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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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As the casscade of mortgage defaults gains speed in 2007 does anyone think that the FED won’t get involed in some way? Our nanny government is bound to institue some new rules and regs in the credit business. It promises to get very interesting as we enter this uncharted water.
P.S. Just heard a new Coutrywide Ad on the radio… “Refinance now, just in time for your Christmas shopping”…. Boy we have have gone off the deep end!
Yet another conundrum:
- Tighten the regulatory strings on the lending business, and accidently create more deflation.
- Respike the punchbowl in order to offset deflationary pressures, and accidently encourage less household savings from already-negative levels and more homebuilding on top of record new home inventory levels.
Decisions, decisions…
damned if you do…
How bout a gov’t bailout where they offer to cover a portion of your loan with 0 interest. Say you owe 500k, govt pays it down with a second of 250k @0, 1,2% and calls it a hardship loan. Loan will have all kinds of restrictions like not being able to refi, sell, move for say 10years. i don’t want this but, just mentaly masturbating about what may be in store.
Inflation is the debtor’s friend and the creditors enemy. If you think about who the big creditors are (banks, credit card issuers, and bondholders) versus who the big debtors are (joe six pack) the answer is very simple: stick it to the little guy hard enough to keep inflation in check regardless how how much it hurts.
“If you think about who the big creditors are (banks, credit card issuers, and bondholders)”
Forgot one: Asia
Yeah. For some reason, the Chinese want to own all this fraudulent debt.
At what point do the Asian investors want to see a higher interest rate or stop pouring money into the U.S. MBS market?
The low long term rates are what is fueling the bubble. The fed can’t do anything about them. Once those go up then prices will have to fall unless people are able to take our 40, 50, 100 year loans with balloon payments.
Chris –
I generally agree with your point, but the equation may have just tipped in favor of Joe Soccermom, given that he/she comprises the traditional Dem constituency…
I think both parties would prefer to get this recession going in earnest sooner rather than later and then spend the next two years pointing fingers and posturing about how they are the True Friend Of The Working Man
Both parties know how their bread is buttered. Money buys votes. If you don’t get the big campaign donations from the banks, corporations and wealthy people, you don’t get to spin your story to the working class, and you don’t get elected.
The Dems might try to corner Bush with a bill they know he can’t swallow, and then use that as a mandate for a D presidency, but that’s a gamble: He’s a lame duck and he might just give them what they want.
IMO, the Repugnicans chances of winning the Presidential election in ‘08 went up to about 60-70% after these elections. With the Democrats controlling both houses of Congress, it will be easy to blame them for the inevitable ecomonic pukage. If the GOP can find a decent, non-nutcase candidate (the anti-Bush), bet they have a very good chance of winning.
TxChic –
That is why I think hedgefund-anal-yst’s “stocks always go up” thesis is about to be severely tested. Don’t most cigar-chomping Wall Street types vote for and give campaign contributions to Repubs?
Who was president when the Nasdaq hit 5000 and the Dow made its previous high?
Do people really believe that the economy turns so quickly? The Republicans are still trying to blame stuff on Clinton after Bush has been in power for 6 years. Now if we have a recession, say in February, a month after the dems take over congress, can the republicans really try to blame that on dems controlling congress?
Chris –
The bond market seems to be affirming your opinion… look at the sag at the long end of the yield curve.
http://www.bloomberg.com/markets/rates/index.html
great, I hope we get a republican president and a democratic congress. Gridlock is good.
A different approach — I think that in 2008 we will have an electorate that does not want to see again, in its voting memory, the Presidency, the Senate and the House controlled by the same party. It will be far less important how that is divided up, than that the balance is fact.
George McGovern, who today would seem to mirror a moderate Republican, wisely is telling the Dems that the Republicans voted for Dems because of Iraq (#1) and because the Rep Party did not carry through on a single campaign promise they made (#2). In other words, Republicans did not vote for Democrat social ideals. If the Democrats are to hold their positions in 2008, they must get us out of Iraq tout de suite. This is not what the Dems had in mind, notwithstanding what you may read. We live in very interesting times. Notice that the bad guys have held their fire, trying to sort this out themselves. As Pat Buchanan so succinctly put it, “They are here because we are there.” All IMHO, and I’m not a member of either spend-more-than-all party.
and then on we go to hyperinflation….there is very little margin between the two. I just don’t see the FED risking Reserve Currrency status to save either the banks or the FBs…regardless of whether it’s a Dem or a Repub in charge.
And it’s funny how people only complain about the nanny state when it’s time to pay the bill.
I’ve been for small government since 1979. That’s 27 years. Voted mostly Libertarian. In 2004 I voted Republican (for GWB) for the first time for the Presidential office. I thought he’d become very fiscal conservative in the second term, and of course I was wrong.
“Stocks that could get a boost from a Democratic victory include Fannie Mae and Freddie Mac because Democrats are perceived as more lenient toward the two government-sponsored mortgage enterprises, the UBS strategists said.”
From a Reuters article Oct. 27th.
Fannie Mae and Freddie Mac should be shut down before they do any more damage.
How could the Democrats be any more lenient towards Fannie Mae than the Republicans have been FFS?
The only thing I can think of is that UBS might be hinting they might explicitly provide some guarantees. Don’t see it flying.
Maybe the Dems could get started now with lining up the taxpayer-funded bailout package that will be needed once Fannie Mae’s black hole balance sheet finally comes to light. Oh, I forgot, there is no government guarantee…
new deal # 4
community banking bill revival
everyman a homeowner
I thought we had already become an “ownership society?”
Ben,
I have a number of reports about the gold industry in Russia and Kazakhstan that although a bit outdated (early 2006/late 2005 with one update as of September 2006) provide pretty good background about the players. If you provide me an email I will forward them to you. The reports were prepared by a research department of a local firm (pretty good one) though I don’t make any warranties. Thought they might provide some background for you on your money and metals blog. The reports are in Word and PDF format and should be used for purely academic purposes.
Apologies. Thought I was in the “Bits Bucket”.
Popper — Ben’s e-mail addr is in the green pane at the top of the blog page. Nothing pedantic intended.
“NEW YORK, Nov 1 (Reuters) - U.S. homeowners took cash out of their homes in the third quarter at the highest rate in 16 years, spurred by high costs on other types of loans, according to home finance company Freddie Mac. In the quarter, 89 percent of Freddie Mac-owned loans that refinanced got mortgages that were at least 5 percent higher than the original balances.”
I’ve been wondering if it’s debt and the gnawing fear it provides that makes one angry with one’s political leaders. I’ve heard flap-jawing all week about the election outcome, and everyone has a different opinion. If I were to submit “debt problems/housing bubble” at either conservative or liberal web sites, I would be mocked out of both. But if economic times are so good, then why so much need for debt? (Or perhaps debt isn’t perceived as an evil. I imagine the latter is more likely).
and 90% knew that values were going down= wow, kinda scary
Why the need for so much debt? Simple. People in bubble areas are paying too damn much for housing. I think it’s one of the main reasons we have such a low savings rate. They can’t afford to save any money. Those equity withdrawals are keeping them afloat, and when they get a big chunk of cash the temptation is there to spend it on something frivolous, rather than socking it away for emergency use.
I think this is the last gasp of the MEW people.
I don’t look at housing as ATM anymore. It’s almost like Cash Advance out of credit cards now.
You don’t pay it back if you withdraw cash using your debit card at ATM but you payback plus high interest premium for Cash Advance Against credit card.
That’s exactly what you get with a HELOC: A credit card backed by your home.
Just today, my Yukon dealer today noted that people were buying cars with HELOCs and were therefore financing their vehicles for 15 years, when the cars depreciate to virtually nothing far sooner than that.
Major cash-0t refincings in the 3rd quarter. Who the hell are these people?
“Simple. People in bubble areas are paying too damn much for housing.”
Complex, because there is a chicken-and-egg problem: The credit bubble has enabled people in bubble areas to pay too damn much for housing, which has driven prices to unaffordable levels where poeple need still more credit to pay even more for unaffordable housing. Who handed them the money, how, and why?
“Simple. People in bubble areas are paying too damn much for housing.”
I agree. I moved to Brooklyn to hide from our over-consumption culture, and live in a small, attached home, next to a public park, and take mass transit, rather than live in a large house on a big lot with three cars.
Lo and behold, the price of living simply has gone through the roof! Joke’s on me. Good thing we bought long ago. Those buying in now are either trust fund babies who find no need to save for anything, or are unable to save for anything.
“Who handed them the money, how, and why?”
GS — just imagine how many articles, term papers and other news and scholarly papers will address that question for the next 10-20 years. I’m certain that I will be on the other side of the grass before the dissection of this madness has run its course.
“I think this is the last gasp of the MEW people.”
But Lou, don’t you think the chance of some kind of bailout for these poor victims just went up with the Dems in charge of congress?
“Those equity withdrawals are keeping them afloat”
I agree completely. It’s cannibalism: people are eating their own legs to keep from starving.
I disagree that this is the last gasp, however. I think that there is still a LOT of EZ money to be splashed out in the form of cash-out refinancing as FBs switch to fixed rate loans and new ARMs.
Unless of course, the appraisal community asserts an honest market value for these properties and stops the party, but I know how I would lay my wager on that one.
Arwen,
I wouldn’t dismiss the idea that debt isn’t perceived as evil. At least not when economic times are PERCEIVED as being good. The average dope still thinks his house will be increasing in value by 10% a year every and the DOW being over 12,000 and thinks everything is hunky dory so it’s OK if I have credit card debt, I’ll be able to pay it off with my house and investments.
Debt was perceived as evil during the Great Depression.
Once you become debt-free you will perceive debt as evil. I achieved debt-free status about 3 months ago. It is wonderful. It’s the first time in my adult life I’ve been here. I might not own anything (house, car, etc.) but I don’t owe a single nickel to anybody. I make my monthly nut and everything that is left over is mine. I call this little state of being “Nirvana”. Okay, so the term has been used before. I don’t give a sh#t. It is fantastic.
Ken,
I had those thoughts. If people are hopeful about the ability to pay it off, then perhaps they aren’t upset about their mounting debt. But I imagine there still is a feeling of uncertainty.
GetStucco,
You’re correct. Land/farm loans were commonplace. I wonder if credit for the sake of consuming, though, was perceived as evil. Time to hit the history books.
After the Great Depression, my grandmother used to do her farm/business accounting on toilet paper and then flush it. (A great fear of thieves and confiscatory government).
Note to self: Empty contents of safe deposit box, and soon…
And if inflation turns out to be much higher than currently expected, then history will make the average dope look very smart and the average bear look like he made a boo boo.
The dollar continues to weaken. What effect is this having on housing?
Absent any intervention in the T-bond market, the long bond yield would increase, as US debt becomes less attractive to foreign creditors, as a weaker dollars implies a lower future value to foreign creditors of dollar-denominated US bond yields. That would lead to higher mortgage rates, which tends to result in lower home prices.
Of course, all of the above describes the action of a well-functioning credit market in the absence of government intervention.
From Mike Larson, how the housing crash is impacting the market…
“When the housing stocks started tanking, another group of real estate shares took off. I’m talking about the apartment Real Estate Investment Trusts (REITs)…
Why are investors rushing into these stocks? Here’s their investment thesis: Housing is unaffordable, and both sales and prices are falling. But since Americans have to live somewhere, they’ll end up renting. That will push demand up, supply down, and rental rates through the roof…
First, the great condo conversion is reversing directions.
Second, wannabe flippers are becoming reluctant landlords.
Bottom line: Apartment REITs may be reaching fresh all-time highs, but their fundamentals have been getting worse…
At their current prices, apartment REITs are looking frothy. And as they keep going up, their dividend yields are sinking toward nothingness…
I’d be looking for the exits.”
http://www.moneyandmarkets.com
Question: Why are investors rushing into these stocks? Here’s their investment thesis: Housing is unaffordable, and both sales and prices are falling. But since Americans have to live somewhere, they’ll end up renting. That will push demand up, supply down, and rental rates through the roof…
Answer: Pen’s Thesis/Opinion…Many of the buyers of the apartment/mall REITs are simply chasing returns. My guess (bet) is that watch what happens when the next sector/group heats up. Once that happens, the REIT investors will flock like lemmings to that sector/group. The MBAs &CFAs that run big money all follow the same play book. They chase each others’ returns and the small investor follows in the chase. Once the first of the “biggies” decides to take profits, the up cycle completes in that area and starts anew in another.
Just my thoughts.
I suggested yesterday that the homebuilders might be hiding the bodies somewhere off balance sheet. I was intrigued by Darth Toll’s response, and wonder whether anyone else interested in this issue could shed further light on it:
“You’re absolutely right about your hunch. All of the major builders have created loosely affiliated partnerships that handle the land-option portion of the business. Often these partnerships have some obscure name and they do their best to give the appearance that they are in no way related to the builder. Conveniently, the builder leaves off the balance sheet any loss incurred by the operations of said partnership. Its all very cute, but at some point the losses are impossible to hide.
Come to think of it, all of this is EXACTLY what Enron did - and that turned out so well…”
A further thought I had was that it might not be much help to the builders to reveal the true state of the balance sheet right now, given that everything they rely on to make money, including land prices, new home sales and new home prices, is sinking like the Titanic. Given that Kara went belly-up and left a lot of those holding orders in the lurch, wouldn’t prospective buyers of these other builders’ homes tend to get cold feet if they knew the companies were bleeding to death from too much leverage against a backdrop of deflation?
Paul in Jax –
I am anxiously awaiting your insights on the question of whether Kara’s bankruptcy will strike fear into the hearts of potential buyers of the McMansions which the other builders are still trying to unload on GFs. But I would caution you about putting too much faith in the results that come out of your very astute and careful analysis of the data. Because like Fisher recently explained, bad data can really throw off the results — garbage in, garbage out…
what exactly happened during the S + L bailout. How did the government engineer that bailout? Specifically, how did RTC - real estate trust companies - work? What is different about this situation and that one? What would the governement have to do different this time to engineer the bail out (if they choose to do one)? Would the government chose to do a bailout?
sorry for all the questions, but that’s to get the discussion rolling. Personally, I think there will be a bailout (step 1 was electing a democratic congress), but I’m not sure what form it will take. Thoughts appreciated.
I think this is a great topic as well, but dem congress or no,where would the money come from?
A giant printing press, followed by helicopter drops.
Do you honestly think Bearnanke is going to go that route? I don’t think so.
I honestly don’t know.
“What is different about this situation and that one?”
One difference was that the S&Ls had an explicit government guarantee, through the now-defunct FSLIC (1934-1989, RIP), while Fannie Mae and Freddie Mac do not have an explicit guarantee, and the government has been recently trying to distance themselves from the appearance of an implicit guarantee.
It is interesting that the FSLIC, one of many debt time bombs created during Roosevelt’s tenure, took fifty-five years to blow up, and that was only the first one, so far as I know. We still have the retirement of the baby boom generation ahead of us, so there may be further explosions before the baby boomers are laid to rest.
http://en.wikipedia.org/wiki/Federal_Savings_and_Loan_Insurance_Corporation
GS,
Do you think the risk associated with FNMA/GNMA has been shifted to the stock/bond holders (Fannie only) and the holders of the actual mortgages in both FNMA/GNMA?
Pen –
That would be a fair allocation of risk to those who stand to reap the rewards; our government will thus not allow it. Privatize profit, socialize risk.
It only blew up after the rules were eased. The Machine Stops writ large.
Easing of rules leads to blow ups, does it? What should we expect, then, given that the rulebook of loan underwriting has been burned and the ashes have been scattered to wherever the four winds blow them?
The bailout has not quite ended (but is on the way), was engineered by the Fed, and in fact I have never seen it mentioned anywhere, simple as it is:
40 years ago the banks paid you at least 4% for your deposits in an FDIC savings account. At the same time, it could give you a traditional 30yr/20% down mortgage for around 8%.
The spread was 100%- mortgage rate was 100% as much as the safe savings rate. Additionally, reserve ratios were relatively modest- not sure what they were then, around 5%?
By 2003 if you were extremely lucky you could get as much as 1% for your funds in a traditional savings account. The traditional mortgages were, let’s be conservative and say 5%. The spread was 500%! To add to this, the reserve rate was way down- I don’t know, let’s say close to 1%.
This gave the banking institutions the opportunity to generate oodles of money out of thin air. The banks should have either been paying a lot more interest, or mortgage rates should have been even lower. If this phenomenon was not a free bailout, I don’t know what is. But never have I seen this mentioned.
Things are not quite that extreme right now, as the spread is narrowing. I believe part of this is driven by competition- not as much savings instruments going into the banks, forcing more competitive rates, as well as fewer mortgage apps, keeping traditional mortgages from rising more.
Ronin — nice piece. Thanks.
I think in the coming months and years we will see more stories like this: http://abcnews.go.com/GMA/Consumer/story?id=2630414&page=1
It was only a matter of time before builder cost-cutting began to cause problems for buyers.
In the early 1990s in San Diego, construction defect litigation was a real cash cow. Looking for that to fire up again, partly legitimate, and partly as a ploy for FBs to try to get out of their obligations.
I bought new from Fulton Homes in 95 in Gilbert. A class action was filed a few years ago for improper slab prep (not post-tensioned) & poor grading on expansive soil. Luckily I only had minor damage, like settling cracks. Some people had huge problems. It took over 2 years to play out. $5mil judgement. The lawyers took a third. Yeah, there’s some money in it if you target the big HBs. Given all the recent building, they should be quite busy for the next few years…
My work in the construction defects business sent my kids to college.
I posted about this problem a few days ago. Back in the mid-80’s, I lived North San Diego County. There had been a mini-boom in the late 70’s which, like all booms usually busts at some point (but THIS boom is going to be a BIG bust). Stagnant prices were still the order of the day as they ALWAYS are after a bust has bottomed out. Anyway, one weekend I drove around the Oceanside area and came across a whole street of SFH’s which were empty and the street was overgrown with weeds. I ignored the “danger” signs and ventured into one of the houses and saw huge (6″ in places) cracks in the floor of the kitchen caused by subsidence. At the time, I happened to be dating someone who’s father was a small builder and he told me that when there’s a boom, it’s hard to find various things like good building material (wood especially) because, for instance, the wood is being cut so fast and seasoned in kilns so badly, that’s it just a matter of time before problems show up in “rushed” construction. Obviously, the house I looked at had a structural/soil problem as well but I suspect the building permit and building inspections were rushed through and the ground inspections prior to building were also rushed through.
In these boom (and eventual bust) times, EVERYONE is grabbing for the money as fast as they can. The list includes (starting with the main offenders), Real Estate brokers and their sales people, mortgage brokers, speculators, building material suppliers, inspectors of all kinds, termite companies doing as many jobs as they can (and thus shoddily) because the realtors and owners and buyers want a termite inspection certificate quickly to satisfy mortgage requirements.
Most of the builders employ sub-contractors to do the plumbing, air conditioning, roofing, etc. In boom times, they too rush to complete the job in order to get onto the next job to keep the money pouring (literally) in but, for the new home owner, many of these bad construction don’t appear for several years until the shoddy plumbing and roofing starts leaking and the termites find some tasty timber which wasn’t treated correctly.
The end result is, there are going to be a lot of very busy lawyers in the next 10 + years but a lot of people are going to be unlucky because (like the building company Kara) many of these builders will be out of business or will have found protection in bankruptcy.
Datz right . . . on all counts.
Bottom line … pre-bubble the argument to “invest” was:
Even if rent doesnt cover mortgage + other expenses, profits will come from “appreciation”…
Sooo post-bubble the logical approach shall be:
Even if rent is above mortgage + other expenses, better dont buy bcz of the “depreciation” factor!
I’d like to see some discussion of fall inventory numbers in different markets. Is it dropping in most places? Still rising in some? How much has inventory historically dropped in the fall?
And the big question, why is inventory dropping in many markets? What percent of the inventory drop is due to properties being pulled but not sold? How much shadow inventory is there that will reappear in spring?
“And the big question, why is inventory dropping in many markets?”
It happens every year heading into the holiday season, as prospective buyers have better things to do, and sellers who failed to sell figure they will do better by waiting until after the Super Bowl when all the buyers “come back.” Last year (2005) SD inventories dipped from near 20K during the red-hot summer selling season to 13,896 (if memory serves) on Jan 1, 2006, according to ziprealty.com, only to rebound to well over 20K at the highest point this year. However, there is an inventory overhang of 21K (again according to zip — my guess is that this is a low estimate, though) headed into this year’s holiday season, and we saw evidence yesterday that maybe 5% of these are foreclosures.
http://tinyurl.com/y6wu29
From the Boston.com web site:
Best Places for Business
Business cities 2006
“This year’s list of the best metro cities for business includes some newcomers. The usual top places like Atlanta, Austin and D.C. dropped on the list due to slowing income growth. Boston had the most expensive business costs, 40% above national average. So if you’re looking to start a new business or relocate for a new job, here are your best bets.”
1. Albuquerque, NM
2. Raleigh, NC
3. Houston, TX
4. Boise, ID
5. Knoxville, TN
6. Phoenix, AZ
7. Nashville, TN
8. Durham, NC
9. Fayetteville, AR
10. Indianapolis, IN
11. Des Moines, IA
12. Rockingham County, N.H. (hometown!: P-town in photo)
13. Oklahoma City, OK
14. Huntsville, AL
15. Atlanta, GA
I found this list very interesting especially the large proportion in fly-over land. Anyone from or knowledgeable about some of the less discussed areas on this list want to discuss bubble status in these towns?
Regarding Rockingham county, haven’t been home in a few years as I usually head to Boston area when I head east. I’d really enjoy hearing if people thought that area could continue to grow as I always felt after Pease AFB was shut down and the Portsmouth Shipyard suffered severe cut-backs, the local economy was too dependent on tourism.
I have a topic everyone can chime in on “COLLATERAL DAMAGE”" (in a big booming godlike voice). Lets look at this from the bottom up. Post your accounts of foo-foo stores becoming a rarity, contractors lowering prices and calling you back, shopping observations, vehicle observations, layoffs you know of personally, and a whole slough of other things.
My story is the house I sold in 2005 in the Anaheim Colony 1920s area. We bought it in 2000 and sold it for double in 2005, the person we sold it to was a friend of the family who is in construction. He put no money down, so it was 100% loan of some sort (maybe a ARM), then immediately pulled equity out of the house to fix several problems and do upgrades. We come to find out he is putting out feelers to see if we would like to buy back the house. The wife is thrilled she really loved the house, but they want a wishlist price. I am standing firm; construction work will continue to slow, I am willing to let them roast and when they file BK I will come with an offer. You maybe my friend, but I am not your fool.
Haven’t looked at this one, but these surveys tend to be narrowly focused on the traditional chamber of commerce issues such as low taxes, low wages, and lack of government oversight.
They do not usually consider minor issues such as whether the region contains people and businesses who need additional products and services and can afford to pay for them.
This is a good idea. Ben, if you are out there, this would make a great topic for discussion. “What areas in your particular city that boomed during the mania are most likely to fall in the bust?” Here in New York the easy answer would be Harlem. But I don’t think so. I think Harlem will bust but I think the biggest bust will be the Meatpacking District. If you know New York you will know this is now a very trendy area. It is not close to a subway stop and is on no major walking path. The shops are the most luxurious high-end boutiques you can find. Every building possible is being converted to expensive condos and lofts. I give it 2 to 3 years and the Meatpacking District will be a shambles. It is an awful idea that could only form in the minds of those that have sucked on the bubble and inhaled.
I agree. The Meatpacking District was never really a “neighborhood” the way Harlem is/was. I guess that’s why it was called the Meatpacking District- Hello!!..The only way to turn it into a quasi neighborhood was by blowing bubbles. Once the bubble goes, it’s just a deserted crappy part of town with little redeeming value. Maybe in the next RE bubble it’ll finally stick.
I’m thinking there could be whole TOWNS that go back to where they were prior-bubble. Backwaters that nobody really wanted to move to in the first place but did because RE was slightly to vastly lower there.
Troy, NY. (okay, a *lot* of upstate NY) and Bellingam, WA. come to mind as places that could foreseeably empty of some/most of their newfound energy once RE collapses. I know people who are already bailing the capital region of NY and hightailing it back to Boston, Virginia and other places now that they think there’s the slightest chance they may be able to get back in to those areas.
How did the fence-sitters (waiting to buy) on this blog arrive at their decision? And did you have to face strong opposition from your significant other …if you did, how did you convince him/her to wait before purchasing a home?
I’m curious because I’m an accidental bubble-sitter. I started a home search in June, and was stunned and perplexed that condos and townhomes in desirable communities were sitting on the market for months. That’s what started my research into the housing bubble.
What’s your story?
PhillyGal — good topic — I’d bare all for that one.
I sold a condo WAY back in late 2001 (LA) for what I thought was a big profit. I had a work assignment abroad for about a year, so I figured I would buy a house when I returned. By that time, the LA bubble had already started to get looney - fundamentals were already out of line. I eventually searched for answers on the phenomenon, and found this blog. Fence sitter ever since!
Realtor Fratricide - Coming Soon to a Market Near You!
Picture this, friends and neighbors: as the Housing Bubble implosion gets under way in earnest, I think vicious realtor-on-realtor competition is going to erupt. The “old hands” will tout that as a virtue, while the hungry, desperate newbies (the ones who find all the usered-car salesman and Wal-Mart greeter positions already filled) are going to pull out all the stops for a shot at a commission. “Full service,” I suspect, is going to mean “going that extra mile” to seal the deal. The fat, largely unearned 6% commission is going to be a distant memory — even a 2% commission will be a better alternative than zero income. Who knows, maybe we’ll even see “Anchor Man” style rumbles between rival Real Estate offices. Certainly, the survivers might be a lot more worthy than the grasping neophytes who piled in during the fat years.
Your thoughts?
Could happen Sammy ,or it could go the other route where realtors want to charge more to make up for the lack of volume . A realtor was suggesting last week on one of the posts that he should get 7 % to show a property over others .
That might be a interesting topic . Will the realtors reduce their commissions or raise the commissions in the difficult market ahead?
I really can’t see them raising their commissions. First, with all the underwater FBs who will have to bring cash to the closing, there will be extreme resistance from both buyers and sellers (the few credit-worthy souls who bubble-sat and kept the powder dry during the lunatic run-up) to paying a dime more than they have to, especially in a deflation scenario. And trust me, with the glut of realtors, there will be fierce competition for the few commissions to be had. That in my mind would tend to mean lower commissions. The “lack of volume” is going to cull the herd and drive out the hobbyists, which should hopefully result in a better class of realtor down the road. JMHO….
Credit Spread Smoking Guns:
http://wallstreetexaminer.com/blogs/winter/?p=99#more-99