The inventory here locally is building daily and some long term holders who really shouldn’t be in duress are starting to dump property. The Mom and Poppers are reading the paper and the blogs I guess and dumping property. The phantom equity people are starting to run for the exit also. It’s getting interesting but not as far along as residential right now. My personal opinion is that anything that is not A class in the next coming years in the local market is going to have to be repositioned. More and more I’m hearing the statement that so and so works from home now decreasing the need for office space. I look for that inventory to be converted to housing further reducing rent prices. The day of the Mom and Pop is over with everybody going big box for their shopping so I expect to see a lot of street retail repositioned also.
I’ve got one!
Santa Clara County (Calif) Measure A.
In a nutshell–in a desparate attempt to preserve “property values” (in the name of preventing sprawl), the wealthiest people in Santa Clara County–from Palo Alto, Woodside, and Los Altos Hills–are funding the campaign behind this measure which will change the zoning for existing land, privately owned, to make it harder to build homes there.
From the Mercury News:
The group behind the current measure is People for Land and Nature, a coalition that includes the Sierra Club, Greenbelt Alliance and Santa Clara Valley Audubon Society.
The measure would affect roughly 400,000 acres, nearly half of all the land in the county, by reducing the number of parcels that can be developed on ranch lands and hillsides.
The complex proposal would essentially do two things.
First, it would reduce the number of homes that could be built in unincorporated, rural areas along the foothills of the Diablo Range from Milpitas to Gilroy; the Santa Cruz Mountains from Gilroy to Los Altos; and east of Mount Hamilton. On lands zoned for ranching, it would allow only one home per 160 acres, where up to eight are allowed now.
On lands zoned “hillside,” it would reduce the number of homes that could be built from eight per 160 acres to no more than four.
“We want to see smart growth, not sprawl, and protect the quality of life that makes Santa Clara County such a wonderful place to live and work,” said Drekmeier.
Here’s the problem–it’s been well established (from Supreme Court decisions dating from 1998 and earlier) that putting more restrictive zoning on some land is the same as “taking” it, and landowners are entitled to compensation.
So this will cost taxpayers BILLIONS of dollars, and lots of time for the county in court.
I’m amazed that in the United States, a simple majorty can vote to steal someone’s right to use their own land.
Kelo decision = neighbors deciding best use for your land. Thanks supreme court jesters.
Actually, this isn’t Kelo…it was a PRO-LANDOWNER decision that the court made in 1988 that makes changing someones zoning to less favorable equivalent to taking that persons land. (I agree with the court 100% on this.)
I was responding to your comment about how distressing it is to have a majority of one’s neighbors determine a landowners use of his property. I concur with you that if you own the land then a rezoning restriction amounts to a “taking” of one’s land. My “kelo” remark was meant to highlight how the majority can steal from the minority and be upheld in a court of law. Not my impression of the intent of our constitution but what do I know.
I was responding to your comment about how distressing it is to have a majority of one’s neighbors determine a landowners use of his property. I concur with you that if you own the land then a rezoning restriction amounts to a “taking” of one’s land. My “kelo” remark was meant to highlight how the majority can steal from the minority and be upheld in a court of law. Not my impression of the intent of our constitution but what do I know.
This doesn’t appear to be any different than what the California Coastal Division does. Its just “I got mine, Screw you”.
that is California for you. Left steal from the right. And it isn’t so special anymore. Too much crime, smog, traffic, overcrowding, lousy schools, high taxes, gov’t run by Hollywood, etc. And don’t forget the big one is looming to strike.
PLEASE Ben, can we have a topic on Casey???
http://iamfacingforeclosure.com
Idiot boy on http://www.iamfacingforeclosure.com is at it again. He’s trying to coordinate a short sale of one of his properties, and the lender is balking:
I only have one loan on the property at 295. The property was worth about 315 when I bought it back in January of this year (2006). Now it’s appraising at 275. The appraisal was just done a couple of days ago by the lender.
So the investor submitted my short sale packet and an offer at 200,000 CASH.
I like how he uses all the digits when he mentions that cash offer, as if adding all those zeros make it look like a nice offer. Ha!
So anyway, why should the bank should take a $95k loss on this pig, when they think they might escape with half that? I can hardly blame them for playing hardball, especially if they’re reading his blog, and they’ve seen his “money under the table” type hints to private investors. (Yes, on one property in Dallas, I believe, he wanted a short sale AND some money in his pocket! I think txchick scolded him on that one!) A sale set to go so low under an appraised value seems ripe for that trick, and a bank isn’t going to let him get away with that if they can help it.
Casey is wasting his time, he should just go BK. A few short sales will not help him at all, he is still in a massive debt shortfall and cash flow crunch. He is the walking dead.
He should take down the blog, see a BK lawyer, and move on with the rest of his life. Any attempts to pay a bit to the lenders, short sales, etc, is pissing against an ocean of debt. Absolutely hopeless.
Banks do not like to get the word out that they are EZ marks for short sales. I check “real time” what is happening in the crashing Las Vegas market, and REO’s are priced at full value, and short sales are just not happening. Foreclosures are over 200 per day. The banks are playing “hardball”, letting everything play out to the very end.
Ben, are you receiving the blog contributions that some of us have sent? Do they help? What do you need?
Thanks for the comments about telling me that I wasn’t the only frugal thinking boomer. I am content with our paid off cars and will drive them until they are toast. Nothing in the mall excites me. Just as long as I have my computer and internet connection to stay on Ben’s bodacious blog, I am taken care of.
Somebody please notify these construction teams frantically building high rise condos in downtown Honolulu that the boom is over…
http://www.honoluluadvertiser.com/apps/pbcs.dll/article?AID=/20061006/BUSINESS/610060415/1071
P.S. I like the honesty conveyed by the name of the Honolulu paper (”Honolulu Advertiser”).
Anyone care to buy the dip on GM stock?
———————————————————————————
GM shares hit after key board member bolts
Kerkorian ally York abruptly exits; Tracinda drops plans to raise stake
By Jim Jelter, MarketWatch
Last Update: 3:35 PM ET Oct 6, 2006
SAN FRANCISCO (MarketWatch) — General Motors Corp. shares tumbled Friday after Jerome York, Kirk Kerkorian’s close ally in his bid to shake up the company, abruptly resigned from the giant car maker’s board.
York’s sudden exit comes just two days after GM (GM 31.05, -2.08, -6.3% ) ended nearly three months of talks concerning a possible strategic alliance with Nissan-Renault.
http://tinyurl.com/kjgnh
How about a topic on the predictions on this blog and the various positions taken by the REIC and how they seem to be coming around to what was said here? There have been so many accurate predictions by the learned contributors to this blog that deserve their props and it may be interesting to see what kind of time lag there is between our blog and the MSM/REIC. It may give us some indication of just how far behind the curve the general psyche is on these issues.
I wonder if we can pull up all the different threads with predictions? I’ve tried to search for them, but seem to be missing some threads.
Wish we had a search feature like they do on the SDCIA board (by poster) and by topic.
Not sure if discussed recently… post internet available tools to trace foreclosure activity by area….
Not sure if discussed recently… thread where bloggers post available internet tools to trace foreclosure activity by area….
http://tinyurl.com/kqygw
U.S. Economy: Jobless Rate Drops, Matching 5-Year Low (Update5)
Oct. 6 (Bloomberg)
By Joe Richter
Buried deep in the article: “Consumer credit rose $5 billion”! Yet Greenspan announced today that the worst is over.
A separate report from the Fed today showed consumer borrowing in the U.S. grew at a slower pace in August as car sales cooled and Americans made fewer trips to the mall. Consumer credit, or non-mortgage loans to individuals, rose $5.0 billion, or 2.6 percent at an annual rate, to $2.35 trillion. In July, credit increased at a 4.3 percent rate.
http://tinyurl.com/z2mmv
By Greg Quinn and Scott Lanman
Oct. 6 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said the “worst may well be over” for the U.S. housing industry that’s suffering its worst downturn in more than a decade.
Greenspan, speaking at a conference in Calgary today, pointed to a “flattening out” of weekly mortgage applications after they went down “very dramatically.”
A longer and deeper U.S. housing slump may reduce consumer spending enough to push the economy into recession, some forecasters warn. Greenspan’s comments may represent a more sanguine view than his successor, Ben S. Bernanke, who said two days ago in Washington that the market is in a “substantial correction” that will lop about a percentage point off economic growth in the second half and restrain the expansion next year.
CarrieAnn - my savings was due solely to savings. Had never purchased a home. Also got married and wife is frugal (thank goodness). WIsh I had bought a house and sold before the bubble. I have also had more than enough lumps and learning experiences also.
Need to Leave CA,
Good for you (& your wife) on the savings and thanks for sharing that info… I think “the savers” should start authoring “how-to” books as it is lost wisdom that needs to be reintroduced. Many among the masses will be looking for the guidelines their parents/peers weren’t able to show them.
As for me, what we have truly does not feel like going without. (Although I do miss sailing and vacations) It’s all about attitude. The only thing we’ve gone without that’s been a “growing experience” is the approval of others around us who have different priorities. However, as discussed on this blog, in a few years we’ll be looking a whole lot smarter in their eyes.