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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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Name:Ben Jones
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Which political party is more likely to bail out the “victims” of the RE bubble debacle?
My guess would be the dems. I think the republicans would be more likely to bail out the banks or tighten the BK laws so that the companies do not lose money (or as much).
However, that said, I really don’t think that a bailout can happen, unless the govt just starts to forgive debt. I think they know its “endgame” for this bubble and just have to continue to keep the economy strong and let this play out.
Ben,how about a thread on “Do you know anyone who is having trouble making their house payment after the interest rate has adjusted upwards?Also anyone going through bankruptcy,just your basic f$$kd borrower.Do we know any?
I don’t think either party would bail out the small investors, anymore than they bailed out people who lost money in the dot.com bust. However, I think the Republicans would be more likely to bail out the banks or any big corporations that get hurt, and Democrats would be more likely to seek out and prosecute the shysters who let this happen.
Not gonna happen.
dems are the party of victims
the community banking bill - remember raines/clinton
free health care
affordable housing”
oppressed women
register felons
Really? I think the opposite. I’ve always found it a hoot that so many Repbublicans whine about being victims when in fact they control everything. (The poor white male who never got a break in the US. The “liberal” media. Christians and Christianity under attack!) I must say I’m from a family of Country Club Republicans who’ll admit the need for those distortions.
Just the same, I don’t think anyone could or would help the specuvestors.
Ever heard of reverse discrimintation? It is alive and well, just no-one wants to discuss it because it is not politically correct. This country is PCing itself into oblivion, but at least the sheep are smiling on the way….
“This country is PCing itself into oblivion”
and then again….maybe not
http://tinyurl.com/y4on5n
From Scotsman.com
Taking a bite out of the United States
ALISTAIR HARKNESS
BORAT: CULTURAL LEARNINGS OF AMERICA FOR MAKE BENEFIT GLORIOUS NATION OF KAZAKHSTAN
DIRECTED BY: LARRY CHARLES
STARRING: SACHA BARON COHEN, PAMELA ANDERSON
“FIRST things first: as Borat Sagdiyev, a Kazakh TV reporter on a fact-finding mission to America to learn about democracy, Sacha Baron Cohen is indecently and outrageously funny…..
Left in his wake a devastating snapshot of the ignorance, bigotry and hatred coursing through a country that collectively prides itself on its love of freedom. The plot, if you can call it that, involves our “hero” travelling from Kazakhstan to New York to make a documentary for state television about American culture.Once there, he promptly falls in love with Pamela Anderson after catching an episode of Baywatch on his hotel TV.
Resolving to expand the scope of his film to enable him to kidnap Pammy and force her to become his wife, he embarks on a cross-country trek to Los Angeles in an ice-cream van with his chunky and budget-conscious producer.
None of this sounds remotely inspired, and it’s not meant to. It’s simply a device to get Borat on the road and into the path of unsuspecting Americans who are either shocked and awed by his antics, or worse, frighteningly accepting of his deeply reactionary and hateful points of view. When he tells a redneck gun seller he needs a firearm to defend himself against Jews, for instance, the guy tells him to buy a 9mm or a .45.
At a rodeo he gets an ageing cowboy to confess his desire to see all homosexuals rounded up and imprisoned and, at the same event, he displays a tremendous amount of gall by standing in a stadium full of people and getting them to applaud his plan to get George Bush to “drink the blood of every single man, woman and child in Iraq”.”
Both parties got hi-jacked IMO. Dems by the public-employee unions, Repubs by the fundamentalist fanatics. I guess when you have only two parties they both have to pander.
S & L crisis and the RTC bail out ocurred around 1990…What party was in power ??
See Tax Reform Act of 1986.
Your correct Hopper….Took many years yo unravel….
SO BORING.
Blah blah blah Dems, Blah blah blah Repubs. Waaaaanh!
Political topics always devolve into utter BS.
Gekko,
Step in here and explain how this response has any merit as a housing bubble topic.
He is trying to push his hidden agenda! He is fixated on the right wing, I wonder how he will spin this little “gay” incident in Co?
Both parties suck! They could care less about us, unless we load their coffers with $$$$$$$$$$$$!
Ban him.
See what I mean?
Come on everybody make your comments relevant to the housing bubble . This is a high class housing blog and we don’t need it turned into a campaign/cheerleading for your party of choice .
You guys are right and I’m sorry I responded to the thread. Maybe a more relevant question is could anyone fix this thing? I don’t think we’ve ever known anything so threatening. I was very disturbed by the CO article that actually mentioned the threat of a drive-by shooting! ON a personal level, I’m worried about the pension funds.
I don’t blame you for being concerned . That drive-by shooting /inflate appraisal article is very alarming and all the more reason for lenders to get serious about checking for fraud and double checking appraisals . Goes to show you how out of hand things can get in a easy money any thing goes mania market .
On a personal level I am also worried about people and their pension funds . Heck, I’m worried about the whole damn world .
No merit - just more political gasbagging from bloggers with an ax to grind.
What will Santa Claus be “bringing” us this year for Christmas?
The Economy.
—————–
Let the price wars begin
Retail chains post sluggish October sales, with Wal-Mart seeing weak November too. Analysts say price cuts coming.
By Parija B. Kavilanz, CNNMoney.com staff writer
November 2 2006: 11:26 AM EST
NEW YORK (CNNMoney.com) — Major retailers reported mostly weak sales gains for last month, a sign that the recent retreat in gas prices didn’t really help buoy consumer spending in October.
“I’m not a believer that gas prices sway consumer spending,” said Marshal Cohen, chief retail analyst with market research firm NPD Group. “But yes, when I hear that my house today costs less than it did last year, that will impact my spending.”
for the rest of the story…
Let the price wars begin
Hmmm…I put in the html for the links and they change colors but don’t seem to work. Oops, I forgot the ending “. Here’s the link to the story.
Let the price wars begin
Yeah, well the goods may cost less, but you’ll be paying at least 3% more to ship it…
http://tinyurl.com/tcure
Is now a good time to buy? Realtors say YES!
——————————-
Realtors Say the Stars Are Aligned for Housing
By VIKAS BAJAJ, NYTimes
Published: November 3, 2006
IT may go down as the “Got milk?” moment for the housing sector.
Just as dairy associations, with their widespread ads, have tried to convince Americans of the many benefits of milk, the National Association of Realtors will begin promoting the notion that buying a home is an unalloyed good in a $40 million campaign that boldly declares: “It’s a great time to buy or sell a home.”
The ads will try to counter the drumbeat of dour housing data and news by making the case that historically low interest rates, a large supply of homes on the market and the group’s forecast of rising prices next year make now an ideal time to buy a home.
for full story go here:
Realtors Say the Stars Are Aligned for Housing
“Realtors Say the Stars Are Aligned for Housing”
And I would say they are right, with qualification:
Stars are aligned for housing to swoon for 5+ years…
How about a housing bubble topic on dos and don’ts? Some obvious examples follow:
Don’t buy at the top. Do save for a down payment. Don’t get sucked in by the hype. Do sell your current home b/4 buying your next home. Do your market research b/4 buying.
I think that before this is over it will be generally accepted by the public that you should sell your first house before looking for the next house, renting in the interim, in order to avoid holding two houses with falling values.
Kim — I think that is true, and it is a change. I owned, in turn of course, six principal residences before I sold out in 2005. In each case where I traded up, I had a contract on the new one before selling the old one, without any doubt that the old one would sell. That was because we had a stable market with, as we now know, very predictable prices. But because of Ben’s blog and other signals in the market, that things were “wrong,” we sold the last one without buying first, and ended up being happy renters. IMO, it truly is different now, and will be for a while to come.
How about this as a topic: How would you improve Zillow? The site has limitations but at least it was a starting point for info which had previously been carefully guarded by the NAR cartel to be exposed.
How to make it better?
I’m not sure but I have noticed one house in my neighborhood that is way out of line with ALL the others. That is a house that was bought a few of months ago right before the houses pretty much stopped selling period. The new owners paid $409,000 though similar houses were selling closer to $300,000 give or take a little. Zillow now has it valued at $420,000. They paid too much but Zillow isn’t taking that into account. Maybe because they’re letting the tax rolls weigh too heavily in their zestimates?
This is a useful example and suggests that Zillow is extrapolating apparent trends — if the house you mention was the last one sold and cost more per sq ft than others sold just before it, then perhaps in Zillow’s algorithm the inference is that prices in that neighborhood are rising. (ha ha)
The sad part is ZILLOW could be picking up a fraud sale or a fraud buyer kick back sale . I think Zillow goes on a sq. footage approach which has its limitations . Nothing like a honest appraisal going out and reviewing all comps .
Realtors should not be using Zillow to sway buyers to pay a higher price . Why is it that people always abuse information for their own self-serving purpose ?
Zillow still has my property 30k to high . Usually Zillow has a 100k price range that its lists for most property and they come in at the middle of that range . Sorry ,but you don’t average sq. footage price in a area to come up with a sound appraisal . A Market appraisal is based on comps of similar property . If you have no comps you can go outside the neighborhood to a competitive alternative tract ,but with great caution .You can also use 2 sales in escrow that have not closed as a trend . Sometimes appraiser look at old comps if they have no sales to get a idea of price ranges ,but in a declining market this information has its limitations .
There is no way for Zillow to have truely accurate estimates, the county records don’t tell the comparative quality of the house or neighborhood, so they should not give them. I think that instead of the estimates they should only show actual prices of sales during the last 18 months along with the date of sale and a red dot so people can easily see on the map which houses have sold recently. Then people can check out these homes themselves and figure out a reasonable price.
Kim, no doubt you are correct that Zillow can’t have truley accurate estimates since county recs don’t compare qualities of individual houses or neighborhoods.
On the other hand, how can even an honest appraiser know anything in detail about the recent comps in the neighborhood (and what if the most recent is a year or two old), beyond what he can see from the sidewalk? It’s not as though he can make a detailed walkthrough of all of them? (Serious question )
At least the honest appraiser or another person, such as any one of us, actually CAN see from the sidewalk, which Zillow can’t do. Zillow has a lot of helpful information, I just think showing the actual sales prices, along with the date, would be more helpful than the Zestimates.
Have Zillow analyze the keywords in the MLS description, especially captions of photos, and determine whether houses that have words like “granite”, “maple”, “hardwood”, and “marble” sell for more than houses that don’t. Use that to create a fudge factor for the Zestimate.
Will lower interest rates stop the housing bust in its tracks? They did little to stop the housing market from unraveling in the early 1990s, a period during which mortgage rates fell steadily:
http://research.stlouisfed.org/fred2/series/MORTG?&cid=22
Related topic: Will mortgage rates have to get as high as they did in the 1980-1982 period before speculators give up hope that monetary stimulus will make it worth their while to stay in the game?
Most of the well informed professional speculators have already exited or are currently exiting the market. The rest of speculators are not rational nor well informed; as a result, one by one and over time, they will be financially ruined.
Given the amount of leverage in the system right now stucco, a spike in interest rates like the Volker induced spike could easily throw this country, and the world for that matter into a severe recession or worse….
Another related topic: Can the Fed ease on the first sign of economic weakness next year, or does the long shadow of the Phillips curve stand in their path? The bond market caught a whiff of inflation yesterday, which is only slightly more alarming than when a Southern Californian catches a whiff of smoke this time of year…
P.S. Economists’ expectations have sure been getting hammered by the markets lately.
———————————————————————————————-
BOND REPORT
Treasurys tumble as jobs data erase rate cut hopes
By Ciara Linnane, MarketWatch
Last Update: 9:13 AM ET Nov 3, 2006
NEW YORK (MarketWatch) — Treasurys tumbled, sending yields higher, after the October jobs report showed a U.S. labor market in stronger shape than many observers believed.
The benchmark 10-year note was down 21/32 at 101 16/32. Its yield ($TNX46.89, +0.93, +2.0% ) , which moves in the opposite direction to price, rose to 4.681% from 4.596% late Thursday.
‘There is no silver lining [for bonds] to this cloud.’
— David Ader, RBC Greenwich Capital
The Labor Department said nonfarm payrolls rose by 92,000 in October, below the 123,000 expected by economists surveyed by MarketWatch, but job growth in August and September was revised higher by 139,000.
That brought the jobless rate down to 4.4% from 4.6% in September; October’s rate was the lowest rate since April 2001. Economists were expecting it to be unchanged at 4.6%. Average hourly earnings rose 0.4%, above the 0.3% rise economists were forecasting.
“There is no silver lining to this cloud,” said David Ader, head of government bond strategy at RBC Greenwich Capital.
Fed funds futures immediately reacted by erasing the odds of a near-term rate cut, with the bet for a cut by March dropping to 20% from 56%.
http://www.marketwatch.com/news/story/Story.aspx?guid=%7B863C7FA8%2D8732%2D4B16%2DA117%2D92BE79E58F86%7D&siteid=
Lower interest rates will not stop the bust b/c the supply of homes in 2006 is much bigger than 2005’s and increasing plus the amount of buyers we had in 2005 has been halved in 2006.
My guess is that the same comments could have been made in 1990 relative to the market in 1991…
Agreed. I think interest rates are a relatively small psychological factor in deciding whether to buy or not. I think most people buy a home based on reaching a certain stage in their lives, namely having a solid career, being married, having (or wanting) children, etc.
Below say, 10%, interest rates determine how much home to buy, but not whether to buy.
This housing boom was fueled by low interest rates along with speculative fever caused by quicly rising prices; with prices falling the low interest rates will not have nearly as much effect but it might slow the fall somewhat.
Another reason lower interest rates will not stop the bust is evidenced by home builder incentives. Although incentives to buy including ‘interest rates buy downs’ are extremely high and effectively lowers home prices, buyers are simply not as motivated as they were back in 2004 and 2005. Back then buyers were out bidding each other. Now, sellers are ‘out incentivizing’ each other to make a sale.
I’d like to see a discussion of how all the mortgage fraud and “price puffing” will play out. I’m referring to the cases where buyer, seller, broker, and appraiser conspire to sell a property at an inflated value, with full intent of letting the home go into foreclosure and pocketing the money. Just a couple of months ago we didn’t really hear much about anything more than appraisal fraud (which seems rather innocent in comparison). Recently there have been a number of news stories about large scale organized fraud (including Nightline, Denver Post, Rocky Mountain News, and OCFlipTrack deserves credit for uncovering an apparent scheme in OC). One story quoted a realtor asserting that there might be enough fraud of this sort to impact the median sales price for his area.
So my topic suggestion is - how much fraud of this sort is actually going on? And how will it affect the market long term? I assume that lenders will find a way to stop it eventually, but much damage has already been done - to lenders, MBS buyers, neighborhoods, the reliability of published data (not that the numbers were all that trustworthy anyway).
I am sure when it all comes out it will be shocking how much of this has gone on and how much it has helped drive prices.
This is a good topic and as everyone knows I have been harping on this issue for a long time because of the potential of this fraud in this kind of a market . It’s a very serious problem and the lenders have to do their duty .
I’m concerned that some real estate seminar groups might be a front for sinister purposes . Watch who you give your social security number to . In fact ,there is no reason for anybody to request your Social Security number at a seminar . Watch out for people that advertise that they are looking for someone to invest in real estate with them ,(things like that) .Beware of strangers that promise the world , beware of people you know that promise the world . Be careful of investment groups . I could go on and on .
Mortgage fraud has been a problem in Georgia. In May of 2005 the Governor signed the Georgia Residential Mortgage Fraud Act into law. Among other things, this law amends the Georgia RICO Act “to include residential mortgage fraud within the definition of racketeering activity.”
I have read that Georgia’s is one of the toughest residential mortgage fraud laws in the country. I would guess that as other states uncover similar levels of fraud, they will follow Georgia’s lead, and hopefully a lot of these criminals will be caught and brought to justice.
I was listening to one of the Boston Radio Stations last night and they talked about the budget problems that the state is facing next year with roads and bridges as a major issue.
The next governor (according to the polls) wants to put in place a bunch of new spending ideas and rejects repealing of a temporary tax enacted 20 years ago.
That has me thinking that all of the tax increases (due to economic growth from the housing boom) may start to dry up as employment weakens in MA and as people become more fed up with the political system that appears to be entrenched in MA. It seems to be a spiral in MA these days.
Damn! They’re gonna have to get these bridges fixed quick.. where else are the FB’s going to jump from?
They’re just deciding to leave now? The place has been called “Taxachusetts” longer than I’ve been alive.
They’ve been talking about roads and bridge issues for 25 years now. Not discounting the need for work but, seriously, this is as much a ploy by construction union’s and their political pals as anything.
Isn’t the $250,000-500,000 capital gains exclusion the largest middle class welfare program of all time, and how did it affect the housing bubble? Why aren’t renters and savers rioting in the streets?
No, Social Security is. (largest middle-class welfare program)
I’ve been paying into SS for 36 years. Haven’t seen a dime back yet.
Regarding Gekko’s first post above:
Comment by Ben Jones
“Gekko, Step in here and explain how this response has any merit as a housing bubble topic.”
I am guessing that Ben is acknowledging that political issues do pertain to real estate. What is going on here? Gekko asks an excellent question.
You see, real estate is political in every way, including but not limited to the following:
Capital Gains Tax Treatment
Interest Deduction Tax Treatment
Property Taxes
Zoning and Land Use
Water, Mineral Rights and Mining
Pollution and Environmental Regulations
Borders-National, State, County, City
Illegal vs. Legal Immigration across Borders
You simply can’t remove politics from the myriad of real estate issues discussed on this blog.
Take the GSE reform for example. How many blogger are up to date on the political aspects? I can’t find many.
“You simply can’t remove politics from the myriad of real estate issues discussed on this blog.”
Politics is one thing, knee-jerk partisan bickering is another.
If people want to discuss specific policies, cool, I’m all for it. But I like this blog because of its high signal-to-noise ratio, tight focus on the housing situation, and smart commentary from Ben and the people who post here.
Partisan squabbling detracts from that like noisy children at a nice restaurant.
A tax break and welfare are complete opposites of each other. Especially a break in capital gains tax, which is a tax that can be argued should not even exist at any level.
But a moot point now that with the housing bust, there will be no more capital gains, only capital losses.
Fred;….Granted it is a big windfall but at the cost of the loss of the roll over provision…I am not quite sure which I would prefer….
ScDave, I’d like to get in touch with you (via Ben?), regarding NV real estate and development possibility. You mentioned touring in a plane too.
Yes I am Hopper;….That’s why I have picked nnmortgbrk’s brain on the blog occasionally…Lets talk…
BEN;…Can you help ??
If not Hopper, I prefer not to but, I will just post my email address on the blog for you…Lets see if Ben can help us out…
Letting people keep their own money is NOT a “welfare program”, Fidel.
i took the 250k and now i rent.leave my retirement alone ok.
Has anyone else the WaMu campaign that has shown up in my yahoo mail (just within the frame of the page). It depicts HELOC in the manner of HELOC is a breakthrough drug. I guess if people use it like a drug it may as well be advertised like one, but just one of many moments where I look around and seem a little bit suprised that so many people can live in such a fabricated realty.
THE FIRST ANNUAL HOUSING BUBBLE BLOG CONVENTION
Keynote Speaker & MC: The one and only Ben Jones
Host & Moderator: GetStucco
Guest Speakers include…
txchick57 — Successful investing in a declining stock market
Robert Cote — The new urban/suburban landscape
SoCalMtgGuy — Fraud in the lending industry
Fred Hooper — Investing in Precious Metals
Hoz — Surviving this next Great Depression
Chip — Is Libertarianism the Answer?
… and many, many more.
Also, panels presenting regional bubble perspectives with all of the blog posters you’ve come to know and appreciate.
Register today!!!
Heck with the speeches — let’s just have a party…
GS, I was just thinking about those damned Trump/Kiyosaki “wealth expos” and figured if anyone should be out getting a million dollars for speaking it should be Ben. Otherwise, I’ve been ready for that party since the idea was first floated. Melody, where are you???
TJ — LOL. Good one. Actually, those who have been here the longest will remember that Melody was going to host our original blogger party, January ‘06 as I recall. We had great fun with that prospect. And yes, Libertarianism IS the answer! I’m one of just under 800 LP callers, nationwide, trying to drum up support for our candidates — Texas and Colorado look great. Even/just one more House seat is progress. Cheers.
AND, in breakout round table we have;…
HD;…How to reduce the cost of home improvement
INSPECTOR;…How to give your house a physical
Stucco;…Question & Answer
Damm;…Its 10:00…I have been on here for three hours !!!
lol
for those who remember:
1. what were the 70s (stagflation years) like?
2. what were the 90s (housing bust years) like?
What’s happening in Atlanta?
At last, some news out of Atlanta. From the Atlanta Journal Constitution.
http://tinyurl.com/yxmshc
“But the quick rise of 17th, and the rest of Midtown, has some concerned. Tim Holdroyd, a longtime Midtown real estate broker, agreed that 17th is Midtown’s latest focal point. He bought an acre at 17th and Spring streets nine years ago. But he worries that developers and investors are paying too much for Midtown real estate in an uncertain office and condo market. Office leasing around the city — though improved — is tepid compared to demand for suites in the 1990s. And local condo demand, which has exploded in recent years, has cooled in the past two months, Holdroyd said.
The cost of land is getting so high it’s making it harder for developers to make a decent profit off their projects, Holdroyd said.
The same thing happened in the district in previous decades, and some properties grew weeds because developers paid too much and couldn’t get their projects out of the ground, he said.
“You have individual developers picking up huge pieces of land for huge numbers — you saw this in the 1980s and 1990s. I don’t get it,” he said.”
I would greatly enjoy having geographical discussions maybe one day a week or even a month. I’d like to talk to the San Diego people about what areas to consider when I am finally ready to buy, how much they think certain areas will fall in comparison to others (i.e. Mt. Helix versus Alpine), and who to go to in town for appraisals, mortgages, inspections, etc.
I think this type of thread would be deathly boring for the people not in San Diego and I would prefer not to get these details for other areas. Each popular geographical area having it’s own thread seems ideal. Any possiblity?
maybe this is a topic for discussion or just an OT post. I am in the market to buy. not happy about it.
my parents are selling their home they have owned for 20 years (yep should have sold last year but that was when Dad was in the throes of recovering from a stroke). they are downsizing and moving to my neighborhood. there is nothing to rent. nothing.
so here’s what we are doing. we have cased out 5 homes we would buy. we’ll take any one of the five. our RE agent will send a fax to all five agents. “we have a down-payment and a signed pre-approval. we will purchase in one month (amount not disclosed). attached are the five listings who have received this proposal. send us your best offers by …. (date)”
what do you think?
Mina
Mina;…I will give you my 2 cents for what its worth…
If I were one of the sellers, I would not reply to your proposal….Given that you don’t care which of the 5 you purchase, I conclude I have a 1 in 5 chance of winning…Not great odds….It also could alienate the sellers since it is clear you are attempting to get them to under cut each other….
I think I have a better Idea…Try as best you can to prioritize 1 through 5…..Go to the first one and attempt to negotiate a deal that is acceptable to you…If you fail, move on to number 2 and so on….In the end, if you fail to come to terms with none of them, MY BET is that one will come back to you and make the deal….Give it a try…I think it may work…..
Take charge directly. Low ball them all. The only thing is you have very little leverage for this tactic if you are going to buy in a month. A few months time would be better. This is fishing and you have to be patient. Call the seller’s agent back every month to ask them what they think of your offer…until you can get someone to bite. Mean time scope out other properties to lowball.
Other topic ideas:
1) Arguments for/against a new Great Depression.
2) Will the GSE’s survive?
3) How many qualified, non-contingent buyers are really out there?
[e.g., 20%+ DP, 700+ FICO, 30Y fixed, traditional DTI ratios.]
#3 strikes a chord. Presumably, the only people who have not yet bought are:
1. Those who never will, for whatever reason;
2. Those who would, but cannot unload their old house first and are wise enough to accomplish that before buying;
3. Those who see the bubble for what it is/was and are bubblesitting as renters.
4. Potential first-time buyers who are renting due to non-affordability of owning.
Those in category #2 represent no reduction in inventory, for they create a vacancy when they eliminate one. Those in category #3 are small in number. Those in category #4 are unknown in number, but may be offset in large part by those who bought during the bubble and will not be able to remain as “owners,” now or later — the Burger Barn buyers. So where will inventory reduction come from? Great topic.
Election day on Tuesday. While candidates are standing the required minimum 50 yards or whatever away from the polling place, pick a spot near them and pass out index cards with Ben’s website URL on it. OK, not a great idea if the site crashes, but we are sort of on a campaign anyway. Of course, pick a precinct not near where you reside. You may have a neighbor trying to sell their home and do not like blogs like Ben’s.
Homeowners an optimistic bunch
Few homeowners see home values declining: survey
By Andrea Coombes, MarketWatch
Last Update: 6:28 PM ET Oct 30, 2006
SAN FRANCISCO (MarketWatch) — Homeowners are either remarkably stable people with their financial houses in order or they’ve got their heads in the sand. Despite news of late that the housing market is slipping, just 6% of homeowners in a survey in August said they think their home’s value will decline in the next 12 months.
Ten percent expect their home’s value to increase a lot in that time, 53% expect it to increase a little and 27% expect it to stay the same. Another 4% weren’t sure where home values would go, according to the survey of 1,361 homeowners nationwide conducted for Wells Fargo and released Monday.
The survey predates a fair amount of negative reports on the housing market, such as the recent news that U.S. home builders in September slashed prices at the fastest pace in 36 years.
http://tinyurl.com/yxm2tq
Steve Kerch is starting to sound like a bear…
——————————————————————————
THIS WEEK’S REAL ESTATE STORIES
Homeowners don’t appear all that concerned about falling home values. Or if they are they are throwing caution to the wind and still trying to get what they can out of their equity while the getting is good.
The latest quarterly survey on refinancing from mortgage agency Freddie Mac shows that homeowners were extracting equity at a strong clip in the July-September stretch; 89% of Freddie Mac-owned loans that were refinanced in the quarter resulted in new mortgages with loan amounts that were at least 5% higher than the original mortgage balances. That 5% figure is the threshold to consider a new mortgage a cash-out loan.
The 89% is up from 88% of loans that were cash-out refinancings in the second quarter and the highest percentage since the second quarter of 1990. But because the overall volume of refinancing has fallen off, the actual amount of equity pulled from homes was down in the quarter, to $82.8 billion from $90.6 billion in the second quarter.
One of the reasons that the overall amount of refinancing is off is
that interest rates are about a percentage point above their lows of
2003 and 2004. The 30-year mortgage, in fact, this week averaged 6.31%, level with a year ago. That means there are fewer folks who could lower their interest rate by refinancing. Indeed, in the third quarter Freddie Mac said those refinancing their mortgages were paying a median 12% more — three-eights of a percentage point higher — in interest on their new loan than their old one. That’s the highest that ratio has been since Freddie Mac began tracking refinance numbers in 1985.
Who would take a deal like that? For one, borrowers whose
adjustable-rate loans are resetting and who face markedly higher
payments as it is. Moving to the security of a fixed-rate mortgage, even one with a slightly higher rate than they might have after their first ARM adjustment, sounds good to them.
And because rates on what had been popular home-equity loans and lines of credit have gotten steep, homeowners who want to finance improvements to their property or pay college tuition, for instance, are likely to get a better deal by refinancing and taking cash out of their home than paying an adjustable rate based on the prime rate.
“Mortgage borrowers continue to refinance their mortgages at a higher frequency than historically would have occurred given the rise in mortgage rates over this year,” said Frank Nothaft, Freddie Mac chief economist. “But the wide proliferation of adjustable-rate mortgages originated in the past few years that are nearing their first interest-rate adjustment provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage.”
“In addition, borrowers who might have considered a prime-rate
home-equity loan for a home improvement or other need are turning to cash-out refinance options now that the prime rate is above 8%,” he said.
And despite recent signs that housing values may be in for a spill,
homeowners who cashed out in the third quarter were sitting on nice
gains. The median price appreciation the loans Freddie Mac refinanced in the quarter was 33% over the life of the loan, which was a median 3.4 years — roughly 10% per year price gains. Still, that pace was off slightly from the second quarter, when values were up 34% over 3.2 years.
The bigger question remains as to what this all means to the overall
economy. With homeowners extracting less cash — Freddie Mac estimates just $65 billion will be taken out of refinancings in the fourth quarter — and with rising mortgage obligations pinching more households, how much will be drained from consumer spending? And just how long will homeowners be able to rely on a pile of equity to fund a bunch of discretionary upgrades?
How soon, in other words, until reality sets in?
Steve Kerch, real estate editor
Will real-estate-savvy Gen-X buyers save the day?
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REAL ESTATE
Younger home buyers bring market changes
Generation X demanding different amenities than baby boomers
By Kristen Gerencher, MarketWatch
Last Update: 3:53 PM ET Nov 3, 2006
DENVER (MarketWatch) — The housing market may be in a slump, but the industry’s long-term trends look promising as younger generations begin to buy and trade up. That was the consensus among a group of consultants, analysts and developers speaking at the recent annual meeting of the Urban Land Institute in Denver.
Rising affordability concerns in some home and rental markets remain a challenge, but the generations coming up behind the baby boomers are giving home builders a run for their money, experts said. With more immigration and people living alone, demographic shifts are pressing developers to reconsider what’s worked in the past.
Generation X, typically defined as those born between 1965 and 1979, comprise a little more than half of the market for newly constructed homes, said James Chung, president of Reach Advisors, a Boston-based marketing strategy and research firm.
But that doesn’t mean the homes that lured baby boomers, born between 1946 and 1964, are meeting the needs of the 30-somethings shopping now. Learn more about what boomers want in housing.
“Generation X is in the heart of their entry-level home-buying years and are just now entering their peak trade-up years,” Chung said. “They haven’t yet stolen the thunder of the boomers when it comes to trade-up homes. It’s a big shift coming up for home builders and developers.”
Partly because many Gen-Xers are buying into the market after the run-up in housing prices began about a decade ago, they tend not to be as moved by deluxe kitchens, huge square footage and “prestige addresses” as their older counterparts are, he said.
http://tinyurl.com/yx3s3d
Despite the housing slowdown, there’s always room for one more riverfront downtown development:
http://www.nashuatelegraph.com/apps/pbcs.dll/article?AID=/20061103/NEWS01/111030146/-1/ENTERTAINMENT
Proposal would bring 358 condos downtown
By TOM WEST, Telegraph Correspondent
Published: Friday, Nov. 3, 2006
NASHUA- The planned transformation of downtown from a place to shop and dine into a place to live is continuing to take shape with a proposal for 358 riverfront condominiums on Franklin and Front streets.
The Harper Nashua development firm presented its preliminary proposal for the housing and 39,000 square feet of retail space to the planning board Thursday. The plan was introduced simply as a discussion item, so no vote was taken on the huge project.
BTW, traffic is bad enough downtown as there are only two bridges across the river to Hudson.
There are already plenty of apartments in the area (converted Mill buildings) and lots of 3-family apartments. Not the nicest of neighborhoods though.
The downtown area got decimated decades ago when a huge mall was built in the southern part of town right on the Massachusetts border.
Part of the parking lot is in MA. But the shops are in NH so that stores don’t have to charge sales tax.
Anyone in the mood for red meat? Because June Fletcher and Ruth Simon served some up in today’s WSJ…
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WSJ Friday, Nov 3, 2006
p. W1 Weekend Journal
The New Word in Home Sales: ‘Canceled’
Buyers Back Out of Deals In Record Numbers; A $30,000 Deposit, Lost
By June Fletcher and Ruth Simon
A little over a year ago, buyer couldn’t wait to sign contracts to purchase homes. Now, many can’t wait to get out of them.
With real-estate prices falling around the country and even pro-industry trade groups predicting further declines over the next year, buyers are backing away from deals in droves. At a semiannual housing forecast conference last week in Washington, D.C., economists reported that contract-cancellation rates for big builders were running around 40% — about twice as high as last year’s levels. Anecdotally, real-estate professionals say they are seeing a similar dynamic in existing-home sales.
Some of the cancellations are by people who signed new-home contracts at one price months ago, haven’t yet closed, and are now stunned to see the builder drastically cutting prices on identical properties. Some are by speculators caught short by other investments they can’t unload. And some are by people trapped in a chain reaction: They can’t sell their old home — or the buyer has canceled the contract — so they are being forced to cancel the deal on a new house they are buying somewhere else.
“There are a whole lot of people running from contracts,” says Alexandria, Va., real-estate attorney Beau Brincefield. He is currently representing more than 50 buyers who are seeking to get out of contracts on single-family homes, townhouses and condos, compared with none a year ago.
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NICE OF BEAU TO HELP ALL THOSE FOLKS WHO GOT STUCCO!
June Fletcher and Ruth Simon should get some kind of award for writing this article, as it has more cautionary tales per word count than any other bubble article I have seen in the MSM.
Here is a nice inside look at Realtor (TM) ethics. (Susan Jacobsen, feel free to jump in here and tell us all that Mr. Shallis is atypical and I am unfairly stereotyping your peers!)
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Sean Shallis, senior real-estate strategist for the Shallis Team of Re/Max Villa Realtors in Jersey City, N.J., says that roughly 22% of his (used) home sales have fallen apart before closing this year because the buyers backed out, up from 10% last year. With the market cooling, buyers have decided they can buy a similar property for less. For others, adjustable-rate mortgages have gotten more expensive, making a home purchase too costly, Mr. Shallis says. To reduce the chances of cancellation, he is advising his clients to close their deals as quickly as possible after the offer is accepted, and to put fewer contingencies in the contract. “The longer your property is under contract, the longer the buyer has to talk and think about it and watch the market change.”
Mr. Shallis himself is among the would-be buyers with cold feet. Late last year, he agreed to pay $595,000 for a new two-bedroom condominium in Jersey City for his in-laws. He pulled the plug on the deal this summer after his father-in-law’s illness scotched the planned move. “My exit strategy was if they didn’t move into it, we could sell it or rent it,” Mr. Shallis says. But that plan made less sense after the price of similar properties dropped as low as $529,000. At the same time, higher short-term interest rates made it unlikely he would be able to cover his mortgage paymnets and other costs if he found a renter. Instead, Mr. Shallis walked away from the contract and lost his $30,000 deposit.
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I don’t know which is more deplorable — Mr. Shallis’s stupidity, or his shamelessness in trying to shaft his client’s buyers the same way he got shafted?
Nice sidebars to this article.
One is captioned “Builders Sweeten the Pot” and gives the following breakdown of “builder perks”:
- “Buy down” mortgage interest rates: 20%
- Trade-in programs: 9%
- Delay monthly mortgage payments: 7%
- A free holiday trip: 5%
- Include a car with the house: 4%
- Match future price reductions: 4%
So with a little appraisal fraud to cover up the fact that the sale price included some goodies unrelated to the home’s market value, I can still get a car or a vacation financed on a 30-year payment plan with tax-deductible interest payments. (Unfortunately, I also have to pay property tax on my vacation!)
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On the bottom left of page W10 is a Dow Jones Luxury Home Index, which shows price change in percentage terms for repeat sales of an area’s most expensive residences from November 2005-November 2006. A few noteworthy negatives show up:
Philly -0.7%
San Diego -1.0%
San Fran -1.6%
Beantown -1.6%
No worries, folks, price declines are likely almost over, because economists Hamilton, Greenspan, Lereah and Appleton-Young told me so!
What specific financial institutions have or have not made attempts to protect themselves from going down with US housing (e.g. different name brand institutions-Citibank, Wells Fargo, ING, Chase, Fidelity, TIAA-CREF etc.)? I am interested in the Depression era phenomena of people losing their savings accounts and would welcome a discussion of peoples impressions, anecdotal or otherwise, of which institutions seem to be doing a good job of diversification vs. going after more bad mortgage dollars, and/or overdoing the REIT thing.