“Price Adjustments Are Becoming The Norm”: California
The Daily Bulletin reports from California. “Builders are cutting back in pulling permits in both San Diego and the Inland Empire. ‘It’s actually a very sharp pullback,’ said Jack Kyser, chief economist with the L.A. County Economic Development Corp. ‘But in Los Angeles and in Orange County, permits are ahead of last year. The increase is most significant in Orange County.’”
“Kyser said much of the new construction in both counties is in condominiums. ‘There’s a lot of multi-family construction being started and that has some folks getting nervous,’ he said. ‘There are 30 high rises proposed in Orange County, and that market has not been tested with that kind of construction.’”
“Kyser said there are numerous high rises, 10 stories or more, that have been permitted in L.A.”
“‘The entire housing market, resale and new, is evolving as it attempts to establish a balance between supply and demand and a more sustainable rate of absorption,’ said Steve Johnson, director of the Metrostudy’s Southern California division. ‘Increasingly, reports of resale price adjustments are becoming the norm.’”
“‘There is sufficient uncertainty surrounding the economy, the upcoming elections and inflation expectations,’ Metrostudy’s president Mike Inselmann said. ‘All that leaves us with a less-than-clear vision of the housing picture in the next year.’”
The Orange County Register. “(Realtor) Steve Thomas at Re/Max Real Estate Services in Aliso Viejo notes: ‘We have experienced a recent surge in homes pulled off the market, it is concerning that not enough sellers are ready to throw in the towel. Our offices have been buzzing with agents discussing the number of sellers still unwilling to do what it takes to get their home sold and price their homes according to comparable sales and escrows.’”
The Union Tribune. “Writing about the real estate market in San Diego is a no-win situation. Now that we’re in a cooling period, reporters are hearing from homeowners who accuse the newspaper of trying to frighten them with ’scary headlines.’ A story last month prompted a reader to accuse the newspaper of being irresponsible, of trying to cripple the real estate market.”
“A story in the Home section yesterday may have added to his suspicions. It said that since January 2004, single-family home prices are down countywide on a year-over-year basis and that prices in all but three ZIP codes in the county have dropped from their all-time-high median prices.”
“Carl Larsen, editor of the Sunday Home section, notes there is no doubt that the market is declining and that even trade associations representing realtors and home builders acknowledge it’s the case.”
“But the housing market is news for other reasons. Those following it are not just homeowners worried that their equity is slipping, Larsen said. ‘There are broader ramifications for San Diego and the entire national economy,’ he said.”
“‘It could be argued that anyone in mortgage banking, in construction or those who sell appliances at Home Depot or Best Buy depends on the newspaper to report the direction of an industry that directly affects their livelihood. That’s a consideration far different than those who monitor prices to gauge rising or falling equity of their homes,’ he said.”
“Larsen said he understands why people are concerned about negative stories. ‘But at the same time, it would be unfair and irresponsible not to report fully the sudden about-face of a housing market in a city that many experts have said led the national run-up in prices.’”
“QUESTION: My house has been for sale more than 18 months. Despite scores of open houses and showings by agents, no offers. We can’t figure out any ideas to sell it without a dramatic drop in price.”
“ANSWER: The primary reason a home doesn’t sell is it is overpriced. It’s time to bite the bullet and slash your asking price. Ask your listing agent to prepare a new comparative marketing analysis showing recent sales prices of nearby comparable homes, asking prices of neighborhood homes (your competition), and recently expired listing prices of nearby residences (usually overpriced).”
“Then withdraw your MLS listing for a week or two and relist at a reasonable asking price.”
This just out:
‘Home prices will fall 10% on average in 2007 and it will likely take three years to clear out the huge inventory of empty unsold homes currently in the market, according to a UBS report released Monday. A surge in new construction and a pullback in demand led to the inventory glut that’s currently plaguing the sector. UBS analyst Margaret Whelan estimated that the industry overbuilt to the tune of 900,000 homes between 2003 and the first half of 2006. ‘Most of those homes are vacant,’ which means they’ll rely more heavily on price discounting to get sold than if they were homes with people living in them, she said, during a conference call Monday.’
The LA Times
‘As some San Bernardino County cities have prospered, replacing dirt lots and blighted neighborhoods with coffee shops and even some million-dollar homes, San Bernardino has remained entrenched in poverty. Depressed housing prices have attracted buyers priced out of inner-city neighborhoods in Los Angeles and elsewhere, police and demographers said. And as the newcomers have moved in, officials said, they’ve brought with them street gangs and increased crime.’
A nationwide 10% haircut in one year would be huge, definitely a bearish but accurate analysis, and you don’t hear that all that often.
Of course it is likely that prices in California, Phoenix, Las Vegas, Florida, Boston, and Washington DC (all of the most bubblicious areas) will all decline around 30-40% when all is said and done. Together these areas probably make up at least a quarter of the US population. So these dramatic declines will weigh down more moderate declines in the rest of the country. But I didn’t expect it would happen all in one year, and 10% nationwide would have to require around 30% in the bubbliest areas it seems to me.
10% haircut is nothing when the last three years saw 100% appreciation.
also san bernadino county got the east la gang moving out there. good luck to those people.
also three houses in huntington beach,ca was auctioned off over the weekend. priced originally at 1.799 million. auctioned at 1.37 million. brand new homes, two blocks from beach. i still think that’s 20% over priced. those houses used to cost 800 k.
This just out:
H & R Block cut forecasts due to Option One Mortgage. Also Option One to close some branches.
go to Yahoo dot com and put in symbol HRB for the news.
Wow that’s interesting
They are also looking to sell Option One from what I’ve seen.
It is quite a bit when it’s nationwide.
Well, it’s not exactly “nothing”. Remember, the scale works in reverse: you only need a 50% price drop to cancel out a 100% price gain (something that goes from $10 to $20 only needs a 50% cut to get back to $10). So a 10% price drop would get you about 20% of the way back to where prices were. That’s pretty significant.
Also, California has been a critical “feeder” market for places like Arizona, Idaho, Nevada, Oregon, etc. Any haircut in California will have major implications for those markets dependent on the influx of CA money.
A feeder for everywhere! Even just a few Californians coming into a small town caused a bubblet.
California Central Valley, Florida, and Phoenix are already down 20%, and the worst is yet to come. These areas are headed for a bigger than 50% haircut.
“…the industry overbuilt to the tune of 900,000 homes….‘Most of those homes are vacant,’”
OMG!
San Bernardino is the same story as Palmcaster.
Gonna get hammered again.
I had a friend that worked in the RE of the San Bernardino Hopsital.
The entrace had to be redesigned so that the gunfire didn’t get into the hospital.
In under a year, there were 2 shootings in the ER.
She got out of there.
Exactly, about 8 mo’s ago I was through there. A lot of vacant commercial buildings. That place is pure crap.
I worked in San Bern. for about 8 months in Y2000. The only redeeming features of the place were that on nice days you could see the mountains, and it was a reverse commute on the 91 from OC.
Other than that, it was a pit.
Sorry if this is OT, but:
Hospitals in some areas now need to be designed like police stations, with entrances designed to withstand gunfire?
If the anti-gun people have any valid point, is it that American society is now so degenerate that hospitals are free-fire zones?
What have we done to enable a murderous thugocracy to take root?
Didn’t we learn anything from Prohibition?
Apparently not.
You mean just as “War on Alcohol” [Prohibition] didn’t work (and created more crimes instead), “War on Drugs” isn’t working either [and/or other "wars" of the past few decades]?
Danny posts ” You mean just as “War on Alcohol” [Prohibition] didn’t work (and created more crimes instead), “War on Drugs” isn’t working either”
Danny, I agree. Both are the same and both “wars” have done nothing but cost money and crime.
While I know its best not to involve myself in political debates here, I must disagree. I recognize the parallels between Prohibition and the War on Drugs, but by the nature that we should deny our citizens nothing and permit anything you have a slippery slope - I doubt anyone thinks people should be permitted to utilize Meth or PCP on a recreational basis and I have seen lives destroyed through constant marijauna abuse - not the person themselves but their children who take second fiddle to the irresponsible parent getting high. Lame, yes, I know, but I’ve seen good friends of mine follow that path. I hate the concept of a Nanny State and would be a Libertarian except that half the Libertarians agree with the legalization of dangerous substances… Heck, looking at what alcoholism has done to people makes me realize why those supporting Prohibition believed what they did.
‘All that leaves us with a less-than-clear vision of the housing picture in the next year.’”
Mike,Mike, Mike , whether you chose to look or not I think you must have a pretty clear vision of what is about to happen in the coming year….
I know it’s not pretty ,but you must face reality….
Larsen said he understands why people are concerned about negative stories. ‘But at the same time, it would be unfair and irresponsible not to report fully the sudden about-face of a housing market in a city that many experts have said led the national run-up in prices.’”
And what was the UT doing for the past F**king two years??
In a nut shell, they were cheerleading the boom, and now they are playing the CYA card.
KILL THE MESSENGER!!!
That is why I remain anonymous. I wonder what some professionals I know who belong to the REIC would say to me?
Why don’t they just call a spade a spade and report that it was a mania which was speculator driven ,the builders overbuilt as a result and a severe correction is certain .
All this talk about buyers holding out etc. is avoiding the real issue of the reasons behind the abrupt turn-down this year . Why don’t they tell people the true untold story about easy lending and liar loans with flippers and unqualified buyers creating unstable demand resulting in over inflated markets that priced out qualified buyers ?
Because their ears would bleed.
The UT gets massive advertising dollars from the realtors each Sunday. Usually, the bad news gets printed on a Thursday or Friday but hardly ever on a Sunday.
They still have to pander to their large clients while “pretending” to report the REAL story.
Don’t like the bad news being broadcast to the masses?
Tuff Sh@t!
‘We have experienced a recent surge in homes pulled off the market, it is concerning that not enough sellers are ready to throw in the towel. Our offices have been buzzing with agents discussing the number of sellers still unwilling to do what it takes to get their home sold and price their homes according to comparable sales and escrows.’
Actually, this is very good news for those who would rather rent than catch a falling knife, as many of these homes that did not sell will show up as new supply on the rental home market.
i don’t know where steve thomas is getting his numbers from for orange county, ca.
per the MLS:
11/1/06 14,789 active listings of SFRs and condos
10/1/06 15,481 active listings of SFRs and condos
9/1/06 15,864 active listings of SFRs and condos
8/1/06 15,720 active listings of SFRs and condos
7/1/06 15,004 active listings of SFRs and condos
listings are down a little bit (6.8% from the peak on 9/1), but that’s hardly a surge. we’re just back to july levels.
listings usually go down this time of year and through the end of the year.
Still way up from last year.
This guys will never acknowlede anything “negative” until it becomes a “minor” positive. Then they will spin it like crazy.
*these
BTW, you cannot deduce the number of homes pulled off the market from changes in MLS inventory. For instance, a slight decrease in inventory (from 15,004 to 14,789) could be due to lots of homes getting pulled off the market and only slightly fewer added to the market over the four month period from 7/1/06 to 11/1/06. It is also impossible to tell from those numbers how many listings were cancelled in order to relist as “new” with a lower list price.
The listings need to be seasonally adjusted. They are down just a wee bit where I live, but I suspect that they would usually be down quite a bit compared to the summer.
Does anyone have historic averages by month for listings?
I agree. Other than the false sense that supply has reduced to more closely balance with demand, it shouldn’t have a big impact. Those who’ve removed their homes probably wouldn’t drop the price anyway. Anyone who still has a house on the market (and there are, of course, quite a few) probably needs to sell.
“We can’t figure out any ideas to sell it without a dramatic drop in price.”
Rent it out until 2007, when David Lereah has assured us the buyers will return in droves.
..right after the Super Bowl
Yeah, I’m a gonna get me that OC house right after I spend 10 grand on a 85″ plasma tv. Right. Keep smoking that stuff fellas. The buyers are gone. The only oes left are those of us waiting for the bottom to hit somewhere in the next couple of years.
Meant to say 85″ plasma tv for the Super Bowl at Paul’s Big Screen in La Habra.
Paul is the King. Ask him and he will tell you.
Wow, TV’s dropping faster than RE! At the least the TV’s are a good deal these days.
“We can’t figure out any ideas to sell it without a dramatic drop in price.”
Bingo stupid!
Koi pond.
Cupcakes.
Hummer..
not the 4 wheel kind…
Mmmmm cupcakes…
Cupcakes decorated to look like koi fish?
Here is a story from January 2005. The premise of this article is: The builders can not build homes fast enough to keep up with demand.
“The forecast projects that California will see a total of 210,000 housing starts in 2005…..California’s homebuilders are still not meeting the state’s housing need,” said Alan Nevin, the association’s chief economist and the report’s author, in a prepared statement. “Nearly 250,000 homes and apartments are needed each year to accommodate the state’s growing population,” .
http://sacramento.bizjournals.com/sacramento/stories/2005/01/10/daily25.html
Now we see the nation has about 900,000 extra vacant homes. This is an amazing turnaround in supply and demand.
Even more important: No one seems to understand that HOUSING DEMAND IS ELASTIC. In a recession, demand shrinks even more. Grandma’s home suddenly has some adult grandkids living with her “just until we get on our feet”. The college graduate moves back into the vacant bedroom at home. Hubby and wife, who were fighting, threatening divorce, patch it up based on economic needs. The single urban professional gets a roommate, or perhaps leases a vacant flipper’s home, and gets THREE roommates, thereby vacating FOUR apartments.
The point: This housing market is overbuilt and it is a decent economy. If this climate turns recessionary, the route is on in a big way.
Sadly these builders were duped by the same speculators they sold homes to! The “fake” demand was met with - IMO - mass speculation by the HB’s, who learned nothing from the last bust!
Also duped by an accounting system which includes cancelled orders in the count of new homes sold. That adds up to a lot of phantom purchases when cancellations are running at 40%.
I disagree, I think the HBs learned a great deal from the last bust. Those who went through the downturn in the 90s are already at cash, or configured the corp. for eventual BK. It’s the new generation of bag holders that is going to get reamed.
Isn’t filing for BK part the of the Trump Magic Formula of Real Estate Wealth?
You are absolutely wrong.
Filing for BK 3 times is the Trump formula for infinite RE riches.
Wouldn’t that make him 1/3 right?
priceless
They should have said “we need 150,000 new homes and apartments to deal with the growing population and 100,000 to sell to house flippers.” 40%, sounds about right if we remember people loading busses to go buy houses and condos sight unseen like they’re Japanese tourists loading busses to go to an outlet mall in Riverside County.
Not to mention all of the second and third homes. Think anyone is going to try to dump the “vacation investment” home soon?
Not to mention folks who bought way more house than they need have ARMs adjusting, and rather than throw in the towel, rent out a room or two of their McMansion to help pay the bills.
There should be two measures of “Housing Units”, one is the number addresses, the other is the number of bedrooms. In good times, the former is what matters relative to population, in bad times, the latter can tell you how bad things can get.
I think a lot more bedrooms were built than people think over the past couple of years…
Over a year ago I was looking for a new place to rent and I answered an ad in the local paper for a rental house. Turns out it was a young woman with one kid in elementary school, divorced, just getting out of a McMansion (bitched about the utilites), bought a nice 3/2 in a middle class neighborhood, still can not afford the smaller house, and is driving a luxury mobile. Some people never learn.
She is now renting one room with whole house privileges. I told her she should not be sharing her house with strangers. (I did not say this, but if this is what it comes down to then she should be renting an apartment.)
Also, I was astounded how this house is absolutely stuffed to the gills with furniture (from her McMansion). I have noticed that many people, one way or another, have accumulated so much furniture that they rent a storage space for all of this stuff that they never use. She really needs to sell her furniture and get rid of the luxury mobile, but like I said, some people never learn.
“‘There is sufficient uncertainty surrounding the economy, the upcoming elections and inflation expectations,’ Metrostudy’s president Mike Inselmann said. ‘All that leaves us with a less-than-clear vision of the housing picture in the next year.’”
Can anyone explain what this statement is all about………seems a lot of words to say F all
It means “we’re now 100% certain of a significant crash in housing prices in 2007.”
“Then withdraw your MLS listing for a week or two and relist at a reasonable asking price.”
Actually, I’m seeing withdrawals, then relisting at HIGHER price, so they can “bargain down” to their original asking price.
Problem is, that buyers aren’t playing that tired game AND I’ve seen more than a few listings really, seriously reduce their price and still no action. Nada.
So, even a “slash” of the price isn’t enticing people.
So, what does that tell us?
So, I think there is no way this market is going to become the “buyer’s market” the NAR is touting until whatever fear(s) are working on the buyers go away…
This question and answer is emblematic of what I am seeing, every one is complaining that the homes are not selling but they wont reduce thier price. This is akin to going to a casino and making a bet and then refusing to pay when you lose. You gambled on this rediculous RE market and now you have lost, there is no trick to selling a home for more than it is worth. This is the biggest problem in RE today-the last 5 years were an abberation, it is over, the smart money got out last year. Either price the house where the market is and take your medicine or stay in the house and live there… if you can afford to-IF YOU CAN AFFORD TO!!!! I feel as soon as most people realize that this is the new reality, thats when we will see the real fire works-my guess-middle of 2007 with the real problems in early 2008.
The withdrawl & relist higher are FBs. They listed too low expecting not to bargain at all and to walk away break-even. In fact, many are in much deeper now than 6mos/1yr ago due to the -ve amorization effect. They won’t sell and can’t make a deal work. The walls are closing in on a lot of flippers and FBs. Expecting a FLOOD of foreclosures.
I was looking at houses in Dutchess county, NY. One house I saw was at $379K having dropped from $399K. It went back up to $399K. Must not like the offers.
“Actually, I’m seeing withdrawals, then relisting at HIGHER price, so they can “bargain down” to their original asking price.”
I am seeing a lot of this stupid crap as well. And in the Reno area, I have not seen any evidence of wishing price reductions in the zip I am following (89509). Granted most of the stuff is not moving, I am still surprised by the staying power. Zillow even shows prices to be way up this fall vs. spring. A few greatest fools still overpaying by horrendous amounts. I thought Reno would have already started to crash hard.
I knew a contractor who worked for a flipper in Carson City, who was buying several homes at once and then turning them for a huge profit in 2004. I wonder how he is faring today?
I don’t think it can ever become a buyer’s market, period. How can burst bubbles become a buyer’s market? Were tulips in a buyer’s market after 1636? Crazy speculations in the New World in a buyer’s market after the South Sea Bubble?
OK, housing is a little different, but not much. If there’s ever a buyer’s market, it will only be AFTER the whole concept of buyer’s market has been thrown out the window, when properties are languishing on the market for next to nothing, and the common wisdom is that owning them doesn’t make sense at any price.
It’s not a buyers or sellers market it’s a “mania unload market “,or” a market dump market “.
Interesting thesis. At the point where it would be a buyer’s market, nobody will be talking about the market. Good point.
To your tulips analogy, when tulips are just root bulbs, you have a normal market in tulips. When houses are just places to live, you’ll have a normal market in houses. That takes a total washout in speculation to achieve - you need for everyone to forget that speculation was even possible in the commodity under discussion.
That’s why I’m in the “long drawn out decline” camp, as much as I would like to see a quick fix.
Exactly, sm landlord. The time to buy is when Ben’s blog is back to five or so regular posters — but they’re here to discuss the weather, sports, etc.
As long as people (including us) are watching housing prices like hawks, it is not time to buy. Even the bears have all these fantasies of buying at THE bottom and then the market turns back to 20% gain per year. Ain’t gonna happen, IMHO.
This will be a long, long slide. ALL the FBs (and the “creative financing” that accompanied them) need to be flushed out. This will take years.
I was wondering why I was seeing the prices get higher as stuff stayed on the market. And some of them were magically delisted and back a week or so later. This is in a 15 mile range of Pasadena in the 2bedroom $400k range. I figure whoever is watching the listings now has a good idea of whats sitting on the market. So far if it sits longer than 5 days it has not sold. So there are lots of 200 day properties on the market right now. I think my mom is right and always go in with the 1st offer of $100k less than the asking.
“(Realtor) Steve Thomas at Re/Max Real Estate Services in Aliso Viejo notes: ‘We have experienced a recent surge in homes pulled off the market, it is concerning that not enough sellers are ready to throw in the towel. Our offices have been buzzing with agents discussing the number of sellers still unwilling to do what it takes to get their home sold and price their homes according to comparable sales and escrows.’”
To paraphrase: “Those buyers who bought homes from us at ridiculously overpriced levels don’t want to lower their prices to what it is really worth, to get their houses sold. We simply can’t make any commissions if we can’t rip them off a second time!” This statement wreaks of shameless realtor greed. As long as they make the sale and the commission, it doesn’t matter whose lives are ruined by it.
But but but, I thought that’s what we were instructed to do by King Lereah, namely pull our homes off the market if we didn’t need to sell?
(apparently some realtwhores need us to sell more than we do. So sorry)
I have posted similar comments directly aimed at him and his firm on the OCR blog, in the past.
Needless to say he got a bit defensive.
““‘There is sufficient uncertainty surrounding the economy, the upcoming elections and inflation expectations,’ Metrostudy’s president Mike Inselmann said. ‘All that leaves us with a less-than-clear vision of the housing picture in the next year.’”
I guess the home builders forcast were proven wrong… and now we local goverment rosey predictions proven wrong as well…it also reminds me of the “no visiablity in future orders” news coming of the high tech companies during the tech bust… “We cant see the bottom”… was a common term back then.
If this plays out the same, we will have a housing glut as much as we have seen a tech glut for years to come… the population boom many in RE and Govt were expecting just isnt going to be there …
“However, he expects the Fed will step in and begin easing the fed funds rate in March. He sees the Fed cutting rates by 100 basis points to 4.25% from its current level of 5.25% over the next year. If this doesn’t happen, he said the declines could be sharper.”
Don’t you like how there is an assumption the Fed will lower interest rates to “save” housing. After all the Fed was largely responsible for the housing credit bubble by lowering rates to 1% and leaving rates there too long.
Lowering rates won’t save them at this point anyway. The mortgage lenders will still have to charge higher rates to make up for what was lost over the past rate hikes. Besides, BB cant play that game without tanking the dollar anyway…and they’re not going to do that.
Spot on — would more of the same really make sense, given Fisher’s recent mea maxima culpa that said that artificially low Fed Funds rates got us to where we are now?
“would more of the same really make sense, given Fisher’s recent mea maxima culpa that said that artificially low Fed Funds rates got us to where we are now?”
do not ignore the very real possibility that the Fed may drop rates to save the financial sector. They don’t give a rat’s butt about the little guy or the speculator or Joe Homeowner, but they DO care about WaMu and Wells Fargo and CountryWide and other big players going under… and they especially worry about Fannie/Freddie. Systemic risk.
If the economy continues to cool, it is all the Fed needs to say “well, housing has cooled, the economy is cooling, we can be more accomodative now” and lower rates.
Don’t let the euphoria of us being “right” blind you to the VERY REAL possibility that the Fed will ease in 2007 and try to save the financial sector/avoid recession. they have proven that they do this again and again and again and again.
My point above is that an admission by Fisher that they erred to the loose side in 2003 makes it hard for them to summarily drop rates again at the first sign of weekness, especially when core inflation is higher than their comfort zone, and the unemployment rate is at the lowest level in five years (historically viewed as a sign of incipient inflation).
weakness (my spell checker is showing signs of “weekness”)
GS:
I would agree with you in theory, but here’s how it will go down:
The fed will say “we erred in the data before… but now we have perfected our formula!!! And the new formula shows that DESPITE the backward looking data that makes it seem like inflation is rearing it’s head, that’s the rear view mirror. What’s REALLY happening is that a recession is coming, and we need to be careful about deflation. We need to act quicker this time as opposed to when the dot coms failed! we need to drop!”
Besides, as housing tanks, it will kill the economy, thus the various indicators will be pointing towards slowing of the economy/recssion and possible deflation.
as the realtors, construction workers, brokers, etc get laid off, unemployment numbers will go up.
as MEW and HELOC money dries up, consumption will go down.
as hedge funds and banks lose value on their loan “assets” we get credit destruction which is deflationary.
Look, already the GDP numbers coming out are looking not so rosy. Walmart posted crappy numbers (bad for the economy). Many of the big banks/infestment banks are warning, and so on.
the fed will drop in 07.
housing will tank anyway. (due to the recession/depression). and REAL value of housing will tank… but it will likely be a combination of nominal price declines and increased inflation.
all of course IMO.
Behavior of gold and monetary aggregates seems to indicate that at least some people are making a bet on the Clouseau scenario.
Picked up a copy of Barron’s this weekend. Monetary aggregates are continuing to slow, pointing to lower inflationary pressures in the short-run. Monetary base Y-O-Y approx. flat. M1 still up, about 4% annualized. M2 is approaching flat line. But gold seems to indicate a lack of conviction in the ability of the Fed/economy to sustain any kind of stable low-inflation “landing.”
When in doubt, follow gold.
No doubt that the US financial sector will be putting a lot of pressure on the Fed to ease rates, but ultimately the Fed (and the global finance system) have to fear the collateral damage of a collapsing dollar. It will be interesting to see who has more sway with BB: New York or Hong Kong.
I agree, it is possible rates will be lowered in 2007 especially if housing declining ( new construction, REIC employment) causes a real slow down (recession). After all 25 to 30% of employment gains since 2001 have been in RE related businesses. But this type of rate decrease will be to boost the overall economy and employment not to save housing.
“…do not ignore the very real possibility that the Fed may drop rates to save the financial sector.”
Although the FRB lowered rates, short yields were at times stubornly higher than long yields.
HIC. …I also has a very real fear that BB might go for a short term save of the housing market .Regardless there is 70% ownership ,so where are the buyers going to come from that can even qualify at these prices ?
I agree Wizard;…We have dug as deep into the qualifying pool as we can…Unless incomes rise or prices drop or a combo of each…
What did the Fed do during the 1990-96 decline, and did it have an ameliorating effect on house prices?
If I remember they brought interest rates down in a very slow gradual manner ,but they were up around 12% when the downtrend started and some years remained static on the interest rate . Someone correct me if I’m wrong .
Anyway , the issue wasn’t so much interest rates as much as job loss ,earthquake in California , non-buying psychology etc.
Well, “non-buying psychology” is going to be around any time house prices are falling or stagnant, especially when it costs so much more than renting. As for job loss, that too should be self-fulfilling as the portion of the economy driven by housing and equity extraction takes a hit. Yes, the earthquake played a role in extending the down cycle in LA, but it didn’t hit until 1994, a good 4 years after the slide began.
T-bond rates fell from about 8.4% in 1990 to 5.8% in 1993.
A pretty fair decline but not enough to move real estate meaningfully and that market wasn’t nearly as bad (overbuilt, overspeculated, overcredited) than this one.
So, no, even a significant drop in rates is unlikely to reinvigorate housing prices if recent history is any indicator. Besides, the mass psychology of ever increasing prices is going to take a big hit this time around. Its hard to see lower interest rates rescuing that, major, change in fundamentals.
But it doesnt matter if they cut interest rates! For those who bought with an ARM, or worse, and option ARM, the real payments that they have to make for their house is not something they can easily absorb or afford.
“But it doesnt matter if they cut interest rates!”
Yes it does.
If you have an IO arm mortgage at 4% that is going to reset to 6% (as many people’s are right now), your payment will increase by 50% (yowzer!) and it could kill you.
But if the FFR can be dropped and ARMs fall back to 4% (since ARMs tend to reflect what the FFR is doing, although most are tied to LIBOR), and you can refinance, your payment stays the SAME.
Again, the Fed could very likely RESET the ticking time bomb of resetting ARMs.
How many times have people said “wow, the sh#t is gonna hit the fan in 2007 when 1 trillion bucks of ARMS resets!!!!”.
but what if short term IO ARM rates are where they were in 2004?
sure, housing will NOT reinflate, but it might slow the bursting balloon/bubble/souffle/whoopie cushion.
But what exactly happens to those who have not even paid the prinicipal? Or all of their interest?
This is my point: I have a 267K loan on a 348K house. 30 yr. 5.25% APR. Our house payment is almost 2K. If I translate that into a 500K house in Cali. with my term, the payment doubles to about 4K/month. My friend sold his house for 450K and the new payments for the buyers is about 2.8K/month, no down payment. Therefore, I know that payment is not a standard payment, and when the reset hits for them, their mortgage is going to rise to about 4K, regardless of whether it the interest rates go down more.
Ever heard of refinancing?
Assuming the rate at which the ARM resets gets pulled down if the FFR is lower, then the payment shock effect would be mitigated if the Fed eased. Of course, unless the signs of a slowdown are fairly convincing, then any premature move to lower the FFR could cause a spike in the long-term T-bond rates which are tied to 15-year and 30-year fixed mortgage rates. Good thing most use ARMs these days, I guess…
It works like this: (This is a made up example, VERY basic, made up numbers here)
$500,000 IO ARM at 4%. PI payment is $20,000/year or $1667/month. Taxes/insurance extra.
this year ARM resetting to 6% (2% yearly cap). PI payment will be $30,000/year or $2500/month. (or 50% higher).
FB cannot afford this. S/he is screwed. Can’t afford the $833 extra per month… has no equity so can’t sell. CRAP gonna foreclose!
Wait! Fed to the rescue. Fed drops rate so that IO ARMs are back to 4%. Now when the IO arm resets it resets to 4% again instead of 6%!!!!! Payment stays at $1667/month
Hooray for the Fed.
If the Fed can keep rates this low for a while, then the FB is not in danger… they can “afford” the $1667/month PI payment.
IF their IO ARM is resetting to where they have to repay principal, and they can’t afford that, then they can refinance into a NEW IO ARM for $500k at 4%…. resetting their clock and locking in their low low low payment! (I’m sure SOME subprime loan originator would take this… they are still loaning to almost everybody)
Foreclosure averted.
The big issue for the IO FB crowd is that the interest rates are HIGHER now than when they took out the original IO loan. And they didn’t realize that a small increase in the IO loan interest rate can equal a 50% or more increase in the monthly payment! But if the fed keeps rates low, then there is no interest rate shock when the IO arm resets… only principal shock which may be averted by a refinance.
House Inspector I agree with you, but the then all these FB’s become in theory are debt-laden renters. Then again, most homeowners that don’t own outright are in some form or another. However, with these i/o fools, what good is renting the house for that price. Shoulda just waited and rented for a lot less or rent a little more house w/great extras for a little more, and no headaches, just the landlords. If the Feds lower the rate, it doesn’t look like many of these i/o, arm(ed) debtors will ever own their home.
Did you include the principal in that equation? Like I said, if I use a normal 30 yr. loan with a low interest rate, I come up with $4000/month.
They can certainly refi into a lower rate of a different ARM loan, but if they are not paying principal, its wasted money and prolonguing the inevitable.
“They can certainly refi into a lower rate of a different ARM loan, but if they are not paying principal, its wasted money and prolonguing the inevitable.”
You obviously do not live in California.
Dont forget that the 500K loan is now a 525K loan if the IO ARM is neg-am and the borrower made the minimum payments only over the two years.
SMF = Sacramento International Airport
I have lived in California since 1984. Started following housing boom here in 2000. Was outraged about paying 348K for my new house in 2003.
Plus I work in construction design, so I have personal knowledge of the housing they are still trying to build. Had one nationwide HB client who earlier this year, April, canceled a condo project due to lack of market.
Laughed the rest of the year when others came in with their condo projects.
Just a little background info.
Pintlines said “Dont forget that the 500K loan is now a 525K loan if the IO ARM is neg-am and the borrower made the minimum payments only over the two years. ”
Add to this increase in loan amount the likely case that the appraised value of the house dropped 10%, so now the house is only worth 450K and that is the max the back will do on the refi. FB now has to bring $25K of increased loan amount and $50K of lost equity to the table to make the refi work.
Hence the term, FB!
- Poitlines + Pointlines
- back + bank
arrrgghhh
Let’s not forget the appraisal in this equation. We are already 10% off in most areas.
Smf –
The original post did say I/O loan, which is correct at 1667/mo. You’re right though, these “bank renters” never gain any ground on owning a home, but I don’t think that is their concern at this point. It’s how long can I play the shell game on myself and live in the house. I do take umbrage with one statement you made though …..
“…..its wasted money ….”. Now wait a minute! That’s what the REIC says I,m doing renting.
HIC, makes a lot of sense, but there’s a problem.
To get back to the FB’s original rate, the FF rate would need to go … where? … 3.25%, approximately? Doesn’t seem that 4.25% would do much good — this rate would still result in an IO rate higher than the FB’s original rate, and the original rate was probably, for most FB’s, the highest rate they could possibly afford.
What if the world’s FCB’s don’t follow suit? Suddenly, the rates offered by the FCB’s become much more attractive vis-a-vis the U.S., and T-Bills and T-Notes get dumped, causing a run on the dollar.
If the world’s FCB’s match the rate cuts, it can only be because of the fear of a world-wide recession … not an attractive alternative.
The Fed can’t cut the rates enough to save the FB’s, unless the Foreign Central Banks drop their rates more or less in unison.
The ticking time bomb has already been set, statistically speaking. The default rate for the 2006 vintage MBS is alarmingly high. I would be concerned about a contagion spreading and magnifying once it infects highly leveraged hedge funds selling mortgage default insurance (credit default swap). Joe six pack is just a sparkler. The real fireworks start going off if hedge funds start unwinding. Let’s see how their math works in that environment. *poof*
Yes, you might be right about the Fed lowering rates. However, those who wish to refiance may find their properties will not appraise out. Property values are down in most areas in all 50 states. They’re in debt over their head with credit card debt, car loans, etc, etc. If they could’nt afford a fixed rate when they purchased the property they certaintly won’t qualify for one now. Either way they’re in way over their head.
“But if the FFR can be dropped and ARMs fall back to 4% (since ARMs tend to reflect what the FFR is doing, although most are tied to LIBOR), and you can refinance, your payment stays the SAME.”
And the appraisal comes back on the $400,000 mortagage when you do the refi at $350,000. The end of the BS appraisal is here, and those 100% I/O loans where the homeowners credit is below 680 will not be refied at these
credit worthy rates. Just can’t see the banks throwing money to a $400,000 refie mortagage when the house is only worth $350,000. Going Down!!!
Problem is those 125% LTV loans might become THE loans of the future.
I agree with HIC. If the Fed lowers rates, it could very well prolong the bust. That’s why I’ve been saying this will be a very long downtrend. Potential buyers will sit on the sidelines while the FBs continue to refi into I/O and neg-am loans to prolong the inevitable. Stalemate.
The only hope, IMHO, is if money (the kind that buys mortgages and trades CDSs, not houses) decides to chase something else (private equity?). Perhaps then we could see some risk being priced into these loans (and insurance). If that happens, it doesn’t matter what the Fed does, the mortgage/housing bubble would be doomed. Can’t happen soon enough, IMO.
“Problem is those 125% LTV loans might become THE loans of the future.”
And maybe the new mortgage product rage will be 200% LTV loans — why stop at 125%? And what if they start allowing people to make down payments using beer bottle caps? And maybe they’ll just start shooting any renter on sight who refuses to make a bid on an overpriced crackerbox. I mean, come on. The subprime market is drying up as we speak (see Ben’s thread on said topic today) — purely thanks to market forces. This is how it’s going to go down, simple supply and demand — of money.
It’s unfortunately a very real possibility that the Fed will lower rates. The advantage:
- the freefall in housing prices will slow or stop
- inflation will go up, saving a bunch of FBs, we’re talking inflation of 10-12% or more here.
- the dollar will drop like a rock(*), that will help the government with their debt.
As a bubble sitter this worries me endlessly, because we’ll be bailing out the homeowners.
(*) you can’t have your cake and eat it.
Agreed completely!
As soon as we get one little hint of recession or possible deflation, just a whiff, the fed will drop rates faster than I can finish this post.
You all wait and see. Early 2007 the economy won’t look so good… stocks will likely have fallen somewhat as earnings continue to sour (since the HELOC and MEW money ain’t there to prop up consumption). We will start seeing the signs of recession in the economy.
Wall street, main street, and banking will start calling for rate cuts.
and the fed will cut.
and all will cheer.
and you and I will watch the value of our earnings and savings and investments slowly erode…
and joe schmoe will have no idea. he will be happy as a clam.
I seriously doubt this scenario. Even if some FBs are bailed out, there will be many who simply cannot be saved. And for inflation to save even some of the FBs, it would need to channel to wages, not just the cost of an egg or a car. Wage inflation is unlikely to occur quickly during a recession when many of the companies are laying people off and retrenching. Just as it took quite a while for this oil tanker to turn around and head south, it won’t be that easy to make another u-turn and head north. To be honest, I wonder whether these “drop a point, shift momentum on a dime” theories aren’t generated by the REIC. Just my opinion.
“Wage inflation is unlikely to occur quickly “, when midde class jobs are being outsourced at record rates.
Infinite refinancing, while a theoretical possibility, is not likely to be possible in the real world if housing values drop, since lenders will be more reluctant to refinance when current appraisals are less than the loan. And as there will always be some people who really want/need to sell, this (in combination with the disconnect between prices and fundamentals) will lead to price drops.
Really, I don’t see how we can maintain the intricate balancing act required to keep this going ad infinitum. And borrowers who are truly on the edge will also not be able to refinance because it costs money to do so, and unless interests rates are actually LOWER than when they took out the loan, they will have to pay this cost out of pocket (rather than having it returned to them in the form of lower monthly payments, as was they case when interest rates were declining).
I do think that most people think that they can continue to refinance forever, though, and I have heard this given as a reason why prices will never come down.
Also, even with infinite refinancing, eventually prices just can’t go up any higher, and people then recognize that even if they pay interest only, property tax, and insurance, it still costs far more than renting, and they’re not making a penny of equity, so they may as well be renting.
What makes you think that when the Fed lowers, ARM rates will go lower? They are tied to long-term rates, 10yr and 15yr mostly. If the Fed lowers and inflation results, expect LT rates to go higher and ARM rates to follow.
I pretty much expect the reverse of the greenspan conundrum. Just like when greenspan raised short-term rates and LT rates fell, Bernanke will lower short term rates and see LT rates go higher. The idiots in the Fed will call it the Bernanke paradox, and wax poetic about it.
I think the severity and speed of the housing collapse (assuming it happens as seems to be the consensus here) determines the Fed’s actions (obviously). If we truly get a meltdown with prices tanking and bankruptcies left and right, they are going to cut rates and do it sharply. They will do this trying to forestall or stop a crisis at least in nominal dollar terms, but probably not succeed. This would be an effort to, at the margins, slow the collapse process and prevent too much deflation (of house prices and debt) at least in nominal terms.
But even more than that, a sharp cut in the FF rate would be to keep Fannie Mae, Freddie Mac, and the banks in business by cutting their funding costs and increasing their net interest margins. The inverted yield curve is not very friendly to banks bottom lines. So in this respect a reduction of short rates causing an increase in long rates would be helpful to the banking system to help them weather the crisis in terms of bad loans and writeoffs. This, in effect, is what Japan did with their 0% rates, although I’m not expecting anything that extreme.
If things get that bad, and I really hesitate to believe my own eyes and gut on this that it will, they’ll have to lower rates to try to keep us out of a 30’s style tailspin (shudder). One of those wouldn’t be good for any of us, FB’s or not.
And as a postscript, I hope they clean things up and sell the REO’s like the RTC did in the early 90’s so we don’t have a 15 year odyssey in the economic wilderness like Japan did.
The Fed may cut short term rates, but I think our overseas creditors will smell a rat and the bond market will respond with higher rates on long term T-Bills. Mortgage rates may not budge all that much.
You underestimate the leverage (ie, phoney money) involved in this bubble. Rate cuts won’t stop it, the last fool has fallen.
I sincerely hope you guys are right. But I’m still worried. Look how everybody rushed out and bought V12 SUVs as soon as the gas dropped $0.50. I think a lot of FBs can hang in there for a couple of years; with inflation running at 12% it doesn’t take more than a couple of years to get them in the black again. And wages will go up if the fed starts dropping money from helicopters. Your $50/hour will be $80/hour with the EUR = $2.
Of course this might lead to the end of the dollar as the worlds reserve currency, but then we’re all REALLY screwed.
Yes, I am quite impressed at the ability of the American consumer to continue consuming at rates that ultimately are unsustainable. And as a saver, I would really hate to see inflation eat away at all my work. But we are all the the mercy of unpredictable forces, so I try to do what I can and hope for the best. I am glad that I will be dead before the impacts of global warming really hit, though, and I feel sorry for children in this country, who are growing up with expectations of a good life that they likely will not have.
My point about the SUV was how short the memory of the consumer is. When gas was at $3 everybody wanted to buy hybrids. One moth later they buy gas-guzzlers. Same thing could happen with the housing bubble. If you can get a 4% mortgage then “now is a good time to buy” again!
Someone on this borad should remember, but wasn’t it just several years ago that it was figured out that the current generation of 20 somethings could expect a lower standard of living, a first for any generation in this country. If not quite exact, I think SLO is right in the final analysis. I worry, maybe a little too often, for my own kids’ future. I have also have a patron who comes in and is grateful he is twice my age of 39. Says he is gald he doesn’t have another 30 years to go. Says it won’t be pleasant.
on the other hand, I am also amazed at how resiliant the American consumer is. How much debt can this group of people take on? And I am not talking about the “Oh, I forgot the cash, put the $20 gas on the card, pay it off tomorrow with the bank transfer” crowd. I am talking about those mega-shoppers with 10 credit cards maxed out that we all see on the Oprah and Dr. Phil shows, and we know there are millions of those people.
I do think that the psychology has not yet shifted here (Central Coast), and I also think that sales would increase again should interest rates drop to 4%. But this will just prolong the pain, as foreclosures are also on the rise, and ultimately, prices and wages do need to come back into line. Of course, we may indeed be in a new paradigm due to novel forces not immediately apparent. Should this be the case, I will rush to take out an IO loan (or 2 or 3 . . . .)
I don’t think sales would increase as someone mentioned earlier most of all who could buy have bought. I also think the damage has been done in the media. The psychology has changed. I doubt a drop in rate would raise an eyebrow. And it wouldn’t save the FB’s anyway. Even if the rate dropped you would have to bring money to the table to close the loan because of zero equity. Most FB’s don’t have 2 nickels to rub together.
Agreed Mrincomescream .. I was thinking yesterday that it would have to go down to 3% fixed interest or real effective rate ,but like you said the psychology has changed ,limited amount of buyers ,and FB’s has minus equity .At a 3% fixed interest rate alot of people who aren’t FB’s would refinance ,but who to sell the low yield loans to .
who to sell the low yield loans to
That, my friend, is the 64 trillion dollar question - which many will soon be asking with increasing consternation, then outright panic.
I’m not so sure everyone did run out to buy V12 SUVs once gas prices dropped. One of the vehicles that article pointed to was the Honda CRV and the RAV4, which gets 24 - 32 miles per gallon, which is great if you need an SUV. I think a lot of the compact and small car buyers moved to the import companies - Nissan Versa, Honda Fit, and Toyota Yaris, which were just becoming available last year/this year. If you can get by with a subcompact, I’d go with a Japanese one as they’re more reliable.
Remember last summer all the Big Three were running those huge deals. October 2005 would have been a bad month even without high gas prices just because everyone who wanted a new vehicle had already bought one.
A Forbes article (not sure how to link) points out that there is a lot of inventory in terms of large SUVs and trucks, which means that the companies are offering huge deals.
http://www.forbes.com/feeds/ap/2006/10/27/ap3126811.html
A lot of people who need large SUVs really need large SUVs ( or a minivan, but they can’t bring themselves to buy one, which I can understand). They have two or three kids who need car seats, which can’t all fit in the back of a sedan. Plus, as the kids get older, if they each want to bring a friend to the movies, that’s four kids in the car. Or, you have a boat, or a trailer or something you need a lot of towing power.
I know there are a lot of individuals out there who buy SUVs just to have an SUV (i.e. people who buy Porsche SUVs), but I don’t think that’s who’s buying right now. And I think anyone who is is pushing the auto companies hard.
It takes several years to reposition a car market towards smaller vehicles or sedans as opposed to minivans, or for your lifestyle to change to the point where you need a different car. I’m pretty confident that in the next couple of years, larger SUVs will become passe except for those who really really need one.
oil may be artificially low right now, with mid-term elections and all. why don’t we take up this discussion when ppb nudges back up to the mid 60’s / low 70’s.
Right, the folks that have run out and signed up for a new SUV are screwed. No way that oil is not going to go back up, just wait until mid-winter.
All you people are ignoring the elephant in the living room. The US is the world’s biggest debtor and the world’s biggest borrower - over $2 billion a day. To keep borrowing money from the rest of the world the Fed must defend the dollar. You cannot tell a lender the interest rate he will loan to you.
Comparisons with Japan are completely bogus. Japan does not borrow a nickel from the rest of the world, and can set its interest rates anywhere it wants.
Not to be disrespectful Yogurt. But, the only Elephant in the room i’ve noticed is the US military . Moral arguments aside.
Which can’t even push around a bunch of guys in turbans in Iraq.
If you think a big military can rescue a country from its economic difficulties, I have a couple of words for you - Soviet Union. Oh and a few more: Spanish Empire, Ottoman Empire, British Empire.
Come again, what is Japan’s debt to GDP compared to the US debt to GDP?
Tokyo’s national debt is now approaching 774 trillion yen ($6.4 trillion), or 151% of its economic output.
“Builders are cutting back in pulling permits in both San Diego and the Inland Empire. ‘It’s actually a very sharp pullback,’ said Jack Kyser, chief economist with the L.A. County Economic Development Corp. ‘But in Los Angeles and in Orange County, permits are ahead of last year. The increase is most significant in Orange County.’”
Is this predicated on the assumption that the La-La Land housing market is further removed from reality than the rest of SoCal?
I am overjoyed that they are still building at breakneck pace in OC.
Actually, I live next to one that should be selling right into the teeth of 2008.
Pacific City in Huntington Beach. 31 acres - high density development.
It would be enough to cause Robert Cote to de-lurk and rant and rave.
http://www.pacificcityhb.com/
I clicked that link and the banner photo at the top says it all. “Overdeveloped land.” What a shame, I bet 75 years ago that was a nice place to be. Now look, overcrowded and overdeveloped. Too crowded to even want to go down there. Yet, you can have all thisd, I mean a samll POS, for a coll 1m+! Yeah, sign me up right away. Can’t wait to get over there. That photo makes me pine for a nice fall setting somewhere on an acre in a small 3-bedroom cabin w/fireplace and the kids with the wifesy and me and the nearest neighbors about 1/4 mile-1/2 mile away and the city, er, I mean village, 2 miles away. Pacific whatever, should be called Pacific Over developed. What a waste of shore-front land.
Pacific City will include 516 homes in two, three, and four story condominium buildings,
516 new homes just as the market is redefining tanking.
Very interesting.
I hope they keep building up la-la land. That’s where I want to live. I see warehouses becoming condos. The old location of the LA airforce base becoming condos. More in Torrance… oh, I love it.
Because that will draw buyers away from where I want to buy.
Neil
i dont think the LA area is building as fast or close to what it was before. I know where I work that there are a few big projects on hold in downtown. I dont want to ask too much because I am always trying to figure out whats going on with the future larger projects in the group that I work in. There is a definate slowdown and one of the large developers we deal with has laid off a lot of people
“Kyser said much of the new construction in both counties is in condominiums. ‘There’s a lot of multi-family construction being started and that has some folks getting nervous,’ he said. ‘There are 30 high rises proposed in Orange County, and that market has not been tested with that kind of construction.’”
It seems the permit increase is largely condos. We will see how many starts there are. I will bet a lot of the projects will be put on HOLD indefinitely. 10 stories in earthquake country!
Er…considering I’m sitting here on the twelfth floor of Center Tower at South Coast Plaza, let’s not we talk about earthquakes and high rises.
“Then withdraw your MLS listing for a week or two and relist at a reasonable asking price.”
I bet it won’t be much longer before the big brokerages tire of the on again/off again/on again thing. They have to pay for all that advertsing, printing, signage, etc. I am sure there is some point where they will stop playing this losing game. We are in the information age and they really can’t hide what they are doing. Also, I bet their lawyers will start warning them that they don’t want to stray into the fraudulent activity gray area. You can get away with a lot more in an up market than in a down market.
No, they have little to worry about. Even if they are caught, they continue to get away with listing and relisting and the guilty party gets nothing more than a warning.
MLS listings in Humboldt county California are down some 10% from the summer, as frustrated sellers pull their homes off the market. But, foreclosures/preforeclosure are reaching record highs.
So, let the sellers be like spoiled children, believing that they are entitled to what their neighbors’ homes sold for last year…those same POS shacks will appear back on the market next spring at still lower prices.
They’re not going to “give it away” — they’ll have it pried from their cold debt-ridden hands.
Here are some examples from zip 92107, they are all in the same area, all have ocean views. :
-Listing price $999k, original listing price $1195k, listing date 8/16/06
-Listing price $995k-$1100k, original listing price $1150k, listing date 9/6/06 (not true, much older)
-Listing price $1275k, original listing price $1800k, listing date 8/17/06
-Listing price $995k-$1195k, original listing price $1275k, listing date 8/12/06. This one is a flip, they bought on 4/13/06 for $1000k and did some heavy upgrading. “Magnifient remodel”, “new roof”. Ouch! At least a $100k haircut if they manage to sell at $1M.
That’s my old hood. My house was on Saratoga Avenue. Those numbers simply blow my mind. I thought it was overpriced in 1988!
Is the OB Co-Op still there? I loved that place.
Tx Chick-Yes, and the granola girls with the hairy armpits still work the cash registers.
This is south OB, Saratoga would be 300k lower.
The co-op built a brand new store 4 years ago, 6x as big with solar panels for electrity. I miss the old one though. Was like stepping into a time-machine bringing you back to ‘71.
Sorry OT, But H & R just cut forecasts and may sell it’s ownership in Option One Mortgage:
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BF91D1B61%2D718F%2D4D4B%2D8A25%2D6A7B4B3EEED4%7D&source=blq%2Fyhoo&dist=yhoo&siteid=yhoo
RE in the Bay Area never goes down!!
I wish I had a dollar (or maybe a Euro?) every time I heard this. Everyone somehow thinks San Francisco is so special as to justify $800K shacks. Sorry, nothing is worth an $800K mortgage.
But, I always hope that we’re right. I am worried that the Fed will come to the rescue as soon as the stock market rally ends, citing the slowing economy (which is already obvious to everyone here). The sense of entitlement for equity gains these past couple of years is absolutely astonishing.
I keep thinking of my former co-workers, who bought in Monterey for $750K earlier this year–from a flipper Realt Whore who had bought the house six months earlier for $675K. They thought they were getting a good deal, since it was originally priced at $800K.
I warned them not to buy, but their response, as is always the case from the snobby Bay Area types: “This is not Fresno…real estate never goes down in Monterey!!”
Even their $160K income can’t possibly save them from a protracted decline given their 2% down on such a high mortgage. That is, of course, unless the Fed steps in to defend home prices rather than the dollar (which is quite possible if the FBs moan loud enough).
“….unless the Fed steps in to defend home prices rather than the dollar”
Respectfully, this is Wrong, Wrong, Wrong!
The Fed will NEVER step in to defend home prices or to save the FB’s. The Fed exists for one fundamental purpose (and one only): to maintain the integrity of the banking system. Not you and me. It’s all about the banks. Don’t forget it.
And as far as trading off the FBs (or any borrower) for defending the dollar (which means defending its position as the reserve currency), realize that once the $$ loses its position as the reserve currency, it will NEVER get it back. So, you tell me, do you think that the Fed or the Federal Government cares about you, or about the ability to borrow in a currency that it controls?
Sorry if I sound a bit testy about this, but there are too many folks on this board who keep thinking that, “The Fed/Government will bail out the FBs”. Why and How? Haven’t heard a specific why or, more importantly, specific how yet. Not going to happen.
No, the people who are really in the soup are those who just bought a house to live in who are now going to watch its value decline by anywhere 20-50% and are unable to sell and have the joy of paying a mortgage (and taxes) on a depreciating asset.
Let’s say the Fed raises interest rates to “defend” the dollar which deepens the housing crash, why then would China continue to keep the dollar peg as Americans cannot buy Chinese goods? Would that cause a run on the dollar? However if they drop short interest rates and let the market find it’s price on the long term one could argue that the dollar may drop but maybe it would stabilize. Heck
I don’t know what will happen and maybe they do not know either.
And if the FED lowers rates the Chinese will not buy US Treasuries. Pick your poision. The previous poster CAED has it right. They will defend the dollar. Do you really think the FED will allow for oil to be purchased / denominated in Euros? NO.
FBs are toast. Even the lenders who enabled them are toast (WAMU, Countrywide, etc.) Others will take their place in the market by being fiscally prudent with tighter lending standards which actually account for risk.
why then would China continue to keep the dollar peg as Americans cannot buy Chinese goods? Would that cause a run on the dollar?
You’ve got it a**-backwards. First of all, Americans will keep on buying Chinese goods, just fewer of them, because nothing is made in the US anymore. Second, if China abandoned the $ peg, that would make it harder for them to sell in the US. And third, higher interest rates and a US recession mean a stronger US$, not a weaker one, because foreign lenders will want to buy US$ debt, and US consumers will spend fewer US$ outside the country.
CAED got it right. Failure to defend the US$ means a loss of superpower status for the US, nothing less. FB’s are toast.
my buddy just closed on a condo in downtown la, 540k i think was what he locked in last year… anyhow 6 are already in default on their association dues and some owners are begging for releif from the ‘no flipping’ early sell restriction.
6 in default out of how many?
Who in their right mind would buy anything, much less a 500K leveraged asset, that they could not sell any time they wanted? Pass the box of stupid, please.
PHOENIX HOUSING BONANZA HAS TURNED BUST… DEVELOPING…
here’s a little tidbit i just pulled from matt drudge.
Yeeehaw! Looks like the mechanical bull is gonna throw all the Phoenix FBs off his back!
Does anyone have any insights on how the new developments on the westside are selling? I recently heard an ad for incentives at Playa Vista for the first time and I saw an ad for the Redwood Lofts in Marina del Rey in a movie theatre today. I’m especially curious about the One West Bluff (4,000 sf homes starting at 1.7 M) in Westchester as some of the first constructed already have for sales signs on them.
If you heard an ad for incentives at Playa Vista you have answered your own question.
“QUESTION: My house has been for sale more than 18 months. Despite scores of open houses and showings by agents, no offers. We can’t figure out any ideas to sell it without a dramatic drop in price.”
ANSWER Did you serve cup cakes at the open house? If that does not work then try lowering the freaking price.
This can’t possibly be a real question. Nobody can be that dumb. 18 months, come on now.
Yeah, I think it’s also a good idea to borrow from the chinese and stick our kids with the bill. If Bush wouldn’t have cut taxes so much, not only would we not be 9 trillion in debt, but this bubble probably would not have gotten so out of hand with all the money flowing out there. Now we have a real problem with inflation. Good job Mr. President. Keeping America scared!
What does your post have to do with the title of the Blog. Did you get lost.
It has to do with cutting taxes which helped to drive up real estate prices.
Obviously you lack logic. You don’t see how things relate.
Tom posts ” It has to do with cutting taxes which helped to drive up real estate prices.”
Tom both post’s were great. Keep up the good work, some are very slow to see the big picture here. Or better yet just don’t want too.
The Fed. Deficet will be the major problem afyer the current crowed is gone. It will affect the cost and value of our money and the the things we buy….LIKE HOUSES!
Thanks again for your insight.
Thanks. Some people just “can’t” see through these politicians. They want to mortgage our kids future. Tax our kids? You are taxing them by passing on massive amounts o debt. You are also doing a diservice to our ancestors that fought hard for this country. We think we are entitled to everything without working for it. Do you hear the realtors and seller’s whining? “I’m not going to give my house away, it’s worth too much!” Ha! Like hell it is. It’s only worth what someone is willing to pay for it.
“(Realtor) Steve Thomas at Re/Max Real Estate Services in Aliso Viejo notes: ‘We have experienced a recent surge in homes pulled off the market, it is concerning that not enough sellers are ready to throw in the towel.”
Man does this guy deserve to be beaten.
story is up now
http://www.nytimes.com/2006/11/07/realestate/07land.html?ei=5090&en=22b43ceaff41373b&ex=1320555600&partner=rssuserland&emc=rss&pagewanted=print
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Comment by crispy&cole
2006-11-06 20:48:37
some for as little as $60 to $80 a square foot, which local experts say is barely enough to cover construction costs let alone land expenses.
__________________________________________
IS this true???
Time to buy - if it is!
Is it true? The NY Times has used Mc-Mansion in a story.
“As sure as the grass is green, it will all come back,” Mr. Van Epp said about the housing market.
Haha. Mr. Van Epp is from San Diego, COO of Newland Communities — a San Diego developer, backed by Calpers.
Guess what, Mr. Van Epp? There is no grass in Arizona! Sure as the grass is green, huh? Haha. That about sums up the housing bubble for me.
I hope Calpers pensioners like the heat because they may have to take retirement payments in kind.
“QUESTION: My house has been for sale more than 18 months. Despite scores of open houses and showings by agents, no offers. We can’t figure out any ideas to sell it without a dramatic drop in price.”
Shouldn’t she try dressing up as a cow or a deer or a horse (or some other ridiculous animal as one woman did that we posted earlier)? Or maybe she should serve squirrels for feeding? Or throw in a free Hummer, boat, beat up Mercedes or trip to Siberia in the winter? The imagination is endless. Or she can make it a double package with the Coronado woman and her $1.2M 800 sqft outhouse to sell as a double package? I am sure some greater fool would then get interested.
Here’s a builder allowing online bidding for its inventory
http://www.landstarhomes.com/create_makeoffer.cfm
One question: If the FED really will defend the dollar, as so many here seem to think, then why have they resorted to simply talking about future rate hikes, rather than enacting them? It is obvious that behind the scenes they are real worried about the precipitous fall in housing; they will not raise rates again this cycle since expectations are they won’t. To do so would seriously spook the markets (which are on steriods now and should tank); with people losing their equity in stocks, housing, and general faith in the American economy, the FED can not afford to raise rates again. That simple.
Could be. You might also ask yourself what day today is (hint: pull lever, select candidtate). Won’t happen tomorrow, but we’lls see whether the spin doesn’t change early next year.
‘Home prices will fall 10% on average in 2007 and it will likely take three years to clear out the huge inventory of empty unsold homes currently in the market, according to a UBS report released Monday.’
If Wall Street Analysts say this, doesn’t it pretty much mean a 15% decline is ‘in the bag?’