“The Perception Is That Prices May Be Going Down”
The Daily Democrat reports from California. “California home sales declined last month to the lowest level for November in eight years, and prices fell on an annual basis in eight of the most populous counties, a real estate research firm reported, with the most pronounced drops occurring in pricier markets.”
“Yolo County, meanwhile, saw a drop of 17.6 percent in the sale of homes overall, from 306 in November 2005 to 252 last month. The median price was also down some 13.5 percent, from $480,000 in November 2005 to $415,000 last month.”
“The greatest decline countywide came in the sale of existing home, where a 25.5 percent decline was reported. The median price of existing homes, however, dropped only slightly by 4 percent, from $436,500 to $419,000.”
“New home sales, however, dipped slightly, although their prices plunged. Countywide, the sale of new homes dropped 7.1 percent from 141 to 131 over the past year. The price of new homes fell from $532,750 to $416,500, or 21.8 percent between November and November.”
“For months, many would-be buyers have been on the sidelines, expecting prices will fall further, so sales have suffered. ‘It’s harder to buy a home when the perception is that prices may be going down,’ said DataQuick analyst John Karevoll. ‘Right now the number of counties going negative is on the rise.”
From Inman News. “California’s closely watched housing market will see a decline in median home price and existing-home sales in 2006 and 2007, the California Association of Realtors projects.”
“At this time last year, CAR chief economist Leslie Appleton-Young was dismissive of a ‘bubble’ scenario, saying the state’s economy would continue to grow and mortgage rates would remain at all time lows. She said significant housing-price declines are usually spurred by economic downturns, including job losses or high mortgage rates.”
“Existing-home sales for 2006 are now projected at 481,200, significantly less than the 630,610 predicted by CAR at the end of 2005. The median home price of $560,700 is also about $14,000 lower than anticipated.”
“‘While we recognized that the frenetic sales pace of the past four years could not continue indefinitely, the housing market in 2006 did not fare as well as we initially expected,’ Appleton-Young said Oct. 18. in releasing her 2007 Real Estate Market Forecast.”
“Appleton-Young said that some regions in the state, such as the Central Valley, San Diego and Riverside/San Bernardino regions, will likely experience sales declines greater than the state as a whole in 2007. ‘That also holds true for several second-home markets, including the desert areas of Southern California and the Wine Country,’ she said.”
From Fortune. “Shim and Neesa Patel were ready to pounce on a brand-new home in San Diego early this year. But two months before the house became available, Shim noticed that local home sales had more or less ground to a halt.”
“‘It made me very uneasy,’ he says. The couple stood pat for nine months, and for about the same price, they’re getting a place that’s 1,000 square feet bigger.”
“If you’re purchasing from a developer, push especially hard. ‘Builders are doing anything to move their inventory, because it costs money to carry it,’ says Ivy Zelman, a housing analyst with Credit Suisse. ‘Free cars. Vacations. No closing costs. You name it. [They're discounting] anywhere from 6 percent to a third off the base price.’”
“North of Sacramento, Pulte Homes recently agreed to part with a 2,700-square-foot four-bedroom home for almost 18 percent off the $497,000 list price, plus an additional $8,500 in credits. ‘I’ve never seen anything like it,’ says Lance Pagel, the realtor on the deal. ‘I recently point-blank asked one developer’s agent what incentives she was offering, and she point-blank answered $80,000.’”
It is 1991 all over again…..
Only much much worse. The use of Toxic mortgages will cause some serious pain…
an employee of FRE told me they had these morts bak then- only difference is nobody used them
Yes. Mainly because back then you could not qualify for one with only a liar-loan app & a pulse. Lenders cared about things like verifying income, debt, assets & credit history becuase THEY were on the hook if the loan went bad. Now? Just resell to the MBS/CMO market and be done with it.
Yes–and the much discussed shockwave that could pass through several sectors–banking, real estate, construction, and even retail.
This is foremost a credit bubble–the housing bubble is simply a byproduct. I start feeling a little sick whenever I think about the possible fallout.
I start to feel sick when I think there won’t be a fall out, and somehow the few prudent savers will be the real victims in all this.
I don’t think a “soft landing” will be possible anymore, even in “unbustable” areas like here on the west coast. Given the global situation to this bubble, I have no illusions what a bust could do this time.
hey, whatever happened to “paradigm shift”, “they don’t make land anymore”, “illegal mexican working for minimum wage will snatch up all the mcmansion,” “you can’t go wrong with real estate” “there is no such thing as a business cycle anymore”?
It is now cheaper to buy a new house than a used one. This shows that the market is out of wack.
You are so right. Once you drive that McMansion off the lot it has just depreciated 10 - 15 percent. My wife and I learned that when we sold our house. People were willing to pay that premium for a never been lived in home just a mile down the road. Johnny’s height marks and the place where little Jenny first got felt up hold no value to prospective buyers.
“You are so right. Once you drive that McMansion off the lot it has just depreciated 10 - 15 percent.”
And, amazingly, it is still worth more than older but otherwise comparable homes in surrounding neighborhoods. No wonder the used home market has siezed up.
I try not to be a spelling Nazi, but rare indeed are the opportunities to correct GetStrucco:
I before E except after C, except in “weird” and “seize” –
I kid U not.
Got it!
“I” before “E” except after “C”
or when sounded as “A” as in “neighbor” and “weigh”
or when spelled like a sleaze as in “weird” and “seize.”
No it doesn’t. What it means is that mostly the high end used houses are selling - the ones in the most desireable areas. The low end used houses are being undercut by the builders and aren’t selling.
If you make an apples-to-apples comparison between new and used houses - the same house in the same area - you will find the used house sells for less - if it sells at all.
that right there is STUPID. New construction is almost worthless. I give those places 10 years before they look sh!tty and 20 years before they fall down…
damned straight,mba. I’ll take the older stuff over the new crapola anytime. Better floorplan, larger lots, greenspace. Paint will cover the height marks.
Actually, here in the Sacramento area, the new stuff IS bigger, has better floor plans, and better built then masses of older homes built in the 60, 70, and 80s. I rent a Streng home from that period and structually it’s crap. Which is sad because I love the Eames architechural style.
I wouldn’t buy anything made in the past 20+ years… in fact, most of the stuff I look at was made over 100 years ago…
From the Realtors — not a word. However i (Santa Clara, CA) stopped by an open house, which there is lots of, and the realtors keeps spooning “We expect lots of interest and multiple offers next week So make an offer”… not true ! Many still sit months without offers. Anyone buying today is really asking for a severe bleeding!
Went to a Pasadena open house on Saturday and was surprised to find several other persons/families in attendance. Of course that’s not to say any of them will buy.
The Kool Aid is strong in Pasadena.
http://www.dallasnews.com/sharedcontent/dws/bus/stories/121806dnbusmexpay.1cbc58f.html
“New home sales, however, dipped slightly, although their prices plunged. Countywide, the sale of new homes dropped 7.1 percent from 141 to 131 over the past year. The price of new homes fell from $532,750 to $416,500, or 21.8 percent between November and November.”
The builders are taking the buyers from the existing home sellers. Competition for buyers should really heat up next year. builders are in much worse financial positions going into 2007 as they were going into 2006. It’s going to be dog eat dog , next year.
Man, this news is just too big of a feast for a Monday! Xmas arrives early for the bubble heads…
I just watched 1 family member and 2 friends lose houses in Ventura in last 5 months. I since moved out of state but it doesn’t sound good out there. I hope things level off as it doesn’t look good for people in those high risk loans.
Am I crazy or are prices still not going down in Coastal LA?
Everything languishes on the market, but it is all selling eventually at very slightly below asking. Not surprising to anyone else in the US, we have a much larger share of fools here.
What is it finally going to take to move this area? Even NYC is dropping…
realtors here are stubborn telling people prices will come back up in the spring, inverted year and 15% in the bag BS but eventually Cali will crash as hard if not even harder…..
There are so many sellers that believe this here in Chico CA that I am tempted to believe it too. If the market does not reboud in spring we are going to see some FB who put all their chips into the dream that things will turn. The crash will be even harder.
Chico CA, isn’t that is the place where the average household income is 29K and the average home is 339K (i.e. 11.6 to 1 ratio) and most “thinkers” are found at Duffy’s.
We just had a friend who could not make a 600/month mortage and now the home is in bank receivership. Just 12 months ago this person was “Rich beyond their Dreams” with all that home equity and that person did not “Feel the need to work at a 9 to 5 job”. My My how quickly things change and how reality shows up with a vengence.
“Just 12 months ago this person was “Rich beyond their Dreams” with all that home equity and that person did not “Feel the need to work at a 9 to 5 job”.”
I wonder how common this is. In the last 5 years or so, perhaps not so coincidentally coinciding with the start of the bubble, the labor force has consistently shrunk. Heck, no wonder unemployment is low — tons of people just aren’t looking. Perhaps ’cause they just sat at home, occasionally picking up the phone to draw down on a HELOC? Too bad there doesn’t apppear to be any way to document this.
What kind of friend were they that you wouldn’t help them out for a couple of months?
“Heck, no wonder unemployment is low — tons of people just aren’t looking.”
Demographics. This year, approximately 1MM more people will turn 60 than will turn 20 in the US. Rinse, repeat for 20 years.
Home buyers typically have 3-6 months of not paying before the back forecloses on the property. If the home buyer makes a couple of sporatic payments you *might* get the lender to hold off for a little while.
Once the Lender gets the house they will try to sell as a REO. The REO will be placed at the market price and gradually lowered.
So you’re looking at 6-12 months before a significant change in price.
What’s interesting is that the lower price monster will feed on itself. Pushing prices down faster and faster. As people/lenders try to get something rather than nothing for hte property they’re selling.
I disagree. Seems like everybody is chasing the market down in anyplace I look. Sure, you have the outliers that know to cut once, sell, and run. But they seem to be in a vast minority. I agree that the lower price monster will feed itself, but not quickly, this monster savors every bite.
Very very little is selling in the areas I’m tracking (Santa Monica and Malibu) and what does sell is about 20% less than what comparable houses sold for in spring of this year, IMO.
I’m not seeing much of anything selling out here either, but I also don’t see prices falling. The 2 or 3 SFHs in 90402 that have sold in the last few months went off at about $2.5 million; not much of a drop, if any. I guess we have a while to wait.
That’s my sense of the market in 95536 and 95540 (way North of San Fran). Inventory building; few sales; high end SF hurting more; but prices not going down much.
there are several in 90402 that have gone for well under $2 million in the last few months. From what I saw, that wasn’t happening six months ago.
I am tracking the Santa Monica westside area.
If you want to have some fun, check out the condos being sold on Centinela, between Pearl and Pico.
One of the buildings has been selling thier condo’s for over a year now. I don’t think they have sold a single one yet.
And as that building has been sitting unsold, two more condo buildings are being build next to it.
Check it out. Let me know what you think, if the one or two units in the front are masquarades of units being sold, as in paid actor familiies, with rental furniture, or perhaps the owner of the building opped to rent out a couple units to at least give it the semblence of some kind of life.
I drove past those condos last week (I was visiting from Philly) and I said to myself “WTF? Those condos were built and empty last time I was here three months ago.
I also saw two condo sign-twirlers on the corner of Washington and Lincoln in Marina del Rey last weekend.
They have been there for years
I drove past those condos last week (I was visiting from Philly) and I said to myself “WTF? Those condos were built and empty last time I was here three months ago.
I also saw two condo sign-twirlers on the corner of Washington and Lincoln in Marina del Rey last weekend.
“If you want to have some fun, check out the condos being sold on Centinela, between Pearl and Pico.”
Actually you can have more fun checking out the Playa Vista Condos. Row upon row of 4-story cookie-cutter units looking out over the ballona Marshlands like some medieval crenallated castles. What you need are some turrets and guns and you can have a mock seige battle with the Ballonia marshes being the field of mars.
Oh god, I know exactly which ones you are talking about! Wife and I went to look at them two weeks ago Sunday. The realtwhore actually told us “You better buy quickly, we only have two left and we have offers on them.” This is while the workers were still installing the floors on the ground units.
The other thing that pissed me off is that the sign out front is a classic bait-and-switch. It says “starting at $549″ but of course “there weren’t any available at that price anymore.” Bastards!!!!!
Good luck actually GETTING to your Playa Vista unit down Lincoln Blvd. after work, once you get off the 10 west…
According to the LA Times most of the biggest drops are in desirable areas (Tarzana, BH 90210 and Manhattan Beach). Yet big gains YOY continue in South LA. (Check out the graphic.)
Well, one income group knows which way the wind is blowing.
http://www.latimes.com/news/la-fi-homes13dec13,1,1554260.story
“Bell, Inglewood and South Los Angeles are hot. Manhattan Beach, Tarzana and Beverly Hills’ 90210 are not”
South LA is hot? did they mean the 90011 zip code north of slauson and east of the 110 fwy? I just went thru there today and saw some of the crappiest, slimiest, garbage strewn neighborhoods:alleyways reeked of urin and festering rotten tossed furniture and bedding. Zillions of illegals and their roach wagons. Yeh! South central LA is definitely the hot place to buy.
I agree with your assement of the area, but I can believe people are buying there. The “get rich quick in real estate” has wide appeal. My former housecleaner (illegal) quit working for us and bought a house down there. She rents out rooms.
oops
assement = assessment
and
“get rich quick in real estate” attitude
South Central is a hot area to buy depending on what you’re buying. Too live there well that’s a whole different story.
Ask an honest, old Realtor (if you can find one) and they will tell you that it happens the same in every real estate bust — first buyers disappear and sales drive up, then prices fall.
“drive up,”
dry up (last year they drove up…)
Coastal LA is different!
My realtor (OK, a good friend I knew long before he got in the bizness), says this every time we talk about West side real estate. He insists that we have reached a permanently high plateau and the only way we can get in is through a 7/1 Option ARM.
*&%^#$%^#@#@!!!!!!!!!!!!!
Still a lot of denial out there. We have a long way to go down still.
We still have a lot of idiots out there who are buying. It is time to tell all your friends that the market is going down and don’ t be an idiot an buy. I tell my friends not to be like poor Dan. Dan bought a house in Chico CA for $324,000 in May 2006. Now the exact same modle house next door is for sale for $285,000 and it will end up selling for less. Dan lost over $45,000 in a matter of months. Don’t be like Dan the FB man!
West LA has probably not seen declines like SD and now OC. My guess is that, as the most “desirable” place to live in southern California, the erosion will hit this area last. But by the time it hits, other areas will have experience substantial erosion. If you picture a landscape, when the rain finally undercuts the “high point,” the land slumps away quickly (i.e., it falls quickly and far). I personally think this landscape metaphor works well for real estate: it is all connected, there are high areas and low areas, and it is susceptible to external factors (reading this, I realize that these examples aren’t particularly impressive, but give it a try). While people in West LA think they are on an island, they will soon realize they are not.
You have to check the comps, the stuff that is selling is selling at a discount. You can’t go by the listing prices. To the guy above or below that doesn’t think we are going to see a 40% drop. Don’t be so sure of yourself, coastal L.A. is already close to those numbers it’s just not in the media yet. Coastal L.A. during the last downturn took a beating and from what I hear from those who know it won’t be any different this time. R.E.O.’s will set the market as it did before. Sellers here are a different breed they all think they are going to find a sucker and where they live everyone wants to be. It’s ingrained in the mind like breathing. From what I’m told sellers know whats going on but are just holding out hope for a GF which as someone said L.A. has no shortage of.
“Don’t be so sure of yourself, coastal L.A. is already close to those numbers it’s just not in the media yet.”
Scroll down to p. 35 of this presentation and look for blue areas (indicating -10% annualized appreciation for 2004Q3).
Surprise! I just cannot wait for this presentation to be updated with more recent data…
(Caution: Link to .pdf file)
http://www.realestateclubla.com/pdf/Cagan_FireBurn_1104.pdf
If he updated those numbers he would need a few more new categories under “Below -10%” to not just be grossly glossing over the situation. These guys who are posting today saying there is no guarantee the prices are going to drop are speaking out there a$$ and have absolutely no insight to the industry. 2Q 2007 is going to be a b*tch. If you haven’t sold by now and/or are not prepared to slash 30-35%+ off the peak come Feb it’s not going to move. Wish I could post where it’s coming from but I would severely piss someone off. But it’s a damn good source. There will be no spring rise.
Just back iin LA after a trip to Morro Bay (coastal in SLO county). MLS already told me that the inventory of houses listed under $600K is not shrinking, and that the same ones appear week after week after week. I did visit a realty office to get a vacation rental. That market is tighter than I expected. The full-time rental market isn’t terribly tight, but the stuff is not going begging either. The physical visit changed my perception of the price-to-rent ratio. I had thought it was about 35x annual rent (insane). It’s more like 25x annual rent. Still insane, but perhaps only double what it should be.
I think Mrincomestream is right . Sure there will be some sales going down but you can’t change what the excess inventory situation is going to be come spring 2007 . To many short term investors , to many foreclosures and stressed borrowers needing to sell ,not enough buyers .
The RE people knew the game was over in the fall of 2005. The party is over ,no question .
“But it’s a damn good source. There will be no spring rise.”
Sounds to me like it’s “in the bag.”
“The full-time rental market isn’t terribly tight, but the stuff is not going begging either.”
I believe we are at a point in the SD market cycle where rents have corrected up slightly due to the interaction of irrational sellers who are still holding out hope for a post-Superbowl resumption of high rates of price appreciation (and hence keeping their homes off the rental market) and cautious would-be buyers who are renting and waiting. Unless some really miraculous action is taken to make a mountain of new and used home inventory vanish in the next few months, I believe the renters will win the standoff.
“”“But it’s a damn good source. There will be no spring rise.””"
“”Sounds to me like it’s “in the bag.””
LOL, Yea GS this one is in the bag.
holding out hope for a post-Superbowl resumption of high rates of price appreciation
WTF, weren’t they hoping for this after the last Super Bowl? We hear a new excuse every season for why the last prediction failed and the next one will succeed. Are people simply wired to be optimistic even in the face of overwhelmingly dismal evidence?
Notice that the places prices are dropping the most (Sacramento, central valley) are those dominated by new construction. The home builders react more quickly to changing market conditions and adjust prices accordingly because they can’t afford to keep the houses on the books. Besides, they’re probably still selling at a profit even with the reduced price.
The resale market usually has owner-residents. They can try to sit out a market change by simply living in the house. That seems to be what’s happening–the built-out “core” areas of LA and the Bay Area are mostly resales, and prices haven’t adjusted to the market change, while the new construction people got hip quick.
“They can try to sit out a market change by simply living in the house.”
There are many reason houses need to get sold. Job changes, divorce, marriage (combining households) death, illness, age, etc.
You can add suicide loans to this list too.
“Sitting out” is not always a viable option.
“Notice that the places prices are dropping the most (Sacramento, central valley) are those dominated by new construction.”
Do you know how much new construction has occurred in SD since 2000? I have no figures, but unless my eyeballs lie to me, it is a large number.
great point!
She said significant housing-price declines are usually spurred by economic downturns, including job losses or high mortgage rates.”
Care to elaborate on what usually causes home prices to go up?
“economic downturns, including job losses”
Happens everyday in Silicon Valley! Good years and bad Years. Companies are acquired and have layoffs. Veritas, Peoplesoft, Seibel, Maxtor. Not to mention price competition in each industry which slices into margins.
LOL. What the RE industry fails to acknowledge is that it was a speculator sub-prime loan driven market for a number of years now . A few economists have come right out and have admitted it was a mania .
When you have massive job loss in a area the same thing happens , you run out of buyers that can afford to purchase verses sellers needing to sell because of job loss.
In a speculator driven sub-prime loan market the people need to sell as much as if they lost their job and you have fewer buyers that can afford buying because of inflated prices.
The RE industry knows the reasons why real estate came to a
standstill . The speculators started to bail and the sub-prime low down buyers couldn’t afford the uptick anymore .The builders over built thinking the party would keep going and it didn’t .The builder knew a huge % of their sales were speculation and sub-prime buyers .
Good job there, Wizard. Thanks to the banks and their no-standards lending, we already have the functional equivalent of massive unemployment baked into the cake. Now it’s up to the Fed to “find jobs” for these lost souls. I say it can’t be done.
Now it’s up to the Fed to “find jobs” for these lost souls. I say it can’t be done.
It would be neat if some wealthy foundation paid them to be atheist missionaries who would roam the third world spreading rational antidotes to what passes for “conventional wisdom.” This would be very appropriate restitution.
But why this time did the lenders become so reckless? Above all, the route cause is reckless lending and the acceptance of liar loans. Greenspan was around in the olden days when you had to put 20% down and tell the truth. What happened all the sudden?
“But why this time did the lenders become so reckless? Above all, the route cause is reckless lending and the acceptance of liar loans. Greenspan was around in the olden days when you had to put 20% down and tell the truth. What happened all the sudden?”
The creation of the MBS product is what happened. Foreign and domestic buyers of these Mortgage Backed Securities are looking for higher secured returns because interest rates have been low. Unfortunately the MBS products have found their way into Joe Sixpack’s retirement plan, which will be the financial coup de grâce.
Thanks - with “historic” rate lows, that was a first too and so your answer makes sense. Amazed at how free market (uncontrolled) the banks are. I thought there was more gov regulation, but guess not.
Yup- same ancedotal observations of mine here in the east Bay of SF. Homes are sitting FOREVER with very few signifigant reductions. Some have been sitting for so long with “price reduced” on the signs that the signs themselves are actually fading. I guess these people somehow have money to burn. Many more are simply being rented- but even then, most still sit vacant for months on end before a renter is found.
What’s disturbing is on Sundays during open house days, you see these people driving around in their Volvos and Bimmers looking at these things- intently. They seem desperate to get into one of them- and seem likely to bite the bullet the second prices go down a hair. It makes me just want to yell- HEY- Wait a couple of years and the prices will be a LOT lower. Everyone can surely hold off for another year or two… or can they?
My wife is making it difficult to hold off another year or two. We agreed to wait it out, but these F’ing sellers are not dropping their prices enough yet. WIfe only sees the listing price as well and complains prices still are not dropping….Enough to make any patient bear start losing their patience ……and hair. I hate Orange County. So many entitled to get my 10% + per year aholes.
It’s simple. Just take the wifey down to a lender. Tell the lender you want a traditional 30 year fixed rate. Get your figures at today’s rates add the T&I then go take wifey shopping. That should be enough for her not to want to set up roots in Compton.
Who wants a 30-year loan?
People who intend to pay off the loan
“People who intend to pay off the loan”
In other words, very few who are in the current prospective buyer pool.
Actually, I meant that 15 years would be preferred - if you have to take out a loan at all.
just tell her to shut her yapper!
Actually when I showed my wife how much money the flippers were making, that quieted her down immediately. She then agreed our next house will be purchased at a severe loss to a flipper.
Don’t forget Mello Roos, HOA, and earthquake insurance.
We are about due for a nice size 5 or more earthquake in the near future in Los Angeles.
That should add some additional amuzement and entertainment to the housing bubble watchers
Oh my god, it’s like I’m looking in a mirror. This is exactly what I’m dealing with. I’m OK holding off another year until prices in West L.A. come down from ludicrous. The wife is not. But I’m holding firm. Wish me luck, my brothers and sisters.
“Everyone can surely hold off for another year or two… or can they?”
There is great uncertainty about where we will be in two years with all the talk of helicopter drops, soft landings and such.
Ok.. finally what does helicopter drops mean?
‘Each of the policy options I have discussed so far involves the Fed’s acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money.’
http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm
Not missing it:
From wikipedia: In 2002, when the word “deflation” began appearing in the business news, Bernanke gave a speech about deflation. In that speech, he mentioned that the government in a fiat money system owns the physical means of creating money. Control of the means of production for money implies that the government can always avoid deflation by simply issuing more money. (He referred to a statement made by Milton Friedman about using a “helicopter drop” of money into the economy to fight deflation.) Bernanke’s critics have since referred to him as “Helicopter Ben” or to his “helicopter printing press”.
And the link to the text of referenced speech in 2002:
http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm
I suspect helicopter Ben will have to revisit his thesis when he realizes that most outstanding consumer debt is not at a fixed APR, but adjustable. And most fixed commercial bonds are callable.
“… when he realizes that most outstanding consumer debt is not at a fixed APR, but adjustable.”
Maybe you missed this line from the speech, Suzanne (and already pasted in above):
‘A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices.’
While there is uncertainty, I’m not sure I would call it “great.” Other than REIC hacks, most unbiased observers would concede that affordability is low, prices are historically above mean, and interest rates are near historic lows (i.e., lower rates can’t improve affordability)–I could go on, but you know this better than I from your posts. Bottom line: all fundamentals point to a “correction.” Whether this will happen through actual significant price declines or a long period of flat prices while other indicators catch up, no one knows. Either way, if you don’t own a home today, buying one is probably not wise (move up, sideways, or down purchasing is another matter).
The issue of a “helicopter drop” has been discussed ad nauseum on this board. The consensus seems to be that, even if this were to occur (whatever it means), it would have to lead to rapidly escalating incomes in the very near term (something that would have a number of obstacles). Of course, there is also the possibility of some sort of generous tax reform, but this is unlikely given the rather generous tax benefits of homeownership that already exist.
Is there uncertainty? Yes, but perhaps not “great.” Is it a pretty good bet that waiting 2 to 3 years before buying could translate into huge financial benefits? I think so.
Then why the arrogant display of certainty from economic policymakers on high that the market will achieve a soft landing next year? Doesn’t that create issues if it proves flat-out wrong in retrospect?
If those guys were to tell the truth, it would create a panic in the market (remember irrational exuberance?) When they are proven wrong by the market, they will cop out by saying the correction was “unforseen” or some such BS. They have a duty not to create market panics, so I can’t fault their less than completely candid assessments. Did you notice Bernake’s comments in the last Fed statement where he said the “correction in housing has been orderly?” Ponder what that really means. That is as close as you will get to the Fed saying there is a bubble.
If inventory is piling up, I don’t know how you could call that a “correction,” Mr. Bernake — in the normal universe an “imbalance” is “corrected” by clearing out inventory so that supply and demand are in sync again. We’re just piling it up higher than before! The opposite of a correction!
Sorry for long post (and multiple posts). Too much caffeine today.
GetStucco,
My answer to your question is a variation of the answer from IrvineRenter. I think that from the government/bureaucratic folks (i.e., fed), to the housing talking heads, and extending to the REIC intelligentsia, what you are looking at is a managed deflation. If the “truth” were unanimously expressed by government officials and industry folks, it would cripple the real estate market. Sales to first time buyers would not decline by 25%, they would fall by 75% or more. This would occur because the middle ground buyers/and sellers who read newspapers (and are not independently wealthy), as opposed to the truly hopeless, could not avoid the reality that they are buying a depreciating asset. The fed doesn’t want this, the gov proper doesn’t want this, and any industry connected to real estate doesn’t want this. It spells economic shock, a dive from the sauna to the icy river. People panic, lose faith in gov. and markets, etc. etc. Even those of us on this board who despise spin probably wouldn’t want that. So what is the alternative? Spin enough that uninformed masses (sellers and buyers) maintain some vitality to the real estate economy as home values drop over a 5 year period. A little bit each year and nobody notices (or they notice but thinks are sufficiently murky that only those who are screwed at any particular point in time become outraged). My guess is that the fed understands this better than anyone on this board and is hoping to minimize the damage knowing that it could be very bad. Certainly none of them are looking to shove train cars off the track to expedite the trainwreck.
A final note on the helicopter drop. I honestly view this as an urban financial myth that just propogates the “noise” and keeps people buying. Why? If I look at the trajectory of the market over the past decade, I can almost explain each phase: the market tracked the 90s mini-bubble and then greedy mortgage brokers and derivate instruments allowed them (with the tacit collusion of RE agents and appraisers) to keep the bubble afloat for another few years, leading to rediculously low affordability.
Forgot to add: I can’t make sense of any “helicopter drop” that tweaks my cartoon understanding in a meaningful way. If you can’t explain it, it probably doesn’t really exist.
Helicopter drop as urban myth? Bernanke said he could, and would, do it. Liquidity created this monster.
“Sales to first time buyers would not decline by 25%, they would fall by 75% or more.”
That will inevitably occur once suicide loans and liar loans go out of fashion — this, too, is in the bag.
“A final note on the helicopter drop. I honestly view this as an urban financial myth that just propogates the “noise” and keeps people buying.”
Good God, man, did you completely ignore the Bernanke speech that two of us independently linked in just above? Because we were quoting him directly on this so-called “urban legend” you refer to.
Whoa! I guess I did completely ignore those quotes. My bad. I went back and read the article and found it pretty interesting (although beyond my comprehension in a number of ways). From what I gather, the general point is that the fed believes that it can combat deflation through tax cuts, purchase of targeted assets, capping rates on financial instruments, and other actions that make the dollar worth less/put more money in consumers’ hands (without an increase in work or productivity) and make borrowing cheaper. (And I guess a “money financed tax cut” is the so-called “helicopter drop.) But I still think (yeah, I’m stupid, stubborn, and opinionated on things I know nothing about) that the mechanism for stimulating the housing market through fed actions in a way that would not lead to significant dislocation in other areas of the economy would be extremely difficult.
Actually, you need those people to bite at progressively lower prices in order for the market to progress downward…we need knifecatchers to reach the bottom faster. In some respects, I would be encouraging them to buy as longs they are not paying list price.
Are you implying that if there were zero buyers for the next year, prices would stay flat? It’s all about supply and demand- if there were zero demand for the next year, prices would drop 50%, easy.
No, right now, the only catalyst for lowering LIST price is setting the comps progressively lower. This time next year we will have seen the effects of yet another catalyst: The Resets.
Actually, it is quite obvious that there are two kinds of sellers out there right now, ones with a wishing price and ones who need to sell. The ones who need to sell are dropping prices pretty regularly, from what I’m seeing.
I would rather see… “steep vertical bumpy drops” … like down hill extreme skier!
jetsonboy: east bay here as well. Yep, homes are sitting forever, and you are exactly right, renters aren’t easy to come by. Even if you got one your chance of positive cash flow is slim to none. I see open house signs every weekend, sometimes to the point where it is a public nuisance. And yes, I too see the drooling prospective buyers. I have become convinced that people here are slightly insane. I too want to scream at them to just WAIT! I recently had a conversation with a guy in his early 30s who is just frothing at the mouth wanting to buy! There was a look of insanity in his eyes. The burning desire to “own” here is not healthy. With all the fancy college degrees running around in the bay area, you would think people are smart, but no. The sellers are just as deluded. I hate to say it, but I feel these people deserve a good comeuppance. Because of family and my love of the weather, I really don’t want to leave my home state, but these dip$hits are ruining the state, and have been for the past 20 years.
There was a look of insanity in his eyes. The burning desire to “own” here is not healthy. With all the fancy college degrees running around in the bay area, you would think people are smart, but no
I’ve gradually learned never to confuse “smart” with “rational”, or think that educated people are immune from mass hysteria. No less than Sir Isaac Newton himself got caught up with the South Seas Bubble –and lost a fortune. Strip away all the college degrees, technology, manners and veneer of “civilization” and you’re left with a naked, scared, hungry, horny semi-evolved chimp. That’s humanity in a nutshell.
Very funny!
“Strip away all the college degrees, technology, manners and veneer of “civilization” and you’re left with a naked, scared, hungry, horny semi-evolved chimp. That’s humanity in a nutshell.”
I like that summary.
Spot on Harm
Yup, aren’t we all featherless bipeds…
We all be Naked Apes.
http://en.wikipedia.org/wiki/The_Naked_Ape
“Strip away all the college degrees, technology, manners and veneer of “civilization” and you’re left with a naked, scared, hungry, horny semi-evolved chimp. That’s humanity in a nutshell.”
That’s just MEN in a nutshell.
“… naked, scared, hungry, horny semi-evolved chimp.”
“That’s just MEN in a nutshell.”
Right. It takes a good woman to strip away “scared” from the adjective list and spur a MAN to do something stupid like buy a home he should realize he can’t afford.
“a naked, scared, hungry, horny semi-evolved chimp. That’s humanity in a nutshell.”
That’s me first thing in the morning.
That’s me 24 hours a day
Wizard: you go to work naked?
HARM: so right you are. Fancy degrees often don’t mean squat when it comes to manias. Just look at doctors and dentists, some of the worst investors out there. Seriously though, the lust to own I am still encountering is just ridiculous. Good things come to those who wait. While I’m waiting, I’ll be able to take a vacation and not use my credit card to make ends meet. Heck, I can even contribute to my IRA. Renting has its advantages.
“HEY- Wait a couple of years and the prices will be a LOT lower. Everyone can surely hold off for another year or two… or can they?”
No, there is no guarantee of price drops. What is guaranteed, though, is that to RENT a house that I am waiting to buy ($800Kish now) in two years at a reduced price, I would pay about $4K a month…or $96K over two years. It’s a gamble either way.
People that are saying that prices will definitely drop 40% in the next “x” years are no more wishing and hoping than those that banked on 20% YOY returns a few years back. I’m a huge bear but being that Coastal LA is mainly move-up buyers, it is entirely realistic to believe that they used more traditional financing (with sizeable down payments) to get there and thus, will have few REO’s. Just my opinion, though.
“I’m a huge bear but being that Coastal LA is mainly move-up buyers, it is entirely realistic to believe that they used more traditional financing (with sizeable down payments) to get there and thus, will have few REO’s.”
I understand what you’re saying, but I don’t agree. The key to any market, even LA, is the first time buyer into that market. If the first time buyer is effectively priced out, then the chain has been broken. What you’ve described only forestalls the inevitable. It’s merely a matter of time and how long one is willing to wait unless external economic matters intervene of course.
Beware of helicopter drops targeted at first-time buyers…
In what form exactly?
Lets consider this sequence of events:
1) Housing prices continue to (slowly) decline
Will the Fed continue to cut rates, to no avail? Maybe. Then again, maybe it won’t be able to AND keep the dollar reasonably healthy. So the real estate market languishes until “uncertainty” about the direction of the market is resolved.
2) Does the Fed feel they have to do anything here? No.
3) Housing prices decline suddenly, a lot.
4) Fed decides to do “something” most likely an “aggressive” 50 bp drop in rates.
5) Unfortunately, for the first time in 15 years, potential buyers of real estate all KNOW real estate CAN DECLINE in price NOW. Do buyers now all leap in at once based on a lousy 50 bp reduction in rates? Doubtful, because the typical 30 yr mortgage probably hasn’t changed much and that’s what the remaining, conservative, qualified buyer, prefers, no?
6) Fed, seeing little effect on the market, cuts another 50 bp. Why? Because “everyone” can see there’s a problem.
7) And does this next reduction induce sufficient buyers? Uh, no. See # 5 above. Prices have gone down, rates have gone down….any “fool” can see that there’s no reason to rush in……few “fools” will.
In the mean time, the number of FBs who are hopelessly underwater and unable to get 100% plus financing (due to tighter regulations) increase so foreclosures and forced sales mount; driving prices down further.
Can the Fed arrest this process? I don’t think they can because of the unprecedented number of the troubled “owners” on the margin. Its already huge and growing fast, nationally, and if the economy slows, even more will pile up, faster.
Can’t force frightened, qualified, buyers to act. And the number of remaining, qualified buyers who are willing to accept a clear financial risk is probably exceptionally low…at least until you get to that point where the numbers “work” again. At that, affordable, point, the intelligent, qualified, buyer will probably stick their toes in again. At that point you’ll know we’ve reached bottom because they’ll be called “fools” for taking such a stupid risk.
‘Can the Fed arrest this process? I don’t think they can because of the unprecedented number of the troubled “owners” on the margin.’
That nicely summarizes the problem on the demand side of the market.
On the supply side, there are those ghost tract home developments which Janet Yellen noticed out in the middle of the desert. Using stimulative monetary policy to try to rescue the situation would result in more ghost tract home developments, and a worse supply glut than the one already extant.
Bingo. If the price to rent and price to income ratios are far above historic norms, far more housing will be built than people will need or can afford to buy.
And absolutely nothing the Fed does will make any difference. Prices must come down for the supply imbalance to be corrected.
I lived through the previous slump in LA RE in the 90s. A nice starter home that I almost bought fetched 339,000 .That time around there were enough first-time buyers with some savings who were shrewd enough to buy. Even with that, prices fell A LOT, and mid-range house simply didnt’ sell at all. It was painful to watch. I would venture that now a starter in LA could not cost less than 600,000. Who can afford that? Who is paying 6000 rent?
How would you explain Beverly Hills, Brentwood, and basically the entire westside getting slammed in the 90s?
Oh yeah, it’s different this time.
Do you have data for this? I got into an argument with a friend a few weeks ago over whether these “elite” areas were separated from the rest of the real estate market. He suggested they were. In addition to my “landscape” argument (see above), I said that these areas hadn’t continued at a “permanently high plateau” in prior real estate downturns, but I can’t say that I’ve ever seen data. Do you know where that information can be found?
During the last downturn they couldn’t give that stuff away. I remember a lender that was selling those properties in “elite” areas in bulk for 30 to 40 cents of the original asking price just to get it off the books. Folks on the westside of town are the shoehorn leverage kings. I took photos of many foreclosures/R.E.O.’s with Porsche’s and Mercedes in the driveway. Palos Verdes, Manhatten Beach, Hollywood off of Sunset Blvd, Beverly Hills by the triangle, Los Feliz it was not uncommon to have 10 to 15 foreclosures in a 3 block radius. For data do some research in the L.A. Times archive. As a matter fact with the Aerospace industry taking a dump at the same time Palos Verdes was in a world of hurt 3 million dollar homes for 900k. It’s will be that way again soon. Option Arm is king on the Westside.
Yep it’s true. I lived in HB. We bought a small beach house on a big lot in 1992 for $280k! You could buy almost any house in the entire South Bay including the strand for pennies on the $$. We then bought a small duplex across the street (3 blocks from the beach BTW) in foreclosure…for $215k. the previous owner paid $600k in 1988.
I know for a fact through actual data that West LA (SaMo, Pac Pal, Brentwood, etc.) was one of the hardest hit areas in the last RE bust of the late 80s/early 90s. This area was down 35-40%.
Yep, it’s different here. No way our great beach city (insert city name here) gets hit. What a joke. Oh, and the argument that these “rich people” buying million plus $$ properties with traditional financing is total bullshit. These people are lving on the “edge” way beyond there means. Its called keeping up with the Jones.
The west side and south bay will be pummled just like the rest. Mark it down.
Commercial properties got nailed hard too! I got reports from once commercial real estate broker in the westside of L.A. that saw 70-80% drop in commercial real estate prices. And according to reports it stayed that way for several years in the 90’s. The guy lost his job in the industry as a result and even as of a couple years ago still remembers the sting of that time, in real estate in L.A.
I think the earthquake had a lot to do with it, specially because it came on top of the riots and all those defense layoffs. It was like a triple whammy, but someone who works in finance told me the other day they just ran a study and prices fell almost 50 in Beverly Hills…
“riots”??
Hmm, I think things could go to riot level again… this time because people don’t have jobs, homes, or food to eat at massive levels… I suppose the risk of that will come as the weather gets warmer… say around late spring or early summer. That should be around the time more the FB’s start the massive bleeding.. as they are going into default…
I believe when the stock bubble blew, there was an increase in levels of violent crimes and suicides, etc.
Well, I guess perhaps the government can rescind the ban on marajuana, and people will more freely find an non violent outlet for thier stress.
I agree with you that there is no guarantee of price drops.
However, I don’t know about more using traditional financing…tell that to my marginally-employed friend and his girlfriend who plunked down $850k for a pad in Hermosa with an IO and no money down. Or this other guy & wifey I know who traded up from his Redondo residence to a huge place in Torrance with an IO loan (granted they put a sizeable amt down)
I’m feeling peer pressure..maybe I should max out on a pad with an IO since everyone else is doing it…30 yr fixed loans are overrated
I agree with you that there is no guarantee of price drops.
BS. That’s like saying there’s no guarantee that a plane that takes off will ever land. Gravity can’t be denied.
“Our task is not to study economics but to change it. We are bound by no laws.”
S.G. Shumilin - Economist for Joseph Stalin
In the early years of Bolshevism a famine swept Russia that left 9 million dead from what has been called “the worst strictly man made famine” in history. This came from the men that were bound by no laws.
I will personally GUARANTEE that prices will come down. In 2006 we are no closer to being able to deny the existence of the laws of economics than they were in the 1920s and ’30s.
“I agree with you that there is no guarantee of price drops.”
Even the ones which already have occurred???
Even the ones which already have occurred???
I recently learned these were false drops.
I knew everybody would bust my balls for that comment. What I meant is that there is no guarantee of any future price drops…sure it could go down another 5-10% or whatever or it could plateau for several years or it could go up again…
I didn’t know you all had crystal balls; maybe one of you could loan me yours
It’s truly amazing how long sellers will hold on to the price of a house if it’s financially feasible. On the realtor’s site I update, there have been listings there for *years* that have not significantly moved in price. (Okay, 1 just recently came down all of $10k). In fact, after being on the market for 2 years, one seller recently moved their price *up*. (I’m guessing here because the comp has gone up recently - VT seems to be about 1 year behind on the bubble..)
It seems like the key is being patient enough to wait for a) enough distressed sellers who need to sell within a reasonable time frame and then b)waiting for trickle down effect of the comps. The foreclosures and fire sale prices take time to ripple through the system. Right now in VT it seems like we’ve got mostly sellers who are waiting to wait months/years to get their “comp” price.
Spring will mostly likely bring sellers who can no longer hold out - and by summer’s end we might get some of the other sellers to “see the light” when it comes to their own prices.
The whole point of course is that these people aren’t sellers. They’re just wishers. It’s like someone who puts in a sell order for a stock at 20% above market, and just waits for the market to rise up and meet it.
A real seller is someone who actually wants or needs to unload the property. At the market price of course.
‘Free cars. Vacations. No closing costs. You name it. [They’re discounting] anywhere from 6 percent to a third off the base price.’
Who pays for “incentives?” If the free cars and/or vacations are included in the purchase price and financed using a loan supported by a fraudulently-inflated appraisal, the buyer pays…
I think the point is that the “house prices” are dropping… Going down, down, down..
The real estate industry seems to hide this information from statistics, when referring to the price of the house.
Also, I think it is funny to watch news reports spout off that the “Number of sales is down” BUT “the length of time it takes to sell a house is less than it was before”.
However, those statistics do not include that the houses that did appear to sell quick, were listed more than one time in the last year, and didn’t sell the other times, and that the time it took to sell, in the statistic was only incorporating the number of days it was listed in the last time it was listed. So for all we know, that house could have been sitting “for sale” on the market for the last 12 months solid.
And it wouldn’t surprise me to see a realtor/broker manipulate the stats by relisting (back dated a couple days) from the day it was actually sold. Kind of like the “options” shinanigans, CEO’s at the real estate corporations were doing to get better deals on their share options share prices.
Naughty, Naughty!
From Inman: “Last year at this time, NAR chief economist David Lereah was predicting a “modest cooling” in the real estate market in 2006. Like most experts, NAR’s top economist didn’t anticipate that sales of new and existing homes would decline so steeply in 2006, or that housing starts would be off so dramatically.”
So then, what makes them ‘experts’, apart from the MSM quoting them at every opportunity?
He has a PhD from Virginia…
To me, this article is saying that most of the people considered to be “experts” either:
(1) don’t know jack $hit
or (2) are paid industry shills
Either way, the “experts” can kiss my a$$. I won’t buy until the blood flows freely.
lol
until the blood gets to the river….
Worked in DC for years .. experts generally have a PhD, a nice brief case, lots of Power Point Slides and the courage to stand up and say: “I am the expert on this matter”. Next they get hired by who ever likes what they say or who doesn’t like it (usually the doesn’t like it pays more to shut the expert up).
Which is why, despite the collective knowledge of this blog putting the entire “expert” community to shame, we would never find employment to express our opinions.
““The greatest decline countywide came in the sale of existing home, where a 25.5 percent decline was reported. The median price of existing homes, however, dropped only slightly by 4 percent, from $436,500 to $419,000.”
“New home sales, however, dipped slightly, although their prices plunged.”
This says it all. Builders and developers are still moving houses due to their deep discounting, hence the smaller drop in volume but huge price drops. Meanwhile, the greedy and stupid “deer in the headlights” existing home sellers sit on their “wishing price” and wait for the market to “turn around.” That is why existing home sales have fallen off the face of the earth while their values have not dropped significantly. Once foreclosures and bankruptcies ramp up, the market will force their hand. Sell at fair market value, or never sell at all.
“Once foreclosures and bankruptcies ramp up, the market will force their hand. Sell at fair market value, or never sell at all.”
The forced sales will bring this market (pre-owned homes sellers) to their knees. Right now we are seeing 10 NODs’s a day in my town. LOOK OUT BELOW!!
OOPS - just checked the most recent report .
97 NOD’s/ 5 days = 19.40 per DAY.
LOOK OUT BELOW. This is getting ugly fast.
Last year these guys could re-fi or sell out of this problem. This year - Sorry you are now an FB.
Yes, this is why looking at the list prices (wish prices) is futiile right now. You won’t the prices declining because their hand has not yet been forced.
I think it is comming in Spring. Eveyones betting their homes on the market improving come end of winter.
But! “They have equity because they own”…..
“This says it all. Builders and developers are still moving houses…. Meanwhile, … sellers … wait for the market to “turn around.”
Wait utill Spring 2007. Some resellers will wake up to market reality and start slashing prices too. Naturally, builders will be forced to lower prices even more. As a result, there will be a pricing tug of war between builders and resellers all the way down to the bottom.
That is why existing home sales have fallen off the face of the earth while their values have not dropped significantly
Wrong. Existing home prices have dropped just as much as for new homes. Buyers aren’t stupid enough to pay more for a used home than for the equivalent new home.
What has happened is that the market mix for used home sales has shifted up - only the better ones are selling. The POS are sitting unsold. This holds up the median.
“Existing home prices have dropped just as much as for new homes. Buyers aren’t stupid enough to pay more for a used home than for the equivalent new home.
What has happened is that the market mix for used home sales has shifted up - only the better ones are selling. The POS are sitting unsold. This holds up the median.”
Elegant way to make this point, Ive tried poorly.
I think the relavence of this will be that those that feel heat to buy (in no less than 2 years!!!!!) should consider a new home rather than used, unless your savy enough to do a foreclosure (RISK). At that point those buying new will meet much higher lending standards than todays FB and make much better neighbors.
If you buy right at that point you can stay up on RE in your favorite area and wait for a MUST BUY! There will be too many just good buys for us to even consider, youll be messing with a good buy and GreatBuy will come along that you have to pass on because your humping a pig good buy. A MUST BUY = 3 Great Buys = 10+ good buys.
There will be too much RE for sale to even consider 70% of it. The MUST BUY will be a home that makes you, Momma and family very happy and “THE HOME YOU WANT TO DIE IN”. This is my term to designate a buyers ideal property and this make it worth more that 3 Great investment buys in my above matrix.
Living somewhere new until you have a place where you don’t mind fixing crap is of a great enough value to consider while waiting for your dream (death) home. Not to be morbid, but it beats others chosing where to house you till you crap out =)
[HOV] Hovnanian ‘disappointed’ with FY06 results
[HOV] Hovnanian Q4 net loss $1.88 vs net earns $2.53
[HOV] Hovnanian sees Q1 EPS of 5c-10c
[HOV] Hovnanian Q4 contract cancellation rate 35% vs 25%
35% cancellation rate? Wow! That’s a bigger eye opener than an espresso.
since there has already been so much talk about it:
‘It’s harder to buy a home when the perception is that prices may be going down,’ said DataQuick analyst John Karevoll.
Its harder to buy when you realize what the payments are going to do to you.
Not to mention the stupid sub-prime mortgage companies continue to disapear. Soon we won’t have monopoly money bidders. Sigh… this is so like watching a 12 mile train getting into a wreck, in an ice storm… and the crash site is miles away. You know its about to happen, but you cannot predict just quite when due to uncertainties in the distance and train speed. But you know its going to happen.
The builder will probably declare BK. How much cash do they have left for stock buybacks?
Neil
FBs are watching home prices fall as their mortgage pmts increase.
Ouch!
Who are the dip$hits making up the 65% that actually went through with the deals?
Start up a conversation with the person next to you in the supermarket checkout line. I’m sure after three or four conversations, you’ll realize that there are plenty of people out there that are so far from understanding the big picture on real estate that a purchase in this market wouldn’t phase them. We live in a society where more people recognize Paris Hilton than the name of their congressional rep. This is true for almost all socio-economic levels.
PC you are so right. I have had numerous conversations with relatively well-educated people who have no clue. For the most part they are not trying to buy/sell homes, so they haven’t tuned in. If I sense that they are getting upset by what I am saying, I add, “Oh well, if you’ve had your house a long time, the paper value goes up, the paper value goes down, eventually it goes up again.” Of course, I feel I am lying. I don’t believe the inflation-adjusted prices will rebound to the 2005 level in my lifetime. Perhaps not in the lifetime of anyone posting here.
they are not even close to filing for bankruptcy. they have a $1.5 billion untapped credit facility and about $50 mm of cash on the balance sheet. Cash flow will improve dramatically as they stop buying new land and building inventory. Earnings would have been positive if it weren’t for a $300 mm+ non-cash inventory write-down. GAAP earnings at the builders need to be taken with a grain of salt since they are very different from cash flow, and cash flow and liquidity usually drive bankruptcy.
Have you seen the SCF? Also, as I have said before - this first round of “one time” charges, ala CSCO, et al will only be the tip of the iceberg.
“…they have a $1.5 billion untapped credit facility…”
This is like saying “I have checks in my checkbook so I am ok”.
BTW - I think one of the top 20 builders will go bust, my money is on SPF.
It takes a lot to force a company into bankruptcy (look at how GM continues to limp along), and the triggers aren’t in place at HOV. Don’t underestimate the company’s borrowing ability and how it can help the company ride out a deep and painful cycle. I’m not saying that the company can’t go bankrupt, I’m just saying that it’s a remote possibility over the next few years.
As for CSCO, it never went bankrupt, even with all of the big write-downs.
“BTW - I think one of the top 20 builders will go bust, my money is on SPF.”
My money is on WCI.
I should have used WCOM as my example of big “one-time” charges and eventual bk.
Massive Fraud at WCOM rather than at CSCO. Fraud = scam artists not caring about what they (paper-mache) built, vs Cisco real work with poor mgmt execution and bad economy. Those who try hard get the grace to limp through, while the scammers / flippers / liar-loan,fog-a-mirror types generally have a nasty one-on-one visit with KARMA.
Guys don’t waste your efforts worrying about HB’s folding up shop. Those guys can just scale back operations. I think at best we can hope for is loss market share and HB mergers.
Keep your eye on subprime, thats where all the fraud is. Hopefully subprime will drag a HB down with it.
Hovnanian Enterprises Inc. (HOV : Hovnanian Enterprises, Inc
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6:10pm 12/18/2006
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HOV35.25, -0.64, -1.8%) late Monday said it swung to a fourth-quarter net loss available to shareholders of $117.9 million, or $1.88 a share, as revenue fell and margins narrowed. In the same period last year, the Red Bank, N.J.-based home builder posted net earnings available to shareholders of $165.4 million, or $2.53 a share. Revenue fell 1.5% to $1.75 billion from $1.77 billion. The company expects 2007 per-share earnings of $1.50 to $2, on 16,000 to 18,000 home deliveries. For the first quarter, Hovnanian sees per-share earnings of 5 cents to 10 cents. “We believe that the overall U.S. housing market may hit the bottom in the first half of 2007,” said Ara Hovnanian, the company’s president and chief executive, in a statement. “However, the housing market is likely to bounce along the bottom for several quarters before pricing and sales pace improves.”
“…’We believe that the overall U.S. housing market **may** hit the bottom in the first half of 2007,’ said Ara Hovnanian….”
Is Ara saying to shareholders stay the course? Keep buying or hold on to HOV shares b/c earnings will turn positive after the first half of 2007. Nice try but I’m not buying it! We’re not even near the bottom and already HOV is losing money. WTF!
Just wait until the large mountain of new home inventory either already built or in partial stages of construction finally comes to light. You can only hide an elephant under a rug for so long before even the blind start to wonder what is making such a terrible stench.
It still amazes me that a year ago they were saying there was no bubble and prices will keep going up, then they change their tune and it’s prices will stay flat at a permanently high plateau, and now all of a sudden, it is a few months later and they are saying prices have dropped but we are now at a bottom.
They have been wrong all along and we are supposed to just start believing them????
You know the saying, fool me once shame on you, fool my twice shame on me.
Sorry, no greater fool here.
They have been wrong all along and we are supposed to just start believing them????
Well why not? It works for the guy in the White House, doesn’t it? Um, well, maybe not as well as it used to.
“There’s an old saying in Tennessee — I know it’s in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can’t get fooled again.”
Is Leslie Appleton-Young the new Joe Isuzu?
I like the thought…but no, Joe Isuzu was reasonably funny. Nothing funny about LAY.
Hey, Joe Isuzu…my hero
These RE folks actually want people to… believe/trust/pay them.
GO DOG GO! by: PD Eastman
“Do you like the price of my house?”
“NO! No, I do not like the price of your house!”
“Goodbye!”
“Goodbye!”
she actually admitted that she shouldn’t be using the term “soft landing” a while back. David L. is much closer to Joe Isuzu.
This just in from Tucson! When it comes to real estate investing, we’re number 2!
http://www.azstarnet.com/sn/hourlyupdate/160899
And you’ll enjoy the comment(s) that follow the story:
http://regulus2.azstarnet.com/comments/index.php?id=160899
Sounds like there are more HBB recruits here in the Old Pueblo…
We looked at a 3 BR 2 BA house listed for $640 K in Santa Clara, CA. Last year, a house like that would have listed for $700K. I told the real estate agent that that prices have really come down. She point blank told me, “no prices aren’t coming down at all”. I gave her “I know you are lying to me” look and she finally admitted that prices had come down slightly. I still think that is a ridiculously high price, but I think my wife is itching to buy a place soon. I need to start sending her housing bubble articles again.
That’s priceless…LOL! I hope to hear more “shaming the neighborhood realtor” stories.
Check out http://eservices.sccgov.org/ari/search.do — when you see that the people selling those houses are selling them for 190% of what they bought them for in, oh, 2003, you’ll wait, too. (San Jose here)
HOV down 4% after hours - will this stick or will this company with NEGATIVE earnings rebound?
According to the housing industry, they are “inverse positive” earnings. Please use industry standard language.
Crispy,
You also forgot to note this is obviously a temporary setback before the anticipated spring bounce. You haven’t stopped taking your meds again, now have you? Be a good lad and take your blue pills.
LOL
PPT to the rescue — I expect HOV to close the day tomorrow with a gain to erase both today’s and tonight’s dips.
Absolutely. These stocks will open down and then skyrocket when the cc is going on.
OT- will YOU still have a job if we roll back to 2002 pricing ?
The article is great weasle wording…. The perception is prices may be going down….
Nice bias from the ole media. NAR influence?
Luckily perception is all that matters. Just ask all the koolaid purveyors!
Perception is reality.
Prices are going down. No weasle words involved.
‘It’s harder to buy a home when the perception is that prices may be going down,’ said DataQuick analyst John Karevoll.
I think he got it backward since it must be harder to SELL when prices are expected to go down. Or, he’s just trying to say “Damn the stubborn buyers” in a subtle way???
Perhaps he means that its harder to commit to buying a house now when its likely that if you wait the price will come down. But yeah, as its written its backwards of reality.
Ah, Leslie.
At last, you come clean.
But you knew we were right all along.
Yes, now we can claim Victory.
It’s gonna be an interesting sporting event, watching this giant with broken legs topple over to earth.
Here’s more advice to Leslie…
Please don’t attempt to call a Bottom, yet.
Trust us, we’ll all let you know when we get there.
Key ingredient to knowing we’ve reached the bottom:
Reporters stop calling the California Association of Realtors, asking for quotes.
Yes, Leslie…this could take a while.
And they start calling her to take their order from Domino’s?
Leslie Appleston-Young takes your order from Dominoes:
“Our least inexpensive dish is a steal at only $35.50. It’s one fully loaded, one topping pizza, with cheese, and free parmesan cheese. Peppers, too. Or, if you’d like, you could order something cheap like our daily special. But I wouldn’t wait around too long to order what the cheap people eat. Our least inexpensive dish is getting hotter every second.”
Masterful doublespeak, eh?
Maybe she’d be good at it?
They are not making anymore pizza, you know, so you better buy now before you are priced out of eating a pizza. Please do it now before the immigrants and baby boomers buy up all the pepperoni and sauage…
“Indeed. Our projections are that the pizza eating market will bounce back next year, even though I just pulled this out of my freshly shaven a$$ to get you to buy a pizza. Speaking of a$$, or pizza, did you know that moldy cheese smells like a$$? It’s true. If you like a$$ you should buy our pizza. Gets moldier, and tastes more like a$$, every single day. At least that’s according to what the Pacific University of Silly Walks has to say. You can trust them. They aren’t mean like UCLA. Weren’t we talking about pizza? Yes, we were. Mold is good. Fresh is bad. Please buy my a$$. It’s for sale, ya know, just like my opinions.”
Nobody mentions free kool-aid with each pizza??
tsk tsk
you forgot about the brownies for dessert.
For some of us who have been around and maybe even experienced an RE downturn in the past (I’m 50 and lived thru three downturns in my life so far…), this is all so very predictable. I remember back in the early 90’s in OC reading every month some RE expert calling the bottom, only to see prices continue to fall, fall, fall…..and this was at a time when “exotic Option ARM mortgages” didn’t really exist to any great extent (you still had to “qualify” for a loan to buy a house using traditional underwriting standards pay stubs, W-2’s, Decent credit, etc).
Someone said on an earlier thread that they believed many people to be devoid of business sense, especially if they have not had exposure to business courses. I tend to agree with this statement since I talk to many educated people from all walks of life who honestly, are dumber than a bag of hammers when it comes to RE. I can’t tell you how many people I work with that are one hop, skip and jump away from financial devastation.
Anyway, rant over (guess I’m gettin old!)
“I tend to agree with this statement since I talk to many educated people from all walks of life who honestly, are dumber than a bag of hammers when it comes to RE. I can’t tell you how many people I work with that are one hop, skip and jump away from financial devastation.”
I am right there with you on this. I am friends with some very sharp people, but I am amazed at how clueless and wreckless they are about taking out ridiculous loans that they can’t truly afford so that they can buy into a market that had just started to decline after the biggest runup in the nation’s history.
I have a family friend who is an attorney who has great income; he has a wife who is desperate for a bigger house, and a mother-in-law who is a realtor. The wife and mother-in-law are trying to convince him to buy a new, larger house, rent out their existing home, and buy an investment property from the mother-in-law. The realtor / mother-in-law is telling him this is a great time to buy because of the temporary slowdown in the market, and the wife just wants, wants, wants. Is this a recipe for disaster or what? How would you like to be in that household when this guy goes out and buys $2.5 million in real estate (with some purchased from the mother-in-law) and the prices proceed to decline 40%?
An FB three times over with help from the mother-in-law: priceless.
How would you like to be in that household when this guy goes out and buys $2.5 million in real estate (with some purchased from the mother-in-law) and the prices proceed to decline 40%?
Let him, more GF’s means bigger bubble pop.
I know he is your friend and all, but still.
I warn people, once, to keep my concience clean. After that? I’m not slowing this bubble popping.
As I noted before, the sales in 2006 are the REO bargains of tomorrow.
Neil
Hey–lay off the hammers~! At least they’re good for something.
” It makes me just want to yell- HEY- Wait a couple of years and the prices will be a LOT lower.” You don’t want to act like David Lereah or Appleton-Young, you are much more smarter and have much more confidence. Keep in mind that market has to complete the denial phase before crashing.
” It makes me just want to yell- HEY- Wait a couple of years and the prices will be a LOT lower.” You don’t want to act like David Lereah or Appleton-Young, you are much smarter and have much more confidence. Keep in mind that market has to complete the denial phase before crashing.
“Someone said on an earlier thread that they believed many people to be devoid of business sense, especially if they have not had exposure to business courses.”
It’s very simple:
2 + 2 = profitable
2 - 6 = bankrupt
2 + 2 = 4
2 - 6 =-4
———-
4 - 4 = 0
It’s a wash. No harm, no foul.
Unless your in the 2-6 = -4 portion of the relation.
Toll and friends = 2 + 2
FB = 2 - 6
Casey Serin 2 - 6^6^6^6^6^6
According to google spreadsheets, 6^6^6^6^6^6 equals infinity. Strange, huh?
jjinla wrote: Am I crazy or are prices still not going down in Coastal LA?
I am in LA’s Westside, the world capital of the bubble. I think prices have gone down slightly. No houses are going for above asking price, which was the rule a year ago. A friend of mine just sold his house for 1.3M, but they started out with a 1.5 asking price.
Having said that, houses are still obscenely overpriced. For some reason the market is holding up better in coastal LA. I suppose in the wealthier areas people have more ability to hold on.
“A friend of mine just sold his house for 1.3M, but they started out with a 1.5 asking price.”
What’s a $200K discount to a rich guy? Certainly less than 1-year’s worth of income, right?
I guess it all depends on when they bought the house and whether they have any leverage. In this case, he’d owned the house for a long time.
I have many LA friends who live in what you might call 1.3 million dollar homes who are definitely not rich guys but might think of themselves that way.
The ones I know living in $1.3M houses (one in Pacific Palisades) are in debt up to their ears and bought with IO loans - all within the last year.
Big hat - no cattle
I agree . The higher end buyers usually can hold out during a down cycle .I’m sure during this RE cycle people stretched to get into the higher end however so you might get some pretty nice foreclosures that come up down the road . Also on the higher end house buyers usually put higher down payments. I think the reason for that is you can only take 1 mil in interest right off .
excuse me … tax write off …. not right off
A little OT, but here goes. I am just looking for the next big housing bubble of say 2025. What I am interested in knowing, if we are all still around as the USofA is this: What will the exotic loans of the future look like? I am just curious. Anyone have any ideas? I am truly being serious. The reason I ask is that we used to have what 3 or 4 traditional types of loans: 30 fixed, 15 fixed, VA, and the dreaded ARM? Now we have what, more than 100 types? Anyway, what do you guys think we will see in the next great RE runup. The only rule: don’t give me the Japanese 100-year mortgage or passing the mortgage to children since Japan already thought that craziness up. Also, the reason I ask is that if average starter or secondary home is more than 1M, how they heck will the average person be able to buy?
“What will the exotic loans of the future look like? I am just curious. Anyone have any ideas?”
My understanding is that I/O loans were the most popular variety during the 1920s, but they went out of favor in the 1930s for some strange reason. If it took 80 years for I/O loans to come back in favor, I guess 2025 would be a little bit on the early side…
Agree with GS. Not in our lifetime.
I wonder what the strange reason could have been, a depression, maybe?
If that is the case, could that be a precursor of what we can expect, given all the other economic indicators we have discussed on this board?
Interesting question GS. I think there will be more homes sold where you never own the land. Just the buy the house and “rent” the land for 50 years in the deal. They do that in various places now (e.g., Hawaii, ground rent in Baltimore row houses). In locations with premium primium (Boston, SF, etc.) it makes sense; bit I think this will become mainstream even without land scarcity in many towns across America.
If you’re going to rent the land, what is the point in buying the house? That’s a guaranteed depreciating asset. Why not just rent the whole thing?
My take is when this idiocy is all over we will just be back to the 20% down 25 year standard. If this type of financing is required prices will necessarily fall to the affordability level.
At some time people - (sheeple) in the future will never own property they will just rent from corporations or gubment. What a life to look forward to. I guess I am part of that problem too since I own rental property. Hablando del diablo!
I’m not the best speller so please excuse the mistakes.
nah, even though I detest wanna-be slumlords, education is more than half the battle. As Churchill said about a century ago:
“I do not think that the man who makes money [as a landlord] is morally worse than anyone else who gathers his profit where he finds it in this hard world under the law and according to common usage. It is not the individual I attack; it is the system. It is not the man who is bad; it is the law which is bad. It is not the man who is blameworthy for doing what the law allows and what other men do; it is the State which would be blameworthy if it were not to endeavor to reform the law and correct the practice.”
Bull!
Bad laws are written by…BAD men.
Bad men then profit from the bad laws - which is why you never hear them calling for reform ‘Someone, please stop me.’
Good men are disgusted and wash their hands of the entire mess, wanting NOTHING to do with it.
Sir Winston must be turning over in his grave thanks to the buy-to-let craze.
The next bubble will see the invention of the “zero payment loan.” This loan will require a 110% loan-to-value ratio where the extra 10% is put in escrow where it is metered out to the mortgage holder to cover “payments” for the first two or three years. There will be variations on this where the seller will finance the 10% as an “incentive” It is the ultimate extension of all the bad mortgage products on the market today. Income is irrelevant because the payments are made from the escrow, buyers will flock to it because the appreciation is truly free money, and if it is loaded up with enough fees, the mortgage brokers will push it crazy.
I’m actually surprised nobody is doing payments from escrows yet. Somebody will dream this one up to slow the rate of bankruptcies in the future from these exotic loan products.
“but they went out of favor in the 1930s for some strange reason.”
LOL!
From wikipedia:
History
During the Great Depression, the banking system failed, causing a drastic decrease in home loans and ownership. At this time, most home mortgages were short-term (three to five years), no amortization, balloon instruments at loan-to-value (LTV) ratios below fifty to sixty percent.[2] The banking crisis of the 1930’s forced all lenders to retrieve due mortgages. Refinancing was not available, and many borrowers, now unemployed, were unable to make mortgage payments. Consequently, many homes were foreclosed, causing the housing market to plummet. Banks collected the loan collateral (foreclosed homes) but the low property values resulted in a relative lack of assets. Because there was little faith in the backing of the U.S. government, few loans were issued and few new homes were purchased.
In 1934, the federal banking system was restructured. The National Housing Act of 1934 was passed and the Federal Housing Administration was created. Its intent was to regulate the rate of interest and the terms of mortgages that it insured. These new lending practices increased the number of people who could afford a down payment on a house and monthly debt service payments on a mortgage, thereby also increasing the size of the market for single-family homes. (Garvin 2002)
Curmudgeon,
Thanks for the memories of the ghosts from x-mas past.
I think in the future they won’t even issue fixed rate loans . The investors in the secondary like to be able to raise the rates with market conditions . I think England came up with the adjustable rate mortgage , in that it was tied to a index with a margin .
As I see it, where the lenders messed up in this last RE cycle ,beginning in 2000 ,is that they allowed low/no down loans for unqualified buyers . You can’t qualify a person based on a teaser rate that will only last 3 to 6 months .
Had the lenders stayed with reasonable underwriting ,the demand would of never shot up , the speculators would not of got loans easy , and the builders would not of gone crazy with excess building to service this short term demand .
Now every seller is looking for that end-user-long term buyer who has a down payment who can qualify on better than sub-prime to eat up all the excess inventory .
50% or more of the prior demand during the boom is gone .
Anyway , don’t assume that the fixed rate notes will always be available and in many countries they won’t give a 30year fixed note .
I disagree. If corporations can sell fixed rate bonds, that means someone is willing to buy fixed rate private sector debt. The real issue here is risk.
If a mortgage is secured by real equity (i.e. a down payment) and real ability to repay, it will be marketable.
Not so… Wiz is spot on. Banks, Wall Street et al. hate 30 yr fixed rate mortages. If they could avoid them they would that’s one reason why you saw such an influx of adjustables, interest only and option arm loans into the market. It’s the banks worst nightmare to have just in SoCal alone 500k+ of mortages @ 4% for 30 years. There’s no money in fixed rate markets. Well correction… there’s money but the banks want more. Bankers do not want 30 yr fixed rate mortgages that is a myth. They provide them because the consumer wants them and the PR and public outcry for no longer providing them is unwanted. They receive maximum dollar for money lent with adjustables and the consumer having to refi every 5 to 7 years. A 30 year mortgage in their eyes is dead money especially at the low rates of the past few years. More fees more spread etc etc. Thats one of the reasons why you don’t see fixed rate mortages in commercial lending. Bankers don’t believe in investors making all the money they want their share too. If you understood how mortages work and how they are traded, time value of money etc etc. even in the downturn it may appear they are losing boatloads but they way it’s accounted for they are not losing as much as you think. It’s all smoke and mirrors.
But I have seen times where the secondary market refused or there was low demand to buy fixed rates on a 30 year note . In fact it was so bad that the Company I worked for went into crisis mode .
One thing about investment is it’s always subject to change . You could be right however that there will always be a market for the standard fixed based on low risk .
Thank you mrincomestream for the support ,I knew I was right about that but I thought maybe things had changed from my days in the biz.
garcap-
HOV Statement of Cash Flows (SCF) last 5 quarters
Cash flow USED by operations-
All numbers are NEGATIVE and values are in millions:
838.36, 642.71, 307.06, 23.94 and 144.87
Cleary their core operations are not generating positive results?
http://bakersfieldbubble.blogspot.com
At least their stock price has been on a strong uptrend since the beginning of September 2006
http://tinyurl.com/y6ty4r
“‘While we recognized that the frenetic sales pace of the past four years could not continue indefinitely, the housing market in 2006 did not fare as well as we initially expected,’”
vs.
“Despite the best that has been done by everyone . . . the war situation has developed not necessarily to our advantage.”
“New home sales, however, dipped slightly, although their prices plunged. Countywide, the sale of new homes dropped 7.1 percent from 141 to 131 over the past year. The price of new homes fell from $532,750 to $416,500, or 21.8 percent between November and November.”
How would those numbers look if you subtracted the value of incentives off the Nov 2006 sale prices? No wonder HOV’s profits are currently inverse-positive.
HOV new orders down 36% yoy.
This all reminds me of the Hi-tech crash.
Sales revenue $$$ down 30-40% from peak…
Major layoffs.
Wall Street screwed.
New legislation due to “greed factor”
Major losses by asset holders (shareholders)
No goverment bail out.
And all those tech toys dirt cheap flooding the Ebay.
I might even start to accumulate builder stock from
all the savings buying at the bottom….
Anybody read “The Oil Factor?” Another good book similar to “Sell Now!” but the thesis is that due to the overwhelming amount of household debt, the Federal Reserve will defend home prices the best it can, and let the dollar falter. Actually it seems to be spot on so far, as the Federal Reserve loves to talk the talk, but refuses to raise rates any further due to the harm it would cause the stock, bond, and housing markets.
Anyone think that house prices declines will only be minor next year due to the Fed cutting rates to bail out the FBs? If the currently high home prices get “accepted” by more of the public again (i.e., people start feeling that home prices won’t go down any further, so they buy) then it will be a bail out of the FBs, as any new purchaser of homes will be paying not only for the structure itself, but also that household’s vacations, pickup trucks, boats, plasma TVs, RV’s, etc. which are leveraged against the house.
I hope this will not happen, but the signs from my little corner of NW California suggest people are definitely willing to keep buying at these prices.
There is squat the Fed can do to defend home prices, and Bernanke knows it.
Several FED govs already said they wont help keep asset prices up.
Its over, no one will bail them them out.
As a homeowner, I just want to say to renters ,hold out ,you have the upper hand . Even if there is a dead cat bounce for a short while ,don’t fall for it .The sellers can hold out forever .
Sure, some markets will go down more than others and some markets will take longer to go down than others . The fact remains that any market that is out of whack will correct with time .
correction ….I mean the sellers can’t hold out forever .I need coffee
What we need is more foreclosures. I think one of the reasons the foreclosures are not high as they should be is that all this overnight mortgage companies do not have the means to handle foreclosures. I hear stories of how months go by where an FB does not make a payment and then the mortgage company lets them short sell.
However, I think the clock is ticking on this scenario and bomb is about to explode with massive default properties that have been building up for about a year now hitting the market all at once. I think the short sell technique where the FB sells the property is going to fall apart soon.
I agree . I think the foreclosure rate is going to be the highest that I will ever see in my lifetime .
How the RE industry/lenders could of supported putting people into houses they couldn’t afford long term is the evil in this housing run up . The REIC should not of let the speculators run wild either with low down toxic loans . It was just a set up for a big fall .
I think we’ll all see a lot of once-in-a-lifetime “stuff” in the coming decade.
not to mention builders cant stop building… there will plenty more going up. Not to mention raw material costs are 50% down.
Changing rentals in Ventura County, I’ve discovered that realtors now handle rentals. This is what they’re doing for a living now! I made the mistake of tellling one my credit score and income and she instantly began trying to sell me some overpriced condos. I told another I just sold and am not interested in buying during the next few years and he showed me some rentals, but then said a year from now he can get me something at a “fire sale” price and then said it would be just like 1989. Aside from the disconnect in timing (1989 crash lasted about 6 years), I was shocked by his candor. Realtors are even starting to ackowledge the crash. Now if Wall Street would only start to acknowledge the magnitude of the crash, we can get this recession and recovery from it officially started.
A Dead-Buyers market is what we have now! All the buyers have already bought, for fear of being priced out forever, which is why we now have about a 70% home ownership rate. There are no buyers left to buy, hence; A Dead-Buyers market.
Perhaps, after the previous buyers recover from their foreclosures in about 7 years, there will be buyers again. Until then, It’s A Dead-Buyers market.