“A Perception That There’s Going To Be Better Deals”
The Journal News reports from New York. “The chill in the national housing market is sending a shiver through the Lower Hudson Valley. Inventories for housing of all types rose by double-digit percentages in both counties, while the number of sales fell sharply. Sales of houses in Westchester fell by 20.5 percent, the largest increase for the third quarter over the past 17 years for which records were kept. Putnam house sales fell 37 percent.”
“Therese Fokine has been trying since January to sell an investment house she owns adjacent to her own in Mohegan Lake. Originally listed at $315,000, it now is being offered for $269,900. ‘Interest rates went up, and that’s a real killer,’ Fokine said.”
“Greg and Joan Patterson lowered the price on their house at Valeria in Cortlandt after they put it on the market in the spring for $610,000. ‘People are waiting. There’s a perception that there’s going to be better deals,’ Joan Patterson said.”
“Some brokers said part of the problem is the reluctance of sellers to take less for their houses than they could have gotten in the recent past. ‘That’s hard,’ said Carlton Gillman. ‘They don’t want to know theirs is worth less than it was six months ago.’”
“Greg Rand, managing partner of Prudential Rand Realty, agreed. ‘The interest is there. What you’ve got is a standoff. I don’t see the buyers buckling,’ he said.”
“Realtor Ilene Goodman in Croton-on-Hudson said ‘quite a few’ of her listings were marked down this year. ‘One of the first things you have to tell people (who sell) is, you can’t set the price and I can’t set the price. It’s the market that sets the price,’ Goodman said.”
“(Broker) Ross Keating in Putnam Valley sees a different dynamic. ‘People hear things are slowing down, so they start waiting, and it’s a self-fulfilling prophecy,’ he said.”
“Inventories for housing of all types rosing by double-digit percentages in both counties, while the number of sales fell sharply. ‘Considering that third quarter closings normally reflect peak market activity in the spring selling season and that this year’s performance was lackluster, there is little reason to expect a turnaround with the fourth quarter results,’ the MLS said in its report.”
“The median price of a house, representing the midpoint of all prices, was $716,125 in Westchester, an increase of six-tenths of 1 percent over the third quarter of 2005. In Putnam, the median was $405,000, a drop of 4.7 percent.”
The Times Union from New York. “Housing prices sagged in September around the Capital Region, the Greater Capital Association of Realtors said Monday. It was the first year-to-year decline since November 2000. The median price of houses sold during the month fell 4 percent to $187,000. The feverish bidding of just a year ago is just a memory, real estate agents say.”
“Norma Jeanpierre of Colonie has cut the price by $10,000 to $249,900 in the two months the house has been on the market. ‘We’re still waiting on the offers,’ she said.”
“The total number of units sold in Albany, Montgomery, Rensselaer, Saratoga, Schenectady and Schoharie counties also continued to decline in September. There were 940 closed sales in September, compared to 1,027 in September 2005.”
“‘It appears that buyers have more negotiating leverage now than they have had for several years,’ said GCAR President John McNamara. ‘That change in dynamics has caused sellers to readjust their thinking about what their home might be worth on the market.’”
The Connecticut Business Journal. “A surge in the number of foreclosures on both the state and local level has real estate watchers worried that the trend may exert more downward pressure on housing prices.”
“Connecticut’s foreclosure rate jumped 20 percent in the first nine months of this year compared to the same period in 2005, according to RealtyTrac. With 372 homes in foreclosure in September, New Haven County ranked below only Fairfield in sheer numbers of foreclosures and hit a monthly high for the calendar year.”
“Low introductory rates have begun to expire on many ARMs issued in 2004 and 2005, and some homeowners are seeing their payments nearly double. Hardest hit are those with sub-prime loans, marketed to those with low incomes or bad credit, which have rates that often start at seven percent.”
“‘A lot of them are bad loans they just can’t afford,’ says Doris Latorre, for a nonprofit agency. Latorre has seen a big jump in foreclosure calls from homeowners in all income brackets and from all over the region. After a period where most foreclosure calls were from Waterbury, she is now flooded with calls for help from Bridgeport, Fairfield, Stratford, Trumbull and New Haven.”
The Asbury Park Press from New Jersey. “A bankruptcy court judge today gave permission to Kara Homes to move forward with the sale and closing of nine homes. Kara had hoped to get permission to restart construction of up to 300 homes, but a lawyer for the troubled home builder said the short-term financing to get the company started again had fallen through.”
“East Brunswick-based Kara, one of the largest home builders in central New Jersey, owes creditors, including banks, suppliers and employees, hundreds of millions of dollars. Customers who have contracts for uncompleted homes are also listed as creditors.”
“Kara said it also wanted to reimburse customers who had canceled their new home contracts before the builder filed for Chapter 11. A lawyer for the committee of unsecured creditors said he supported the sale of the homes. ‘I hope this becomes the platform, reduce real estate and homes to cash, and we can debate who gets it later,’ said lawyer Michael Sirota of Hackensack.”
‘Huttig Building Products Inc., St. Louis, MO, distributor of millwork, building materials and wood products, announced its decision to close in the fourth quarter of 2006 two smaller distribution centers, one in Albany, NY, and the other in Grand Rapids, MI. In addition, Huttig expects to reduce its work force by an additional 130 positions in the fourth quarter of 2006. ‘While no company wants to take these actions, we believe they are necessary to improve our cost structure and operating margins, and ensure that Huttig remains focused and operates at maximum efficiency during the current weakness in the housing market,’ said Jon Vrabely, COO. ‘We expect housing starts to remain under pressure for the next 12 to 24 months,’ Vrabely said.’
“Norma Jeanpierre of Colonie has cut the price by $10,000 to $249,900 in the two months the house has been on the market. ‘We’re still waiting on the offers,’ she said.”
Hey…wait…I think I hear the bus full of hungry buyers coming around the corner…No..No…Its just the trash truck.
It was always the trash truck.
With an ex-RE agent at the wheel!
Thanks the_economist, that was a good one. I really needed some good belly laughter.
I hope this becomes the platform, reduce real estate and homes to cash, and we can debate who gets it later,’ said lawyer Michael Sirota of Hackensack.”
Oh boy. I just have to laugh at this one. Sirota’s firm will get most of it. The buyers, lucky if they get anything back.
Yep, that was my thought also.
“A surge in the number of foreclosures on both the state and local level has real estate watchers worried that the trend may exert more downward pressure on housing prices.”
This bullshit reporting should be a lot more disturbing than the foreclosures.
What about…”The widely anticipated uptick in foreclosure rates should put welcome downward pressure on home prices which should, in time, return prices to their fundamental value point”
You are not allowed to spin in the direction of falling home prices. It’s in the DL RE Spin Handbook.
I’m a “RE watcher” and I’m not worried. They must be talking about some other people.
Some brokers said part of the problem is the reluctance of sellers to take less for their houses than they could have gotten in the recent past. ‘That’s hard,’ said Carlton Gillman. ‘They don’t want to know theirs is worth less than it was six months ago.
If they don’t want to know this minor piece of information, then they will continue to “own” the home (until Mr. Banker comes with his papers stating that he now owns it and they get to inhabit the curbside outside - don’t forget to shovel the snow first!)
Lol. They are to busy shoveling the sh-t to shovel the snow .
Wonder how those KARA Home buyers are taking the news that they have to wait in line with the other creditors to get their money. Builders going bust will be the new buyer fear and they will end up putting smaller deposits down as a result .The days of the 25% deposits are over .
Builders should be required to post a bond with the state for situations like this, since they certainly can’t be trusted to look after their own finances. This would keep out jokers like Kara in the first place and make sure only qualified companies can be homebuilders.
That is why public works construction requires performance and bid bonds.
Smart homeowners should do the same.
Counter-party risk is a pain.
Shouldn’t there be an escrow account setup at a third party? I wouldn’t hand the money over to the builder. No way. When the house is done I will get the keys and the money gets released.
Not before.
Wiz/Joe Momma-
I think that these buyers are probably getting on line BEHIND the creditors. These buyers are finding out the reason why buying pre-construction is such a great deal - they are the equity tranche in a risky project.
“Some brokers said part of the problem is the reluctance of sellers to take less for their houses than they could have gotten in the recent past. ‘That’s hard,’ said Carlton Gillman. ‘They don’t want to know theirs is worth less than it was six months ago.’”
Lyrics to Blood, Sweat and Tears, Spinning Wheel
What goes up
must come down
spinning wheel
got to go around
talkin’ ’bout your troubles
it’s a cryin’ sin
Ride a painted pony
let the spinning wheel spin
You got no money
you got no home
spinning wheel
all al lone
talkin’ ’bout your troubles and you,
you never learn
Ride a painted pony
let the spinning wheel turn
Did you find
the directing sign
on the straight and narrow highway
Would you mind a reflecting sign
Just let it shine
within your mind
and show you, the colors
that are real
Someone’s waiting
just for you
spinning wheel,
spinning true
Drop all your troubles by the riverside
Catch a painted pony
on the spinning wheel ride
Someone’s waiting
‘St. Louis, MO, distributor of millwork, building materials and wood products, announced its decision to close in the fourth quarter of 2006 two smaller distribution centers, one in Albany, NY, and the other in Grand Rapids, MI’
But all housing markets are local?
Ben,
I’ve often said I have NO interest in buying any home that was built, bought or re-fi’d from 2002 on! If I were seriously “looking” it’s got to be strictly “pre-bubble”. After that it all seems to have a “poison pill” built in. Now that we are about a year “post peak” you really have to wonder. As builders frantically try to minimize their exposure just how shoddy will these 11th hour “inventory close-out” homes be? It starting to look like the 18″ tiles will be replaced with whatever the local carpet wholesaler had left in stock?
Actually, from what I’ve seen, some builders operate with that mentality all the time. Just look into Green Mountain near Denver or Highlands ranch (”mobile” homes and collapsing masonry due to bentonite). Some homeowners went bankrupt because their houses were condemned, but the builder got let off the hook.
There are good builders out there who value quailty. The trick is to figure out who they are and only buy from them.
Builders can’t put that money into escrow, they need it for operating expenses. Many builders are basically a Ponzi arrangement.
You’ll also notice how the new bankruptcy laws have no benefit to consumers who happen to be creditors to corporations. They only protect corporations from consumers.
Yeah, and if major construction defects are discovered a little later, the company that built them will no longer exist.
“Interest rates went up, and that’s the real killer”
“self fulfilling prophecy” (said of buyers that have taken a sudden interest in math)
You know folks I have gotten so tired of these half @ssed explanations. They’re offered really more for disinformation as anything. Int. rates are the “real” killer? Rally? When the overnight lending rate was 1% a 30 year FRM was what 5%? Now the overnight lending rate is 5.25% and a 30 year FRM is what 6.25%? Oh yeah, that’s a real killer! What kind of charity are these people looking for!
The “self fulfilling prophecy” thing messes me up too. The whole notion that this is nothing more than negativity feeding off of itself is just ridiculous. This too is just more distraction. Never mind the fundamentals, if only we’d get back to “rock n’ roll bidding wars” everything else would just take care of itself!”
By historic standards, interest rates are still quite low.
Just last night a friend told me he would never buy a house with an interest rate above 7%. It’s just too high. His wife and I tried to explain you refinance into lower interest rates on the way down, not the way up. He wasn’t buying our tax arguments either.
Your friend has no clue. You can’t refinance the price but you can often refinance the rate (lower).
The price will reflect the affordibility relative to interest rates; lower rates; higher price, higher rates; lower price.
That your friend doesn’t understand this easily comprehended fundamental means he is hopelessly, mathematically, challenged.
Also reflected in the (current) price:
- Lending standards
- Irrational exuberance
- Inflation expectations
There’s more:
- Appraisal fraud
- Builder incentives used to mask price reductions
- Cash back at closing, which also masks price reductions
It would make more sense the other way: never buy a house with rates below 7%. You can always refinance terms. Banks are a little less accommodating when it comes to adjusting the loan amount (unless you’re on the brink of foreclosure and they’ll agree to a short sale).
If a 1% or 2% difference in rate is a difference-maker in whether or not you can qualify for a loan, then you probably can’t afford the loan over the long-term.
But there’s a grain of truth in the self fulfilling prophecy argument. Given that it wasn’t fundamentals and only euphoric psychology (and fraud) driving prices up, it follows that a reversal or even tempering of that psychology would get things going in the other direction. That’s the way it works in all bubbles. You live by the sword and die by the sword. And then people start getting back to traditional valuation measures. Reversion to the mean is like gravity, you can only fight it for so long on the way up.
Agreed. It was a self fulfilling prophesy on the way up (Bid the price up high now, or you’ll have to bid it up higher later). It will be the opposite on the way down. That’s the way markets work.
‘The “self fulfilling prophecy” thing messes me up too.’
I will allow that the mania price runup was largely due to self-fulfilling prophecy.
“there is little reason to expect a turnaround with the fourth quarter results,’ the MLS said in its report.”
Or any subsequent quarters to follow. Key word here is “reason”. Yes, there is no “reason” for things to get better until the market falls back in line with fundamentals. Whenever I get those who say that the big turn around happens 2nd quarter of next year, I always reply by saying “and what is your “reason” for believing this is so?” The reply is a blank stare. The “reason” for the blank stare is that wishful thinking has no “reason”.
Interest rates are a killer. This seller wants to go back to the bubble days. The only way to even to begin to do that is to make rates even LOWER than they were at the height of the bubble and get those 40-, 50-, 99-year loans in gear.
This thing stopped not because of a minor uptick in rates. It stopped because it had run its cource. There was no voodoo to throw at it, and the buyers who were left could not make the math (or the emotions) work.
And even at a 3% interest rate, who wants to buy a depreciating asset? Actually the mortgage interest rate should maybe be NEGATIVE to compensate you for the risk, and for the obligation to pay ever-increasing insurance & tax. I read somewhere that in the 1930’s Treasury bills had an effectively negative interest rate because they were considered the only safe place to stow money. Not in the bank, not even in your back yard, only T-Bills. In the future, perhaps the Chinese will offer us negative interest rates to take custody of our savings.
Here are some examples of “good deals”.
http://biz.yahoo.com/special/pf103106_article2.html
KARA Homes is about to be a distant memory if the article identified below is accurate. I suspect this will be the first in a series of homebuilder collapses…..
http://www.nj.com/search/index.ssf?/base/business-1/1162284435289210.xml?times?bz&coll=5
Additional cash woes for Kara Homes
$5M loan collapses, creditors call for CRO
Tuesday, October 31, 2006
BY JUDY DeHAVEN
Newhouse News Service
Kara Homes’ financial problems have gotten worse.
A $5 million, high-interest loan that would have kept the company going for a month during Chapter 11 bankruptcy proceedings fell apart late last week. And now, creditors and lenders are demanding Kara founder Zuhdi Karagjozi relinquish control of his company and turn the day-to-day operations over to a chief restructuring officer.
Word of both developments came at a hearing in Trenton yesterday during which U.S. Bank ruptcy Judge Michael Kaplan was scheduled to rule on the $5 million debtor-in-possession loan from Medical Capital Group. In a courtroom packed with more than two dozen lawyers representing lenders, contractors and vendors, Kara lawyer David Bruck informed the judge Medical Capital pulled out on Friday.
Debtor-in-possession financing is money borrowed by a company during restructuring. Without it, Kara can’t operate. Homes remain unfinished and closings can’t occur.
Kara spent the weekend scram bling to line up new financing. Al though 70 essential employees re main, they are owed three weeks of pay, and the company has exhausted all funds to pay them, Bruck said.
In talks with lenders in recent days, Amboy Bank, which is owed $58.2 million, put forth the proposal to hire a chief restructuring officer. Although one possible candidate named in court was Roger Mum ford, a prominent New Jersey developer, Bruck said later in the day that he had dropped out. Lawyers for lenders and creditors said they wanted to interview several candi dates for the job.
Those interviews are expected to take place today. And the company hopes once a chief restructuring officer is hired, banks will be more willing to lend money to Kara during the bankruptcy proceed ings.
Judge Kaplan said he would leave his schedule open this week so the company can get quick approval if creditors agree on a chief restructuring officer and if Kara is able to reach a deal with another lender for interim financing. Kaplan would have to approve both measures.
In the meantime, Kaplan gave Kara permission to close on nine homes that are completely finished. The homes are scattered across the state.
The hiring of a chief restructuring officer reflects Kara Homes’ dire situation. The company, one of the largest privately held home builders in the state, couldn’t close sales fast enough during the hous ing boom. But it failed to put on the breaks as the market turned down.
The bankruptcy filing should have given the company room to breath while it restructured. But that process has stalled. While it is typical for debtors to line up debtor-in-possession financing be fore or soon after a company files for Chapter 11 bankruptcy protection, Kara has gone nearly a month without it.
“We find this case very, very much under stress,” said Michael Sirota, a lawyer representing a committee of unsecured creditors. “In order to restore confidence in the lender community and customers at large, we think that a chief restructuring officer with expertise in this area will give the debtor a fresh start.”
Seated quietly in the courtroom in a gray suit, Karagjozi said after the hearing he would cooperate with the chief restructuring officer. He had resisted past efforts by banks to relinquish the day-to-day control of his company, even as Kara had to file for bankruptcy protection and later had trouble finding a lender willing to give it debtor-in-possession financing.
Karagjozi said Medical Capital initially agreed to the $5 million loan, which was later reduced to $2.5 million, as a favor to him be cause he knew one of its principals. But he said the deal fell apart when Kara’s banks refused to give Medical Capital the collateral it wanted.
One Kara lender, North Fork Bank, already has sued Karagjozi personally for the $33.3 million the company owes it. Karagjozi gave a personal guarantee on all $248 million construction loans the company received from banks. Other lenders could follow North Fork’s lead.
“I think it’s unfortunate that North Fork felt they had to do that,” Bruck, the Kara lawyer, said.
Bruck said Karagjozi had no plans to file for Chapter 11 bank ruptcy protection personally.
“He’ll defend it,” he said of the North Fork suit.
Why don’t they just appoint a trustee.
Nobody other than the administrative claims, secured lenders and professionals are going to get a thing out of this IMO. What do you think?
This isn’t a publicly traded company, is it?
Nope, not public. IMHO, better for the secured creditors to get their guy (aka CRO) in, get the damn houses completed and sold, and then fight over the money. You put a trustee in place, then they will do nothing for a while, and eventually abandon the over-encumbered property after the lenders bring on motions for relief from the stay. Then lenders have to foreclose. Why not leave it as a Chapter 11, finish the houses, sell them, recover as much as you can for the secured creditors, give the unsecured creditors barely enough to pay their hired professional (attorney for unsecured creditor’s committee) and move on.
Reason I mentioned a trustee is I get from the story that the creditors don’t trust the current management. I wouldn’t either. But they did lend him a lot of money.
That’s why they want to appoint a CRO instead of a bankruptcy (liquidation) trustee. Kara’s liquidation value is nil, it only has value as a living company. But the company is pretty dead.
The fact that the DIP lender pulled out is a bad sign. B/C the DIP lender gets a “super senior” position (They get paid before anyone else, and all other debt is put on hold), DIP lending is quite safe unless the underlying company is dead w/o any ability to generate cash.
Kara Home Builders must of wrote up those contracts different because I thought that home purchase deposits were suppose to be put in a neutral escrow account .
Yep, under normal circumstances you would be correct. Problem as I understand it based upon postings in the New Jersey Shores Blog is the responsible managing real estate broker appears to be the mother of KARA’s founder and CEO. Perhaps that explains why the more traditional approach you suggest wasn’t followed.
Maybe not. An executive from one of the public homebuilders once said that pre-contrcution buyers were the cheapest form of equity financing he could find. There is a reason why pre-construction homes come at a discount: more risk. There is no way that the banks aren’t in front of the buyers in terms getting their money back….
No, no way. Those buyers can kiss their money goodbye.
that’s what I’m saying.
So for these buyers, who thought their deposits were safe in a escrow account only to find out there was NO escrow company securing their funds, can the contractors just finish the houses so these buyers can occupy them and then the contractors can stand in line for their money. These buyers are absolutely ASSED OUT!
http://www.app.com/apps/pbcs.dll/article?AID=/20061015/NEWS/610150397/1001/rss
The deposit is nothing more than an equity claim on the asset - escrow or not. The buyers in the article did not know what they were doing. Tough lesson.
Man, you would think in NJ they could get this guy and his mother taken out - permanently.
But that’s just it . The real estate industry got alot of buyers to buy in 2005-2006 based on “interest rates are going to go up “,so salespeople dug into future sales as a result .Now that climbing interest rates no longer move the market it’s the spring bounce of 2007 theory that is suppose to create the urgency .It’s all a bunch of BS spin .
Yupp, the entire industry dug itself deep into the ’sell now forget about future sales hole,’ cannibalizing future sales. What’s funny is to hear some industry representative (NAR and Lenders) shrug the predicament off indicating the through is just around the corner whilst others (homebuilders) dig faster and faster like there is no tomorrow and cluless resellers perplexed by the turn of events are up in arms with no where to hide.
Sorry, I meant ‘trough’ not ‘through.’
This is just representative of the “right now” psychology that infects so much of society. Rather than slowly build a reputation for quality products and service that keeps people happy and will make you rich slowly, a lot of people are in it for the quick buck. It’s just like how people borrow to the hilt to have everything they want now instead of (gasp) saving money and doing without until they can really afford stuff.
Very good point - the main driver in 2003 & 2004 was the low interest rates. The main driver in late 2004 and early 2005 was the fact that interest rates were steadily rising, and you better buy now before they go too high - thus the high sales count (and resulting upware pressure on prices) borrowed from future sales. We are now paying the piper with the reduced sales count - people who would have bought this year decided to last year instead; driving down current sales now and of course exerting the downward pressure on prices.
For this reason, I think the “rate of downturn”, with regards to reduced sales at least, is greater right now than it otherwise would have been had interest rates been flat. I think over the next couple of years we’ll see things stabilize more. By “stabilize” I mean that the rate of change will go down - sales will still continue to fall over time but the YoY falls will be less; and prices will still continue to fall as well but the rate of change of the fall won’t be as dramatic, in part for this reason. “Experts” will claim that this is due to fundamental value catching up to current prices, but in reality that won’t happen for another 5-8 years IMO.
The depleted buyer theory probably has good merit as part of the bigger picture, and if not the main reason, low interest rates were definitely a major catalyst. That said, low interest rates alone don’t account for the reason a potential buyer would be willing to take on much higher payments than they would have just a few years before. Fear and greed and speculative fervor seem to have been the controlling influences. Buyers gambled on toxic loans believing in almost all cases that they could cash out with a large profit or refinance before the rates on their loans went up, are now proven wrong. It is these buyers who forced prices so high who are now the catalyst which will send them down as unable to maintain their payments one after another their properties are foreclosed on.
The other factor we are starting to see is the loss of employment in the Real Estate industry it’s self becomes a downward pressure.
I suspect there will be a slow slip in prices for the next 6 months, but by the middle of next year, things will start to roll down-hill as more and more sellers are no longer motivated by greed, but by need.
What’s more, some and by all means not all property owners are pretty much ‘locked’ into their homes by the lower interest rates they bought with or refid into recently; they may not be willing to give up those low rates with a new purchase.
I don’t mean to imply lower rates will stimulate more purchases at higher prices b/c as builders have reported — even with interest rate buy downs, inventory is not moving. The point is if some buyers think they got the deal of a lifetime, there is no incentive for them to look further; instead, they may hunker down and enjoy the spoils. As a result, the group of available and qualified buyers is much smaller than it was 2-3 years ago and probably will not expand to those levels for another 5-7-10 years.
Even worse for the industry is that the remaining group of available buyers feel ‘priced out’ and as a result are demotivated and no longer searching for homes. Why bother looking if you believe you can no longer afford a home? Market conditions need to align themselves with the needs of this group of buyers for things to get moving again. Until then, sales are going to drip, drip, drip.
Priced out or just pissed off. Enjoying the schadenfreude of renting for 1/3 of the builder’s carrying costs.
That certainly describes my position. Bought in ‘99 refinanced the last time in ‘03. I thought about selling out and renting last year but:
1.) I don’t think that I’m likely to see sub 5% mortgages again and
2.) Equivalent rent is more than my current mortgage payment.
‘Interest rates went up, and that’s a real killer,’
Why do all these people think interest rates are killing the market? Whether someone was able to get financing at 6% or 7% isn’t really a big deal. The “killer” is the realization that prices are heading DOWN. If a buyer receives 7% financing on a property they expect to increase in value by 10% each year for the next several years the interest ratedoesn’t even come into play. Now that prices are coming down and inventory is building, potential buyers realize the value of the property could very well decrease by 10% or more each year for the next several years - that’s the “killer”.
The killer is the ability to stretch into an unaffordable home with exotic mortgages or arms and subsequent refi on bubble equity is gone.
You’re right, the exotic (rearranged almost spells toxic) mortgages only work when the bubble is expanding. Sellers need to realize that the market is now under the pressure of fundamentals before their ignorance and/or greed puts them upside-down. Already too late for many.
How did so many people think all these inflated prices would be paid off long-term? Unbeleivable.
If you got then on line, they could be e-toxic loans.
Now the anagram works
judicious1 — re your opening comment above, I agree it’s the downward momentum that’s feeding on itself, not the absolute interest rate. My husband & I bought a house in 1972 with a 7.75% mortgage, and didn’t much mind — house cost only 1.5 times our combined income and was paid off in under 10 years. House prices were rising, but not rapidly.
Made more money in the stock run-up of 75-77 than we did on the house.
The slow acceptance of zero appreciation is killing this market. Without speculator profit, these are just places to live - not investment vehicles. The cost basis must now reflect that reality, which is about 1/2 current values.
That’s all my wife and I will be looking for in a few years, a nice house at a fair price to just live in - imagine. We’re just waiting for most of the toxic mortgages and genius investors to get flushed out of the market.
‘Interest rates went up, and that’s a real killer,’ Fokine said.”
Didn’t she read the Fokine contract?
Perception is Reality… It’s like not asking the most beautiful girl in high school to the prom cause you think she has to be going with someone already, but in some cases she not going at all cause one asked her.. If no one is looking no one is buying…
“Greg Rand, managing partner of Prudential Rand Realty, agreed. ‘The interest is there. What you’ve got is a standoff. I don’t see the buyers buckling,’ he said.”
“Realtor Ilene Goodman in Croton-on-Hudson said ‘quite a few’ of her listings were marked down this year. ‘One of the first things you have to tell people (who sell) is, you can’t set the price and I can’t set the price. It’s the market that sets the price,’ Goodman said.”
“(Broker) Ross Keating in Putnam Valley sees a different dynamic. ‘People hear things are slowing down, so they start waiting, and it’s a self-fulfilling prophecy,’ he said.”
Looks like reality is setting in finally.
“What you’ve got is a standoff. I don’t see the buyers buckling.”
Standoff? Seems more like buyers have “tuned out” for a few years. They aren’t even interested because they don’t want someone else’s rapidly depreciating asset.
“(Broker) Ross Keating in Putnam Valley sees a different dynamic. ‘People hear things are slowing down, so they start waiting, and it’s a self-fulfilling prophecy,’ he said.”
A year ago it should have been: “People hear things are going nuts, prices are skyrocketing, so they start buying, and it’s a self-fulfilling prophecy.” But nobody wanted to believe that. The rise was based on fundamentals, not a self fulfilling prophecy. Yeah, right.
It’s amazing that financial journalists can’t recognize a momentum play when it’s dangled before their eyes.
With no economic insight of their own, they simply regurgitate whatever the “experts” tell them.
“The chill in the national housing market is sending a shiver through the Lower Hudson Valley.”
Central banker closes his eyes and chants, “There is no national housing market, there is no national housing market,…”
“September saw a softening in Capital Region house prices, the first since November 2000.”
upstate and downstate. all we need is central ny, buffalo and the lake placid region.
We looked into the Albany area about 18 mos ago…..looked into about 10 different towns in the surrounding area. Homes were valued about $100k more there than here for same type property….actually less than same as you didn’t get the large lots in capital area and the homes were generally older. I’d say the capital region enjoyed quite a bubble compared to central NY.
“Therese Fokine has been trying since January to sell an investment house she owns adjacent to her own in Mohegan Lake. Originally listed at $315,000, it now is being offered for $269,900. ‘Interest rates went up, and that’s a real killer,’ Fokine said.”
Interest rates went up … ever so slightly.
and are still at historical lows.
“Greg and Joan Patterson lowered the price on their house at Valeria in Cortlandt after they put it on the market in the spring for $610,000. ‘People are waiting. There’s a perception that there’s going to be better deals,’ Joan Patterson said.”
There’s a perception of moral hazard for the Fed to create more housing price inflation in order to offset the deflationary psychology that has filtered into the psyches of the untutored masses.
That comment really twists my balls. There is a “perception”???? And “deals”? Rightfully replaced with the words REALITY and FAIR MARKET VALUE.
“Low introductory rates have begun to expire on many ARMs issued in 2004 and 2005, and some homeowners are seeing their payments nearly double. Hardest hit are those with sub-prime loans, marketed to those with low incomes or bad credit, which have rates that often start at seven percent.”
Does anyone else find it bizarre to watch this slow motion train wreck play out in media accounts which we have predicted here for over a year now? It is painful to watch it go down.
I know. It’s eerie to see it play out so accurately.
Only one question left: On which side of the track will the cars end up on, right or left.
And, the pain is just beginning. The falling knife has just broken the surface of the skin: blood is beginning to seep. The brain is just now getting the signal that somethins is wrong, but has not yet sent the signal to the muscles to open the hand. It has had no time to even begin to examine the extent of the possible damage.
I know if I tried, I could get two or three more analogies in there.
The Sword of Damocles hangs over Pandora’s box.
LOL. Funny. And weird in a Freudian sense.
I would say the Sword of Damocles has already penetrated Pandora’s box, but that is beginning to sound a bit sleazy…
C’mon, the best analogy of today’s sad-but-true events was posted by someone on this blog a while back. It was so good I had to print it out and keep it:
“That high pitched squeal you hear normally occurs just after the bulbous head of reality gets shoved past the sphincter of denial.”
Be lucky all of us found Ben’s blog and each other’s collective reasoning. In the midst of mass insanity and cognitive dissonance found in every corner of the United States, this delicate collection of electronic bytes and words is really is a cool, refreshing drink of water.
Thanks, Ben. You have saved all of us a ton of cash, our minds, and our financial futures.
I got skewered (no pun intended) for that one by uncle fester so I assumed no one liked it. Glad it went over with some folks!
Poshboy, you are right about the refreshing nature of a seemingly intelligent conversation about RE. But we do have to worry a little bit that we might become something like the GWBush White House — so intoxicated by the company of people who agree with us, that we don’t give any consideration at all to differing opinions that might have some validity. So let’s be vigilant.
OK, so I admit it — I am starting to think the smart folks are the ones who stretched to buy homes they could not afford, as they recognize the critical mass of owners in a similar pickle virtually assures the govt will act to reinstate home price inflation in order to avert a hard landing. Won’t the renters feel too clever by half at the point when prices start going up again in 2007, right when DL and AG predicted they would (with a bit of help from some govt programs implemented by Fannie Mae to provide incentives for home ownership)?
That is always difficult - trying to see things accurately.
I had a conversation last night with a friend in Florida who is a RE type. I was telling him about my new home in Las Vegas that I am renting for 1550. Similar homes are listed in the subdivision for about 400K. I told him that ever since I had been following RE that sales prices were always approximately 10x the yearly rental so things now adays are clearly out of whack and adjustments will have to be made, either sales prices down or rentals up-this is common sense-water always seeks its own level. At this point the conversation became a little heated and he kind of expressed the “new dynamic in RE” theory. As we were talking it became as clear as a bell-we are right-things will always go back to where they historically have been. So I think we can use that standard of measure to figure fair market value-1)Do a rent survey of similar properties in the area 2)Sales price should be 10x yearly rent-give or take 10%(I will even give you a small extra premium of up to 10% for unusual areas like CA, NY, etc. 3)If these 2 values are out of whack it is not time to buy. It is as easy as 1,2,3. Clearly, based on my rental price of 1550, this house should sell for about 185,000-190,000 which is about where it was before the bubble (not 400K). Sorry to be so long winded but I had to tell this story.
By the way one thing that is much better in Vegas than LA is the sign twirlers. They are much more energetic and really move those signs-ha,ha.
Interest rates really do affect whether a “fair” price is 100x monthly rent, or 120x, or 150x. Falling rates did make 150x a “fair” price, in the sense that a buyer could still possibly get positive cash flow by renting out. Certainly 260x is ridiculous.
Yes, that is why I said give or take 10%, but given traditionally average rates, the 10x rules should be close. The home I am renting is like 22x. Somethings gotta give.
WOW! Homes in my Chandler neighborhood are now selling around $350-$550k and renting for $1000-$1600/month (and decreasing). This area should crash!
“The good news is you’re not seeing deep discounts. You’re seeing moderate discounts.”
The bad news is deep discounts will follow moderate discounts.
Strange things are afoot in the markets and the mainstream British press is starting to notice. The London Daily Telegraph’s Ambrose Evans-Pritchard has a nose for this kind of odd political economic behavior and what it might mean.
Of course, our milquetoast MSM would never report on this kind of provocative stuff. History will write that the Internet sounded the alert to the informed masses this time–and not the legacy media.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/10/30/ccview30.xml
Looks like the SHTF is starting to happen, just like all of us “bitter renters” surmised. It’s nice to have a front row seat on this disaster, instead of just reading about it in the history books.
And a crying shame it will eventually drag every one of us into it, popcorn and all.
–PB, renting in Arlington, Va.
excellent article; thanks for the link!
‘The PPT was once the stuff of dark legends, its existence long denied. But ex-White House strategist George Stephanopoulos admits openly that it was used to support the markets in the Russia/LTCM crisis under Bill Clinton, and almost certainly again after the 9/11 terrorist attacks.
“They have an informal agreement among major banks to come in and start to buy stock if there appears to be a problem,” he said.
“In 1998, there was the Long Term Capital crisis, a global currency crisis. At the guidance of the Fed, all of the banks got together and propped up the currency markets. And they have plans in place to consider that if the stock markets start to fall,” he said.
The only question is whether it uses taxpayer money to bail out investors directly, or merely co-ordinates action by Wall Street banks as in 1929. The level of moral hazard is subtly different.
Mr Paulson is not the only one preparing for trouble. Days earlier, the SEC said it aims to slash margin requirements for institutions and hedge funds on stocks, options, and futures to as low as 15pc, down from a range of 25pc to 50pc.
The ostensible reason is to lure back hedge funds from London, but it is odd policy to license extra leverage just as the Dow hits an all-time high and the VIX ‘fear’ index nears an all-time low – signalling a worrying level of risk appetite. The normal practice across the world is to tighten margins to cool over-heated asset markets.
The move is so odd that conspiracy buffs are already accusing SEC chief Chris Cox of juicing the markets to help stop the implosion of the Bush presidency.’
How come everyone is not jumping in to insist Ambrose Evans-Pritchard is a tinfoil hat conspiracy theorist?