Bits Bucket And Craigslist Finds For October 7, 2006
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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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some more notes on the jobs report
The end of the five-year housing boom may pull payroll growth below 100,000 jobs a month by the second quarter of 2007, from an average 137,000 this year, according to Andrew Tilton, an economist at Goldman Sachs Group Inc. in New York. Zoltan Pozsar of Moody’s Economy.com says housing-related job losses may range from 350,000 to as high as 1.2 million over the next two years.
“This is a sector that has been punching above its weight in terms of contribution to job growth for the last several years, and is now likely to be subtracting, instead of contributing, to payroll growth,” Tilton said in an interview.
Still, slower payroll growth and some job losses are started to show up in housing-related industries. Residential specialty trade contractors such as carpenters, and drywall and flooring installers cut payrolls by 17,500 last month, the biggest decline in six months, after adding about 1,900 in August, the Labor Department figures showed
Pozsar said today that housing-related job losses since March amounted to 75,000, an amount he called “only the tip of the iceberg.”
“By the time the boom is over, we’ll probably lose about 500,000 jobs,” he said. “The housing correction is going to remain just that.”
http://tinyurl.com/s2kb2
How many of the 500,000 jobs are good paying jobs?
Last time I looked, realtors, mortgage brokers/underwriters, tradespeople, etc. made pretty good $$$.
Also, where are these jobs concentrated?
We are not talking about losing 500,000 burger flippers evenly spread across the country.
I suspect a large percentage of those jobs will concentrated in a relatively small number of states, resulting in a large impact to those state’s economies.
I’d also be willing to bet the number is greater than 500k, if we were to consider the impact to the local businesses that benefited from the surge in incomes related to the bubble.
even weirder, as these 1099 types move on they get w2 jobs making the jobs picture look better
100k to 25k overnight for many
jmf;…You seem to be a expert on researching the web given all your posts…I just saw on CNN, Mark Zandi/Economy.com just wrote a article on the housing market stating that 100 of the 379 MSA’s in the United States will experience declines…Can you find this and post it ???
That’s from the Moody’s report that came out this week, and it’s been cited in a lot of places. Check some of the posts here over the last few days for more sources, or hit up Google News.
Thanks Fiat…..
Speaking of jobs, I posted here last week about the rumor of a big lay off at my current place of employment. Well, so far it has not come to fruition. The rumor now is that that rumor was circulated just before they are going to tell us that we will not be receiving any raises this October. So now we are all supposed to be saying, “Thank goodness, I have a job at least”. Don’t you love it when a millionaire CEO stands up and tells you to tighten your belt?
Too high of housing prices notwithstanding, in today’s economy it is foolish to buy a house and anchor yourself somewhere. High mobility is the key to success.
This happened in another place I worked, the CEO got everyone together and told us that there would be no raises for at least 1.5 years AND our hours would be cut whenever possible AND if we didn’t like it we could go to the local factory and work on the assembly line. These were educated proffesionals he was addressing. So there was a huge brain drain, everyone got up and literally ran for the exits, people left the area altogether and they had to hire contract workers at 2X our pay to fill the slots. I was able to double my pay and have the same cost of living-actually my rent was cheaper, simply by relocating(and that is a tax deduction). Oh and that CEO is not there anymore.
I think these guys just sit around and look at their paychecks all day long and don’t look out the window to see what is going on. If your local cost of living is too high for any new labor to come in and you squeeze the current labor pool to the point that they cannot support themselves, and are leaving, what do they think is going to happen? Labor costs are going to go down in the long term? Training costs, relocation costs, sign on bonuses, advertising, etc, etc, etc.
Oh and I am not in a real estate related industry.
Glad to hear you still have your job.
Agree with you about not anchoring yourself down during economically weak times.
Thanks for the update!
this is from roubini
Construction jobs are still up for two reasons.
First, it takes 9 to 12 months to build a home and the construction job data are still reflecting the high housing starts of early 2006; once those homes are finally built - as late as the next three months - expect employment in the construction sector to sharply and dramatically fall (as much as 40-50K jobs per month). Still, jobs in residential construction already fell 15K in September matched by the increase in non-residential construction.
Second, non-residential construction has done better than the busting residential one and has been a source of job growth. But once the housing sector leg of the employment sharply falls you can expect - as it is already predicted by leading investment houses such as Goldman Sachs - very sharp reductions in housing and housing related emplyoment that will not be compensated by the much smaller non-residential construction sector. Also, while non-residential construction is still perky, the overall economic slowdown will soon lead to a sharp slowdown in non-residential construction
Thanks for providing an answer to a question from yesterdays post. Always glad for updates!
Here is some anecdotal evidence from the heart of one of the USA’s condo-mania zones. Contrast the forecasted outlook for HI construction growth next year discussed in the linked article, just revised down to negative from the positive figure forecasted earlier this year (”Building Boom Expected to Fizzle”), to the description of this downtown Honolulu luxury condo tower project, which is only half-completed, and whose two- and three-bedroom units are priced from $500K-$1m. There are 394 units in the whole complex out of which 53 are unsold (total listed value of $40.9m), and tourist season is over for the year. Nonetheless, they are building away like crazy, day-in, day-out… I guess the developer never heard about the newfangled business model, where you only build it after you sell all the units?
http://the.honoluluadvertiser.com/article/2006/Oct/06/bz/FP610060415.html
http://www.capitolplace.com/
Tourist and buyer’s season in Hawaii is Jan-Mar.
“There are 394 units in the whole complex out of which 53 are unsold (total listed value of $40.9m), and tourist season is over for the year.”
I’m work across the street from Capitol Place and I thought all units were sold out. What happened to the 53 units? Cancellation? Hmm… hopefully more cancellations so that I do not have to fight my 50 minutes (9 miles) commute to town every morning.
Every day I park my car near an office for a building contractor in the Fresno area. Until a month ago, every morning the 4X4 Ford trucks would be there early morning, but recently, there is activity only about one day a week.
Thanks, Fresno Dude.
Is it me, or does this blog ROCK!?
(I know the answer…it’s why we are all addicts.)
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More on Casey Serin
A would-be real estate mogul follows boom tips straight to bust
By Carol Lloyd, Special to SF Gate
Friday, October 6, 2006
“I’ve always been entrepreneurial,” he said.
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2006/10/06/carollloyd.DTL
Change that quote to “I’ve always been delusional”.
Kudos to Carol for a good job on this one!
Which reminds me:
“Happy Birthday to You
Happy Birthday to You
Happy Birthday dear bubble deflating here in the San Francisco Bay Area
Happy Birthday tooooo…. Yoooou!”
[cheering; clapping; howls of delight; laughter]
A year ago this week, I noted right here that I saw my first “Price Reduced” sign in probably more than a decade…. and hence, the air was starting to leak locally.
Now we don’t need “Reduced” signs - they’re all reduced!
I’m expecting (hoping?) at least for four or five more birthdays.
Happy First Birthday!
postet it yester several times but i want to make sure that everybody sees this bubbe “hall of fame” videos with classic quotes from “this is a ballon”, “there is no bubble”, etc. from lereah etc.
really a must see
because of the lenght (over 2 hours without the senate heraing) i have made a subjektive rating on the inidividual clips that may provide a help to select the best ones that nobody should miss.
habe fun and enjoy the great wotl from paper money
http://immobilienblasen.blogspot.com/2006/10/best-ever-multimedia-flashback-must.html
Great clips, I just watched the first one and it illustrates the false thinking circa 2003 behind this disaster.
“Housing prices will not fall because it is a home for people to live in.”.
Fast forward to today where we have a situation where there are more homes than there are people to live in them. This excess number of homes can not be sold at all. The days of people wanting to own more than one home are over. Do people really think that an investor who bought a home at $100,000 in 2002 and sold it for $250,000 in 2005 are actually going to jump back in when prices decline 20%??? No, they are thanking their lucky stars they got out. What is a home worth, that you don’t want and noone else does either? Answer, nothing.
I also love the interview with the older woman who is in a huge home that she claims is her retirement “nest egg”. I wish I had a dollar from everyone who has told me that. Did they ever ponder that everyone may have the same idea and that there will be a huge number of people in her birth year doing the same thing? And by the looks of the average savings rates of these people, it appears that they will have to sell to get any retirement at all. They certainly will not have the money to maintain these large homes with no other savings.
My landlord has two properties purchased 2 years ago he bought for retirement 8 years from now. He has no other retirement plans. I feel sorry for him. However, I have had to move twice since 2002, when I arrived in Fresno area 40 miles towards Yosemite National Park, because the houses were sold. The first house sale was because of a divorce. The second was a 1800 square foot log house with very high ceilings which had room to build a third bedroom. It sold in 2004 for about $180,000, had the bedroom added with other updates, and is still sitting with weeds growning up around it. The first rental we were in has even higher weeds, but think it is a vacation getaway. Rumor has it that 30% of buyers were investors from cities near the Pacific Ocean where prices were higher yet.
Something I’ve pondered in this bubble, and some people touched upon this in posts the last couple of days, is the magnitude of the potential/unavoidable losses in the coming years: sure, when SoCal real estate tanked 30% in the early 90s, what were we talking about? $100,000? And that was what, less than 3x median household income circa 1990? Today, if real estate tanks 40%, we’re talking $250k in Orange County. That amounts to more than 4x median household income. And I don’t think this is going to run 5 years like the last time. I think it will be 3 years tops. It seems this is really, really bad.
it’s already coming down faster than the 90’s - agreed it will be quick and brutal- and BB will try to “save” it
I hadn’t picked up on that aspect, but you’re right. A 10% fall now will have a much greater impact than previously.
It’s just like the proportionally greater impact of interest rate rises today. When I bought my first house in 1979, interest rates went up 1% in the 2 months between exchanging contracts and settling, another 0.5% before I made my first payment and another 0.5% 9 months later. That move over a year from 10.5% to 12.5% hurt, but it was bearable because the original price was low (2.3 x income).
Today we see people treating a predictable 2% rise when resetting as the end of the earth.
“And I don’t think this is going to run 5 years like the last time. I think it will be 3 years tops. It seems this is really, really bad.”
The initial drop during the first couple of years will be steep indeed, but the downturn will trend downward for years as other economic factors exert a drag on the overall economy. It’s not a good time to be deeply in debt.
I agree with you, rms. People are not factoring in the demographic changes (poorer buyers from foreign countries, older Boomers selling assets to stay afloat in retirement, shrinking native population, GLOBALIZATION, etc.).
I’ve been saying for a while, the past 5 decades or so have been influenced by a domestically-growing population of increasingly educated and professional people. These people had employer-paid healthcare, pensions, and stable jobs.
I think we are about to see these trends reverse.
Not the time to
Sorry for the cutoff…
Not the time to jump into buying a depreciating asset with borrowed money. Unless, of course, the PTB decide to devalue currency — very much a possibility, IMHO.
I agree, three years tops. And one year has already gone by. Forget YOY prices, actual median prices month over month began heading down in 4Q05. If we continue to track YOY as the criterion, then we won’t realize the bottom has been reached for many months afterwards. By then, the smart money will have snapped up the bargains.
The bottom won’t bethat short. Don’t forget, we’re also tracking inventory. Now that inventory has gotten so high, prices won’t go back up until the inventory is below 3 months.
Its the opposite effect of what we’ve just seen. When inventory dropped to too low (
A lot of smart money won’t be investing in real estate any more.
same situation in the Netherlands. If RE gets back to the trendline that is 80-85% down from current valuations. For the average homeowner, that would mean loosing 4-5x household income. Most homeowners have 5-30y fixed mortgages so things will probably evolve at a slower pace than in the US, but still … in the end the losses should be the similar.
In the 70’s the Netherlands had a 100% homeprice runup which was fully corrected in a 1.5 year, -40% crash (+ some inflation). Over the last 15 years the price runup was 600-1000%; I cannot imagine any crash that will correct this bubble. The Dutch banks and the government would probably go bankrupt long before we reach the historical trendline.
I’m amazed , with all the monies spent on education in this country, that there have been so many dumb decisions made by home buyers. With the internet, radio, tv and all the resources available, for information, people still made bad decisions. America has turned into a country of slackers and entitlements. This is a “look at what I have” society. Greed permeates all aspects of financial decisions. Employers have no loyalty to employees, and visa versa. Unions, the backbone of negotiated wages, benefits and retirements, have gone by the wayside for a me, me ,me mentality. Kids are left with child care providers, who do not instill values. Video games and television, establish our moral values, while the internet becomes a place for pedophiles to lurch. Our government lies, everyone lies.
Credit card fraud, loan fraud, drug use, all the norm in this country.
It will take a great depression event, to wake up the people of this country. Personal values, respect and morals must prevail, or we are destined to chaos.
According to my grand mother, she told me similar stories about the 1920s and how this attitude got beat out of people in the 1930s. She used to always tell me to finish my food not just because of the starving people in the world but also be thankful as someday hopefully won’t have to know what hunger is. Grandparents on both sides lost most everything in the 1930s. One pair had $100K in the bank. The other, a grocery store and a pile of $20 gold pieces saved up. They used to feed the poor in the nieghborhood as how could they turn them down? Eventually not enough people could buy food and they went under. I doubt Kroger will be so generous…
As a kid I thought it was quaint old time stuff and that we are better than that now. Now 30+ years later, I reall appreciate what these stories.
My father was born in 1921 and my mother in 1923 and they were both tight as a drum with money. It’s only after I got an appreciation of history and genealogy that I realize that they both grew up poorer than the backgrounds they came from - lots of people born in decent circumstances around the 1890s (my grandparents) prospered very well between WWI and the Depression so there was a whole generation (my parents, Brokaw’s “the greatest generation”) in which growing up poorer and in greater hardship and uncertainty than your parents was common. Possibility of a 75-80 year cycle about to repeat?
You might consider reading “the fourth turning” by William Strauss for insights into generational cycles. It is very insightful and deals directly with the upcoming hardship (which it forecasts to start right about now, it was written in 95′ as I recall).
People did not become better people during the Great Depression; they elected and re-elected the monster FDR.
If you’ve got some reading time, try tackling The Glory and the Dream, by William Manchester. It’s a historical but gossipy retelling of US political, cultural experience from Hoover to Nixon. If you think we’ve sunk to the lowest of lows you’ll feel better after getting through this one.
I like William Manchester’s ‘American Ceasar’, a Bio of Douglas MacArthur. Also ‘The last Lion:Visions of glory’, a bio of Winston Churchill, also by the same authur.
Wow, Terry, you sound like my parents and their parents and their parents… Humans never change, just the date.
terry is right on - xcept the part where americans learn their lesson. you’re basic overweight overdebt mr too much home buyer has no frame of reference on how to live right.
playing with a joystick the first 10 years of one’s life tends to do that to you.
“you’re basic overweight overdebt mr too much home buyer…”
Home run, out of the park!
Welfare statism and entitlements have done a great job of removing a sense of responsibility in one’s actions. Why bother about future consequences when someone his convinced that the costs will be externalized in one way or the other?
…”kids left with childcare providers who instill no values…”
What a rude, ignorant comment. My 3-1/2 year old comes home from daycare every day talking about being nice to people, asking not grabbing, and being gentle with animals and babies.
You are clearly one of those misogynists who believes women are less intelligent than men and should be locked up barefoot and pregnant in the kitchen. Ah, the good old days! My IQ has never measure below 145 - how about you? I am surely more productive and successful in my career than you (I have an MBA from a top-tier school- what is YOUR degree in?) My son is bright, happy, and secure. Go move to some desert island so you don’t have to deal with selfish, don’t-know-our place women like me. And stay off this blog! I love to read the insightful, intelligent comments here about the real estate market, not your drivel about how awful people, especially working mothers, are.
hmmm…
Just my two cents, but that seems like a disproportionately harsh reply to Terry’s post, irvinesinglemom. I fail to see how his post clearly labels him as “one of those misogynists who believes women are less intelligent than men and should be locked up barefoot and pregnant in the kitchen.”
You’re entitled to express your opinions, but you’re out of bounds when you tell Terry “And stay off this blog!” You are not the moderator here.
I stand by my post. This is a fantastic forum, I find the real estate bubble fascinating, and it infuriates me when I have to read judgmental comments like Terry’s that have absolutely nothing to do with real estate.
Judgmental comments? Your comment to him was perhaps the most judgmental comment I’ve seen on this blog in recent memory.
You are clearly one of those misogynists who believes women are less intelligent than men and should be locked up barefoot and pregnant in the kitchen. Ah, the good old days! My IQ has never measure below 145 - how about you? I am surely more productive and successful in my career than you (I have an MBA from a top-tier school- what is YOUR degree in?) My son is bright, happy, and secure. Go move to some desert island so you don’t have to deal with selfish, don’t-know-our place women like me. And stay off this blog! I love to read the insightful, intelligent comments here about the real estate market, not your drivel about how awful people, especially working mothers, are.
I recognize that being a single mom is a tough gig, but there’s a disproportionate amount of anger in your reply, and you call him a misogynist. You’re entitled to stand by your post, but you failed to make a valid argument to establish Terry as a misogynist. All I see is an ad hominem abusive fallacy. My hypothesis is that something in his post struck a sensitive issue for you. It happens, and we’re all human.
When you were in your top tier MBA program, you probably studied statistics. Use your 145 IQ intellect and recognize that statements about populations do not apply to individual data points.
Go back and read your post again in a day or two and in the light of a new day I think you’ll see it differently.
test
I don’t understand this two mortgage/house situation people get themselves into. When we moved, we spent $4000 extra + $1100 / month storage for most of our stuff and lived in a small apt while in storage till we found a house. This seems like a MUCH safer strategy even in a stronger market. Not only that, we had peace of mind.
I don’t understand these people who sign up to have two houses and not wanting to be a landlord. Doesn’t make any sense.
what you are missing is the r/e never goes down and that there is always a greater fool.
when you live in one and have the other for sale, both are appreciating, so you get the effect of all the leverage.
until….
the time comes, when the music stops, all the chairs are taken and it’s time to play the piper.
BTW..at this point in the show..the fat lady has stopped singing and is at the Pancake House putting syrup on her second stack…
I lived in Austin and bought my first house in 1985. The market crashed and it bottomed out at 40+% down for tract homes. Believe me, I learned early about how real estate can go down.
oh, I was being sarcastic…
These people that think it only goes up are so mistaken.
In a good market, one could be +/- 10% at any given point in time…and that is in a good market.
I still scratch my head over small time RE investors. Even in a great market, houses aren’t like stocks. You can’t sell it fast by picking up the phone, and it costs money (and WORK) to keep it running month after month. There are so many ways you can lose money–even in a generally upbeat market you may not find tennants, they may stop paying rent, your roof may blow off in storm, you may be faced with a lawsuit. All these need to go into the equation.
And, if you buy a stock for cash that goes down 10%,you lost 10% of your investment.
If you have NO savings, buy a 200,000 condo, you have to sell it for $195,000, after putting, say, $5000 into it and paying a R-E broker 11000 to sell it (6%), you’re now over $21,000 in the hole! This is money YOU OWE after you’ve pulled out of the investment, with a decline of only 2%! That can even happen in a good market if, say, after your condo goes up, a nicer one goes up priced similarly, down the block…
Also, a lot of these “get rich quick with no money down” folks bought several condos IN THE SAME PLACE. How stupid is that? At least find a few different areas that you think may have potential, and diversify a bit! That’s investing 101!
You were willing to suffer temporary deprivation in exchange for peace of mind. Many don’t have the patience or the planning skills to recognize there is an alternative to owning two homes. What’s worse, I doubt many of these fools noticed they were jumping on board the rollercoaster just before it started the downhill stretch, and would get stucco as a result.
Interestingly, it really wasn’t deprivation. We were in a luxury 1 BR apt paid for by my employer for 4 months. Didn’t have a mortgage payment for 3 months either…just the $4K and the storage fee. But I would have paid the $900-1000 / month for the apt anyway on a month to month if I had to…no problem.
I made sure I sold my house first before I even looked for another house .It turned out that I got a all cash offer on my house ,but still I wouldn’t look for a house until the buyer went through all the inspections on the house and approved everything .
Prior to the house selling the realtors kept trying to get me to go look for a house to buy . As it turned out the new buyer of my house wanted a 2 month escrow so I had more than enough time to look for a house .I wish I would of rented instead but I bought way down and just got a retirement house on the fixed rate putting 50% down .
I just want to say that the whole time I was marketing my house I felt like the realtors were working against my best interest . In fact at one point I had to just take over the deal and write up the counter offer myself because they were so hard pressed to act in my best interest . I was in the business before so I knew what they were doing ,but I just pity a person who doesn’t think they need to look out for their own best interest .
I did a coroporate reloaction once in 1989. Didn’t have a house to sell, but…they put me up in a nice apartment with MAID SERVICE for 3 months, and I loved it! I certainly wouldn’t have carried two mortgages..if I did have a house. I would have waited for it to sell, stayed in corporate housing for a while, and then bought or found a more permanent place to rent.
I had the option of statying there longer if I wanted to (I’d have to start paying the rent myself.) Fortunately, it was the start of a housing bust, and I picked up a house in Sunnyvale (from some laid-off Apple employee) cheap….
another thing about selling first and renting, is that it lessens the pressures associated with closing day, moving in, it gives one time to clean, paint, etc.
You were wise to settle for peace of mind.
Those who have only a piece of a mind are short on wisdom.
But, is it better to have had money and lost, than to never have had money at all?
Maybe this throw-away, buy another one, made in China, lifestyle will start to change.
Duct Tape for everyone!
I noticed 1/2 the 220 NEW listings on CNY.com today were $135,000 or under. This was the last one on the list. Anyone want to sell their car and pay no rent or mortgage?
http://tinyurl.com/hfong
For those that are in a hurry it’s listed at $12,500 and its not the only home at that price.
I had an appointment in Syracuse earlier this week. I got lost on the way there. Truly, I felt an almost overwhelming wave of depression to see what some people have to face every day as their neighborhood. I thought if I woke up there, I’d turn to drugs or escapism too even though I had the benefit of education and experience. (I’ve only felt that once before when I visited a sister’s friend in Alphabet City/NYC.) It was so amazingly deteriorated. I thought, forget what’s coming. These people already live in a Depression environment. What will become of them in the next few years?
I lived in Syracuse a couple of years ago, indeed the southside is downright depressing. I lived in the northside, it was not all that bad. The one thing most notable to me was many of the people in Syracuse are content with life and they have pride! They rake their lawns and plant flowers and try and make their lives more pleasant. Dewitt is a very nice place to live. Syracuse has many “villages” surrounding it which are within a 30 minute drive. Upstate NY is quite beautiful although snowy and cold.
I compare this to Albuquerque, NM were I have live for the past year and a half, I was very happy to leave. I found people living in 200k shacks with multiple cars parked on their rock yards with weeds growing all over the place. The weather is sunny what 300 days a year, there are dust storms from hell. It takes forever to get “out of town” to somewhere else.
Hi Walt,
I was on Teall Ave when I had those reactions.
Usually I speak of the more well to do towns in the area. This was my way of balancing. Sorry if I came across as crass. My husband grew up in North Syr. His parents have good memories of the area (but have commented its not the same today)
RE: Getting out of Albuquerque - I heard that a light rail was going to be built between Albuquerque and Placitas, where I suppose the upper income earners in Albuquerque plan to build or are already established.
Go drive through Elmira sometime. Many of the businesses downtown are boarded up. It’s worse.
So the total commission on that baby would be about $750, split two ways if the lister sells it and four ways if someone else does.
Ouch! Your house payment just doubled
Big, fat surprises are ahead for about 20% of homeowners: Their complicated, often-risky adjustable mortgages are going to soar as introductory interest rates expire.
http://immobilienblasen.blogspot.com/2006/10/ouch-your-house-payment-just-doubled.html
Es wird viel Schadenfreude machen…
when we here in germany read these storys it feels sometimes really like fools day. we just cannot believe this craze. i remember when i read the first bubble storys early 2005 i refused to believe the facts.
only after i read the storys from all different sources and they all had the same context i took the info for real.
i really can understand that there is sometimes “schadenfreuede”
It is still hard for me to come to grips with the mania, and I drive through a sea of McMansions on both sides of the freeway every day on my way to work.
Yes. I am a product of my time.
I think you can watch the mania with your own eyes if you go to the small German towns near the Dutch border …
That’s because you Germans are smarter than the rest of us.
Yes it’s a total generalization and it is one I believe. Spent time in German, have business associates that are German, and the intelligence of the German people is known the world over.
yes, the Germans are a bit more down-to-earth (maybe a bit more pessimistic?) than the more southern Europeans, or the Dutch who tend to go along with all the latest financial hypes (they have been doing that right from the 17th century, when they invented the stockmarket). Also, the Germans have their experience with hyperinflation which, although a few generations ago, possibly makes them a little more resistant to financial manias.
But for the absence of a housing bubble, I’m sure the major issue is the huge cost of the German reunion. They had a black hole that swallowed all the money central bankers were pumping, unlike the rest of Europe were the easy money ended up in stocks and real estate.
posted “That’s because you Germans are smarter than the rest of us.”
That’s why they always almost, aways win the war.
Here is an interesting link from the Columbia Missourian news dated Oct 1, 2006. It may not have yet been posted here.
It is tittled: Swimming In Surplus
http://tinyurl.com/ppoot
‘ In his fifth year as a general contractor, Andy McVey has fewer years of experience than some local builders, but he considers himself a career builder who is committed to the business in the long term. ‘
The house, about 3,000 square feet, is listed at $424,900. McVey said he is confident that his higher-end houses will sell even when the market slows down.
“People in that market have money,” he said. “They may not be affected by things like gas prices and interest rates.
“I’m starting another house down the street,” he said. “I wasn’t going to start that until I had this one under contract. But I … have a feeling this house is going to move.” ‘
‘ Strothmann and many of his colleagues in real estate think the market is going through a correction phase.
He said that in the last few years, too many people started working as general contractors, many of them without enough experience or enough of a long-term commitment to the business. He said that if some builders can’t survive in this market, maybe they should fall back to a line of work to which they’re more committed.
“That sounds kind of cruel, but it’s a fact and it’s always been a fact,” Strothmann said. “I really think that there are far too many people that, just because it looked like the grass was greener on the other side of the fence, they jumped over. Those people have kind of created a little extra glut in the market that doesn’t help.” ‘
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I believe this builder’s thinking may be very similar to other builders who have never seen a housing downturn. They like to think “it can never happen to me.”
The more builders there are like McVey who continue to build because they believe their buyers are immune from interest rates, the longer the duration of this bust.
The only way interest rates would not matter to his buyers would be if they are buying his houses with cash.
Maybe his buyers in Columbia, Missouri have multi-million dollar a year incomes, and pay with cash?
Anybody in Missouri want to give us the low down on these multi-million dollar a year income types in Columbia, Missouri ? Any info would be greatly appreciated.
Sam Walton is from Columbia. But he is dead…
Don’t you have to prove everything to anyone from Missouri?
You just have to Show Them…
Yes, it’s the ’show me’ State………..sounds somewhat voyeuristic.
But what continues to strike me is that these builders must get FINANCING from somewhere, unless they are using money from the last job to float them through the current job. Sooner or later, and I think probably sooner, the money flow has to stop.
I am from Columbia MO. Great small city, high level of educated people there with a lot of wealth. Tough place to grow up. Sam Walton went to high School there and attended the University of MO in economics. Two of the Walmart heiresses live there-his 2 nieces-billionaires. I went to one of their houses once while in college as hired help for a party and then years later got an invitation to go there for a fundraiser, ex- hubby wanted no part of it.
One big contrast between Columbia and Tampa is that in Columbia the ostentatious show of wealth is considered crass and in poor taste. Here in Tampa, people are more into flashing their wealth around. I can only surmise that it is a difference in the level of education between the two cities. I have a sneeking suspicion that a lot of the seemingly rich in Tampa really get their money in the form of debt. People with a high level of debt spend their money very differently than people with a high level of wealth. Or maybe it is just that when you are a Walmart heiress you don’t have to go hog wild on a huge mansion to try to impress people.
The more builders there are like McVey who continue to build because they believe their buyers are immune from interest rates, the longer the duration of this bust.
The more houses added to inventory SHOULD pressure price declines faster. Prices being set at the margin from small builders needing to move inventory to maintain solvency (marketing to a decreasing population of buyers due to fear) SHOULD speed the downward spiral in pricing. Just my opinion of course, but it seems right. That is why several folks on this blog called for a rapid 20%+ decline in prices (prior to X-mas 06 in many markets) to account for builders undercutting resales to move inventory. It will be interesting to see what happens once prices get to the level where builders are sustaining losses on the sale. Paying interest on completed inventory and holding prices steady while hoping for a turnaround in the market place probably won’t be viewed as a sound strategy by most builders. Once the general (selling) public embraces this strategy then it will be a race (price declines) to compete for the remaining buyers. Some markets are starting to see this happen (reference nnvmtgbrkr comments from yesterday’s thread where 100K price drops are starting to occur in Reno area). Prices have been sticky up to this point but it seems like we are about to cross into the next phase where the sellers finally “get it”. IMHO.
I’m in SW MO, in a small town halfway between Joplin and Springfield, off I-44.
I’ve posted various times about the situation here. A week ago a banker told my brother there are 400 emply new houses in Republic, MO, a bedroom suburb of Springfield. (Springfield is a small town only 150K people, I don’t know the size of Republic). My brother and I drove over to Republic and cruised around these new subdivisions…HUGE McMansions on small lots in all stages of construction. A few lived-in, many empty. Even in our little town population 4,000 there are mini-McMansions in the town, and various sizes of houses being built in sub-divisions around the town. A friend of mine lives right outside of town in a 30 yr old ranch house, the one next to her (on 3 acres) was listed for $235K sold for $205K after a few months. This house had been expanded without any design and was an architectural mess although probably 3000+ square feet and a big koi pond and deck and barn. My guess is the average family income here is about $40K.
Coincidentally I just spoke with my landlord (he’s out mowing the “lawn” which is what people here do with their spare time instead of planting low maintenance native plants). His son is in the sink/bathtub manufacturing business. His son’s business is BOOMING. Both for houses and hotels (the hotels are in Branson). We just had a discussion about the future of housing prices here and he said all of the usual irrefutable facts: “it’s different here our little town is considered one of the best small towns in the country as reported by the MSM” (I never saw this - the only thing I’ve seen is this town was featured on Larry King Live as having more teenage pregnancies than any other town in the country.) He also stated that “they aren’t making any more land” (we are in FARM country) and the foreigners are moving in by the millions and having lots of babies and they have to live somewhere”. I was at a loss for words. You would think after reading this blog for 6 months I could put together a coherent argument but I’m so dumbfounded that anyone could find this place UNIQUE and SPECIAL that the cat got my tongue. It’s special if you have family here, or a business or whatever, but to the casual observer it’s just another farm town off the freeway with a bunch of motels, truck stops, and a “has potential” but totally rundown town square (with a gorgeous stone county courthouse).
Behind my rental duplex they are building another row of houses — I believe these will be single family homes around $150K but I’m not sure.
No one but me (and my family and a handful of others) think there will be any slowdown here. Oh, one real estate agent did tell me that houses over $150K are not selling.
One last tidbit…a friend put his house up for sale at $190K for two weeks (a 60s classic house, really nice on 3 acres, but no garage and no basement). Didn’t even get a nibble for a few weeks so he rented it for $1200/mo. That rent seems way too high to me (my duplex rents for $550/mo, 2 bd, 2ba, 2 car garage, large yard). The new renters are from out of state (TX).
Ozarkian, You are fairly close to my brother who lives in Nixa, MO. I think they are getting a lot of folks from CA moving in. There have been several that moved into his neighborhood from the west coast in the past couple of years. My thinking is that when CA sales dry up (right now) then inventory will go through the roof in your area and prices will start down. When I go to visit him I can not believe how many RE related businesses are starting up around his area. Lots of furniture, window, design, etc., etc. places opening along with all the other mandatory stripmall stores. Branson is still going strong but I think they are mostly finishing up what was started a year ago. I have seen several developers trying to sell whole subdivisions to other developers, which to me is a sign of distress.
As an aside to your comment on teenage pregnancies, I’ve spent the summer in a small community on Bull Shoals lake. They boast a population of about 300. The school holds everyone from K-12 and is a pretty small building. My wife reports that the senior class is a total of 11 kids of which 5 are female. Care to guess how many of those came back from summer vacation pregnant? Well how does 4 out of 5 grab ya? That’s right, 80% of the senior class females are pregnant. Homeschooling is looking pretty good right now.
Hi auger-inn — I don’t know if you will be back to read this post. Right, we have people from all over that have moved here. I just went out with 2 friends: 1 from CA 3 years ago, 1 from TX 3 yrs ago, and me, from CA 1 yr ago. Half the people I meet are relative newcomers from CA, AZ, TX, MA, usually. This must be happening in every small town around the country if it is happening here, because there is NOTHING SPECIAL about this place (again, not that it isn’t alright, it’s just not uniquely different therefore logically all places must be attracting out-of-staters). The friend from TX is actually from AZ near El Paso and she bought 40+ acres here she said land was too expensive in El Paso (3 yrs ago).
Glad to hear there is a new town that has risen to the top of the unmarried teen pregancy chart to displace our town from that pedestal.
Hmmm….Columbia’s close to the State Capitol, so maybe it’s the rich lobbyists for the construction industry buying up those big homes….
Here’s are amazing poll results from Barron’s via the Big Picture. I don’t think ignorance is going to be blissful for these folks:
Via Barron’s (print ed) comes this fascinating survey by RBC Capital. They asked over 1,000 U.S. Homeowners numerous questions. Here are some of the more interesting answers:
75.6%: see their Home’s value climbing over the next few years
46%: expect a gain of 5% or more annually
30%: foresee a rise of 10% to 15% a year
70%: said their home’s value has risen 10% or more in the past 3 years
6% think their home’s value will sink in the next few years
7.8%: worry that their mortgage might exceed the value of their home
Any similarities between home owners and equity investors circa 2000 is strictly intentional.
Source:
Review & Preview
Barron’s, page 14
October 9, 2006
amazing.
here are more infos on the survey
http://immobilienblasen.blogspot.com/2006/09/denial-hope-brainwashed-most-expect.html
Those numbers show early we are in this downturn in prices. There’s still a lot of denial out there.
“Those numbers show early we are in this downturn in prices. There’s still a lot of denial out there.”
100% agreed. the new aol/forbes moody’s 2016 rosy forecast will keep these blissful homeowners feeling warm and tingly through the long plateau….:)~ accordingly, all the major cities will have appreciated quite nicely in a decade ;oO
i guess.
moody’s 2016 housing forecast:
http://tinyurl.com/mpuoq
These numbers also show why the downturn may last 10 -15 years. Denial lasts for a long time.
Nah, denial only lasts until reality punches you in the face a few times. That won’t take more than another year — two at the very outside.
It’s why they are called “sheeple.”
I moved to North Carolina, particularly around the Research Triangle Park. A homebuilder here is dropping prices on inventory homes by a fairly good amount, from 290k to 250k on pretty nice homes, I was going to put an offer of 230k just to see if it would stick. I have a feeling that it is going to come down even more.
This place still has significant population growth and very good schools, also the town where we are looking has been rated in the top 5 places to live in the US for the past couple of years.
I was told by their “preferred lender” that the builder is no longer accepting contingency clauses on their contracts (the clause usually states that if you can’t sell your existing home you are not obligated to continue with the purchase of the new one) and that they are having a lot of trouble because a lot of the people that were buying here were out-of-staters.
Just wanted to share that with you. I also have a bad feeling with the new Dow records etc… I think we will have bad things coming our way.
http://raleigh.craigslist.org/rfs/214083613.html
Interesting link for those who might think there’s not a bubble in NC. This sophisticated seller is obliviously too cool for school.
poor guy in the ad…he can barely spell. If it’s such a slam dunk investment for subdividing, how come he’s sellin’ it????
Please post a more explicit warning. My head is killing me after reading that gibberish!
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Can someone please help me with an Excel formula? What would I use to calculate an annualized rate of return given two values and a period of time? For instance, a $500K investment grows to $800K over 10 years. What is the exact Excel formula to calculate the annualized return? Thanks much!
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found it -
Start Amount $500,000
End Amount $800,000
Number of Years 10
Rate 4.81%
=RATE(B3,,-B1,B2)
GetStucco - i’m sure there are more ‘beautiful’ ways of doing it, but this is how I do mine…
Take your annual interest rate (Cell A) multiply it by your intial sum (500K in this instance) (Cell B).
Make sure that Cell A is a decimal not an integer (ie 5% is 0.05, not 5)
Add it back to Cell B and store the new figure in Cell C.
Multiply Cell C by Cell A, then add the figure to Cell C and store the new figure in Cell D..etc
So - something like this:
(A*B)+B = C
(A*C)+C = D
(A*D)+D = E
…….
(A*K)+K = L (L being year 10)
As for the percentage value - there is a formula for it, but I can’t remember….tiny brain and not enough coffee yet.
However, I plugged in your figures to my Compound Interest spreadsheet and found the figure to be 4.81224% to get 800K dead after 10 years, from 500K.
The good thing about using a seperate value for interest (cell A) is that you can plug in any number you want and can refine the answer to fit the number you need to get to. Just make sure to format the percentage cell to about 5 decimal points to help you do so - ie i started at 5%, went to 4.5%, and then adjusted it upwards to come up with 4.81224% @ 800K, form 500K over 10 years.
Yes, its a lowdown and dirty way to do it, but it works!
Another answer is natural logarithms.
800K = 500K * (1 + R) ^ 10
ln (8 / 5) = 10 * ln (1 + R)
(ln 8 - ln 5) / 10 = ln (1 + R)
1 + R = e ^ ((ln 8/5)/10)
1 + R = (8 / 5) ^ 1/10
R = (8 / 5) ^ 1/10 - 1
Or in Excel form:
A1 = 500000 (original)
A2 = 800000 (final)
A3 = 10 (years
Rate = (A2/A1)^(1/A3)-1
In this case: 4.8122
Just a different illustration of why borrowing money to buy a house could put you in trouble: My engineering contract of 43 months is about to expire at the end of November, I’m told. There always is the chance that I have to greatly downsize my income. I could easily find a job paying $80,000. But my goal is to buy a California coastal home with ocean view. On my current income, I could do that, if my income lasted through the mortgage payments. But that is usually not the case for contract engineering. I once lived in a cookie cutter (starter) home. Very boring and I vowed never to do that again. Lost 20% on that one anyway. For me, it’s dream home or nothing. My tastes are expensive so I have to (ironically) live cheap and save as much as possible in T-bills, Savings bonds, municipal bonds, money market funds, and precious metals.
“My tastes are expensive”
(my attempt at gentle ribbing)
I once drooled over(1990 prices) $300k sailboats built for the open ocean. The money would have been invested in the integrity of our hull and the reinforcement of materials to withstand the slamming we’d take in any storms. The boat was only about 35-40′. (He actually thought he was going to get me to sail around Cape Horn!)
The point is we all have luxury tastes. It’s the American way.
Bill,
I can relate to this. Where are you thinking of? Central or south coast?
Both places! I like Laguna Niguel and the San Simeon area. I also like the north coast around Mendocino.
My wife and I went to some open houses last weekend in Santa Clara, CA and more than half of the 7 or so homes we saw had “just been reduced” by $20K. They’re still way too pricey, though. Just for curiousity, I went to craigslist and compared the rental price of a 3BR 2BA home at Rivermark (a relatively new housing development), $3100/mo, vs. the asking price of a similar home, $758K. If you assume a 100% financed 30 year fixed at 6.375%(if such things were possible), that would be total payments of slightly under $6K per month once you figured in property tax and the association fee. So that means it costs slightly more than half as much to rent as it does to buy! A person who bought such a home as an “investment” and rented it out would be cash negative almost $3K/month!
Ed;….1st time I have seen you on the blog…Santa Clara is my crib also…
A couple of anecdotes from Santa Clara County:
My husband’s coworker’s friend submitted an offer on a house that was $80k under asking in Los Gatos. It was allegedly a multiple bid situation and the offer was accepted.
I have a friend who has her house on the market in Cupertino. It’s been almost a month - she’s received zero offers, not even a lowball.
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He bid too much!
That’s what I said
The Cupertino story suprises me. I sold my house in Saratoga (in between Cupertino and Los Gatos) Oct ‘05. I had 2 offers in the first two weeks. I took the best one (it was $60K over asking, but I had priced to sell!) and I felt LUCKY to get out then. [6 months previously people were getting 10+ offers.] Most of my friends, and all of my neighbors, thought I was crazy to not price the house higher. And Cupertino, which has lower priced houses overall than Saratoga but along with the other towns a top-notch school system, was considered a snap to sell anything. So, a year later, things must be changing, albeit slowly. BTW, Cupertino is more than 50% Asian (it may be over 75%) and Saratoga is headed in that direction. Many of the people are immigrants — my big fear is that the Chinese money would dry up and the housing market would go “poof”.
Lunar;…. There is a smaller pool of buyers this time of year and the philology of the market has changed…The buyers that are looking are patient and well informed…I suspect your friends house in Cupertino is just priced to high….Some sellers or should I say Realtors are just willing to throw out some extravagant number with no basis for its asking price and see what happens….its those properties that you are seeing the price reductions….Inventory is still relatively tight and the well cared for homes still move fairly quickly….
Sorry;….Psychology not philology…Gotta proof read….
I think “philology”, works better: Philology, a field of study that sheds light on cultural history.
scDave,
Can you post your contact info, or let Ben know. Thanks..
BEN;…..Can you please give Fred Hopper my email address….Thanks….
scdave….
My friend listed the home about $40,000 higher than what her realtor suggested. I believe the house next to my friend sold last year for the price she is currently asking. I did not think my friend would get her asking price - I’m just sort of surprised no one has offered under asking. The house is in good condition in a nice part of Cupertino. There has been a decent amount of traffic whenever she’s had an open house.
Offering under asking had been passe for the past few bubble years in the Bay Area. If you did so, you risked “insulting” the sellers, or so my agent told me.
Ha! Now that the market had turned, why would buyers waste their time and energy on trying to negotiate with delusion sellers on their crappy houses with unrealistic prices.
The reality is, if your friend don’t price her house properly for the current market, buyers won’t even bother with her. There are plenty of good deals to be had coming in the next few years.
I had been monitoring the Cupertino market weekly since 3Q05 and the same bunch of old and overpriced houses had been sitting in Cupertino/West San Jose w/o any action except grudging 10-20K reductions.
Well priced and well located houses in good condition do sell (and did sell in that period)! But I estimated maybe 1% of the sellers over that period were realistic enough about the current market to price their houses properly.
In fact, there were maybe 5 houses out of the 150+ listed over that period that I had been tempted to make offers on if I hadn’t made a firm decision with my wife to only start seriously looking at the end of 2007. Those 5 houses went pending within 2 weeks of initial listing.
The most laughable listing was the previously mentioned “shell” of a house in SW Cupertino that started life at $899K and went all the way down to $600K before getting bought (by what idiot I wonder).
Those two listings of $870K 3B condos at Stevens Creek and De Anza are pretty humorous too…
Get your friend to reprice her house appropriately or it will join the growing pile of trash listings in the Cupertino market.
Potential buyers like me watch the market very closely and can easily pick out the few gems from the large pile of trash listings.
I totally agree with you. However, I find most of my homeowner friends do not believe a bubble is possible in the Bay Area. People will just have to learn the hard way.
I’m going to a social function tonight and I’m sure I will be asked the question, “Why haven’t you guys bought a house yet?” I’ve given up trying to explain.
Btw, I agree those De Anza condo listings are hilarious! Who would buy this crap?
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Did anyone see “SuperRealtor” Tom Adkins on Fox News Channel this Sat morning? He looked like a shellshocked deer in the headlights. No more “RAH RAH RAH!” RE cheerleading anymore. Just like Babs Corcoran. His last words on the show were litterally “Greenspan/Bernanke went too far raising rates.”
I didn’t see this…but the funny thing is that AG/BB raising short term rates helped keep long term rates down! It’s not that much more for a 30 year loan today than last year.
But, if you needed 2% 3 year ARM money, you are toast…that will come back only in a deflationary/depression scenario. But then, one may well not have the job to buy anyway.
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Great point.
His last words on the show were litterally “Greenspan/Bernanke went too far raising rates.”
He must be shellshocked, spouting nonsense like that. This guy can’t deal with low unemployment and 5% interest rates? What does he want, an even bigger bubble, an even greater crash? Good grief.
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“litterally” - typo - no pun intended!
LA Times publishes article on backpedaling RE economists.
They still say we are wackos expecting too much of a discount.
The damn journalist doesn’t trot out their quotes from just a couple of months ago and ask the real question.
If you were so wrong just 3 months ago why should we believe you now?
http://www.latimes.com/classified/realestate/news/la-re-dips8oct08,0,6391886.story?coll=la-home-realestate
A bit off topic, but http://www.sacbee.com/101/story/35403.html illustrates how dirty a word “affordable-housing” is in the eyes of political candidates. Some highlights…
Citrus Heights City Council hopeful James Aiello charged in a recent televised forum that “affordable housing” is “minority housing” that attracts criminal gangs…
“I’m not against housing for the poor,” Aiello said in a telephone interview. “But let’s put it in an area where it’s not going to reduce the property values for everybody else.”
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“Martha Stewart doesn’t live here, but you might think she does!”
http://philadelphia.craigslist.org/rfs/217451947.html
The place is cluttered, IMHO. It reminds me of my last visit to get a haircut where I had to wait about ten minutes. Picked up a magazine: “Lucky — The Magazine about Shopping.” No snippets of news, politics, Iraq, nothing but vanity^2, i.e., me first! Talk about promoting a shallow existence of meaningless consumption.
The place is cluttered, IMHO. It reminds me of my last visit to get a haircut where I had to wait about ten minutes. Picked up a magazine: “Lucky — The Magazine about Shopping.” No snippets of news, politics, Iraq, nothing but vanity^2, i.e., me first! Talk about promoting a shallow existence of meaningless consumption.