“Back To Basic Economics” For California
The San Francisco Chronicle reports from California. “For all the talk of a housing slowdown, almost 97 percent of people who sold Bay Area homes in November got more than they paid for their properties, according to a new report. The report, from First American Real Estate Solutions, attempts to quantify the profit realized on home sales, not including any money the owners spent on improvements.”
“What the new report does not show is how much equity homeowners have extracted from their houses prior to sale, either by taking out a second mortgage or doing a cash-out refinancing.”
“Christopher Cagan, director of research with First American, says economists and others are also interested in the percentage of homes sold at a loss. Most homeowners are extremely reluctant to sell at a loss, and an increase in this number would be an ominous sign for the housing market and the economy.”
“In the Bay Area, these numbers are still low, ranging from 1.7 percent in Napa County (unchanged from October) to 5.6 percent in Marin County (up from 1.6 percent in October).”
“In Southern California, homes sold at a loss ranged from 1 percent in Los Angeles County to 6.2 percent in San Diego County. The condo market in San Diego County is even worse, with 10.8 percent of units being sold at a loss in November.”
“‘In downtown San Diego, you have lots and lots of condo construction, more than they could turn over. As a result, you have people slashing prices,’ Cagan says. (First American did not study condo profits in the Bay Area.)”
“Cagan says, homeowners should not expect to see the same outsized gains they’ve gotten in recent years. Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation, he says.”
“During the housing slowdown of the early 1990s, things were worse. In 1992, almost 24 percent of Southern California homes and condos were sold at a loss, according to figures from Dataquick.”
“Of course that recession was caused by a sharp drop in employment. Today, the job market in California is strong.”
The Orange County Register. “Last year’s slowdown in new home construction in California is expected to continue well into 2007 as builders grapple with excess inventory, a statewide housing forecast issued this morning says.”
“Alan Nevin, chief economist for the California Building Industry Association, projected that housing starts for single-family houses, condominiums and apartments should total from 155,000 to 170,000 this year.”
“That compares to construction levels exceeding 200,000 units a year in the period preceding a housing slump that gripped the state last year.”
“Orange’s Ameriquest, buffetted by litigation woes and talk of a pending sale, didn’t crack a Top 10 list of the busiest lenders nationwide for the third quarter in its key niche: making subprime mortgages.”
“Ameriquest had come in eighth in 2006’s second quarter at $7.2 billion of subprime lending vs. $10 billion in the previous year, according to National Mortgage News. Ameriquest was the nation’s top subprime lender by this count as recently as 2005’s first quarter with $11.6 billion. Back in the third quarter of 2004, it made $19 billion in subprime loans.”
“Irvine’s New Century ranked second in 2006’s third quarter with $13.8 billion in subprime deals, according to NMN. That’s down from $16.7 billion in 2005’s third quarter.”
“Irvine’s Option One ranked sixth in subprime lending, making $7.9 billion in deals in 2006’s third quarter. That’s down from $12.1 billion in the previous year.”
“It wasn’t too long ago, back In 2005’s third quarter, that Orange County dominated this niche with New Century ranked #1 in new loans followed by Ameriquest (#2) and Option One (#4).”
“Your O.C. home just lost some sales oomph. ‘The O.C.’ has been axed. The economic loss ain’t silly talk. The O.C.’s glamorous edge made this town look hip. And that sells everything from T-shirts (which we design here) to our homes. Now it’s back to basic economics for us.”
‘not including any money the owners spent on improvements.’ ‘What the new report does not show is how much equity homeowners have extracted from their houses prior to sale, either by taking out a second mortgage or doing a cash-out refinancing.’
IMO, this is an attempt to polish the you-know-what. What percentage of California buyers use a second mortgage or make improvements to their ‘flip’?
It was reported yesterday that east Bay starts were down 77%. Some unemployment there? With home sales being in the tank (realtors/title jobs/appraisers) and mortgage business falling apart (brokers, etc.), the job losses should be just beginning.
‘economists and others are also interested in the percentage of homes sold at a loss. Most homeowners are extremely reluctant to sell at a loss, and an increase in this number would be an ominous sign for the housing market and the economy…from 5.6 percent in Marin County (up from 1.6 percent in October).’
‘A sell off in commodities — from copper to crude oil — over the past few sessions is telling some veteran market watchers that a slowdown in economic growth, likely one of considerable magnitude, is already underway. In the last two days alone, commodity prices seem to have fallen off a cliff. Copper futures, which tumbled 7.7% on Wednesday, fell another 1.8% on Thursday, and have dropped 27% from their December highs.
The job losses are a lagging indicator. Prices will drop even more as the job losses pick up speed. They are probably both on a downtrend for 3 years at least.
What job losses?
In the SF Chronicle’s readership area, Yahoo, Google and Apple all made headlines this week by buying the few remaining large parcels of land for expansion and hiring in the Silicon Valley (Mountain View, Cupertino and Sunnyvale).
Excuse me but the major expansion is outside of the Bay Area. I dont recall seeing the Apple Facility at Fremont. Perhaps you recall they vacated that some time back and never came back. Google is overspending just like Netscape and SGI which went belly up. Yahoo is a disaster (I worked there for a year)! Recent restructuing is no new news to many. They indeed buy the lease on the new Mission College faciltiy (former Exodus Building) which was at $3per sq ft now down to $1.15 per Sq ft lease. Nice bargin. Yet they are closing their former Pasadena site (Overture) and moving it to Oregon or Washington. Bet you didnt know that one!
“Yet they are closing their former Pasadena site (Overture) and moving it to Oregon or Washington. Bet you didnt know that one!”
Yes, both Microsoft and Yahoo are building huge separate data centers in Quincy, Washington 98848.
Yes I heard about this too! Apple moved some functions to Austin Texas. Intel moved its facilities to New Mexico.
Wishful thinking guys. There are major plans for growth in the core of SV.
Data centers like the large Google complex in Briggs OR is a hardware facility build in a remote area near cheap hydroelectric power so they can run their PC clusters. They ain’t moving the high paying jobs to a small, remote windsurfing town.
Google is leasing federal land at NASA Ames Research Center so they can expand in the SV next to their existing HQ.
Apple is expanding in highly expensive Cupertino, where they are HQed. That means more high paying jobs in over-priced Cupertino. Will that news hurt the local housing market? No.
Predicting yahoo and google’s doom is cool but that foresight isn’t changing today’s job market or forcing workers to panic and sell homes at a loss.
SGI then Netscape and now Google have all generated wealth and jobs in the exact city while building more capacity than before.
There is a bubble in the US but the SV job market isn’t bleak. They are not moving everyone out of state. Prices are too high but this is not a market facing a recession.
Really? Have you looked at the strip malls around here? Find me one that doesn’t have a mortgage place, a title place, an RE agent. Nearly every single one has at least one.
Now imagine all of them empty.
Still think this isn’t a market facing recession?
Yes, the you-know-what is looking very shiny now.
Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation, he says.”
I am wondering about even this seemingly level-headed trend. Coastal California is simply toast. Whatever premium it had over the rest of the country has been more than paid in past gains. Although I would expect SF to remain more expensive than, say, Minneapolis, I think the 100-200% price current premium already has it covered. I expect that even post-bubble prices will only rise with inflation in CA. The past is no longer the future.
“Although I would expect SF to remain more expensive than, say, Minneapolis, I think the 100-200% price current premium already has it covered.”
1. Minneapolis will always be cheaper than SF (snow discount).
2. Both will see lower prices in the next few years, thanks to the wave of subprime-induced foreclosures.
Relative to other places, San Francisco should trade at a premium to other large cities like Chicago, Boston, Philly, etc. Right now prices here are twice what they are in those cities.
You nailed it SFer. Yes, it is a nice place. But is it twice as nice? If so, we have arrived. It would have to be five times as nice for history to repeat itself.
“Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation, he says.” ”
Since they didn’t include improvement costs on the rest of the study, I bet you these numbers don’t include improvement costs either….
Houses don’t appreciate that much over inflation if you really figure what it costs to own, maintain, buy and sell them. Why does he think we all decide to sell at the top of this pricing aberration?
“Houses don’t appreciate that much over inflation if you really figure what it costs to own, maintain, buy and sell them. Why does he think we all decide to sell at the top of this pricing aberration?”
An exceptional point and one which is overlooked far too often. If I buy a ‘65 Mustang for $2500, sink $15,000 into it for a motor, paint, etc., and then sell it for $15,000, did I just make $12,500? Heck no, I lost money!
I been in the Bay Area since 1971. When people say SF is at a premium i wonder what makes them say that. Dont they recall how many left the city for the burbs in the 1960’s then the 1970’s. Prices then dropped by 35-40%. There are not that many jobs that can pay can support $1,000 per sq ft. condos .. Consider the fact as the article points out.
“Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation, he says.”
Fact is Jobs in SF are fewer and pay less then San Jose. When we had a normal market, you could have paid around $89-95 per st ft Condo or SFR in 1998. Account for inflation (above) you can get a 50% haircut to get back the the long term mean. Be very aware you can get big cuts in price in SF. Dont be niave… They are building far more homes today then ever before. Its not that hard to spot lots of new construction going on.
Dont be naive, prices in SF will go down plenty. Only a egotistical moran thinks its a worth a premium.
Agreed on both points GS.
My point was that the historical run up in CA prices relative to everywhere else has played out. Shangrala is now overpriced, dirty, and overcrowded, so I do not expect the 6-9% appreciation gains of the last generation to continue there.
But at least in Minneapolis you don’t have to deal with all of the fruitcake Californians and their silly ideas. The Lakes area of Minneapolis is as nice as anything California has to offer. Lake Calhoun and Lake of the Isles are great. You might have some snow, and the occasional tornado, but you don’t live in fear of falling into the ocean. California needs to collapse to bring back reality.
NYCBoy- California companies will more likely come to MN than expand in own state. Its too expensive! many High Tech companies are already in MN Seagate, Symantec, and Intel. No suprise there MN gives out taxes breakes to lure business in while CA gives out tax bills.
Google, Yahoo and Apple are all expanding and hiring in the land of fruit and nuts. CA is expensive and it’s got some of the best and brightest.
It make sno sense for a company like Target to be based in the SVm yet I don’t think Youtube would have sold for 1.7 B in a meeting at a Denney’s if they were a MN based company.
Excuse me but the major expansion is outside of the Bay Area. I dont recall seeing the Apple Facility at Fremont. Perhaps you recall they vacated that some time back and never came back. Google is overspending just like Netscape and SGI which went belly up. Yahoo is a disaster (I worked there for a year)! Recent restructuing is no new news to many. They indeed buy the lease on the new Mission College faciltiy (former Exodus Building) which was at $3per sq ft now down to $1.15 per Sq ft lease. Nice bargin. Yet they are closing their former Pasadena site (Overture) and moving it to Oregon or Washington. Bet you didnt know that one!
As for YouTube… If you know anything about the game in VC in SV you would know they cashed out for $1B… They got the cash not you or me or the employees. Aside from that, do you really believe $1B for a company that is in a loss and many never be profitable. Come on!
Did you include the Earthquake discount. Do you recall how the earthquake of 1989 caused all the fires in the Marina? The fact is that was not the main fault. The main fault was 100 miles sounth. Yet the major damage was in San Franicsco and not Santa Clara nor San Mateo County.
Nice place yes! But it has many faults too.
“Cagan says, homeowners should not expect to see the same outsized gains they’ve gotten in recent years. Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation, he says.”
3.5% above inflation sounds too high. I suspect that this figure includes the 100%+ gains of the past few years, and those gains will basically undo themselves over the next X years.
The 1990s stock market bubble caused the market’s long-run average annual return to look like 12 or 13% instead of the typically quoted 10-11%. IOW, if you spread the 1982-99 gains over the entire 20th century or so it added an entire percentage point or two.
Now in early 2007 the long-term average is back to the “normal” 10%, assuming the same starting point.
So it doesn’t surprise me housing is affecting the long-term numbers the same way.
That 200-300% gaines built into the bubble will be taken away. It already happened before and will happen again. In 1991-3. Nearly 40% of San Fran prices were erased. It will happen again! There is nothing to sustain the current prices.
Didn’t Shiller’s research show it was 1.5%? Seem to remember that.
“‘not including any money the owners spent on improvements.’ ‘What the new report does not show is how much equity homeowners have extracted from their houses prior to sale, either by taking out a second mortgage or doing a cash-out refinancing.’”
Exactly. So many people just used up any and all available equity in their home or flip for whatever reason, and that has everything to do with pricing strategies right now. In the Reno area (the most bubblicious city in the nation), I am seeing absolutely absurd prices on houses just a few years old. I suspect massive HELOCS which need to be repaid are built into the prices. Just for kicks, check this out. The total disconnect from reality is evident whether you know this area or not. Wages pale in comparison to CA. Yet, the prices are outrageous.
http://reno.craigslist.org/rfs/257562239.html
It will take a lot of crap table wins or a slot machine jackpot for the average Reno resident to afford this one. Can’t believe homes cost that much in Reno. May be cheaper in Sac. market.
It’s so ugly! Yuck.
….and cheap (materials).
Notice the luxurious granite tile counters….@$2.99/ea
Notice the commercial quality appliances…not!
..and on and on.
What a sh!tbox.
Ashland, OR can go toe-to-toe with Reno for the bubble prize. We have higher prices and lower wages.
Check this Executive Home in search of an Executive.
http://medford.craigslist.org/rfs/257328149.html
It is in a new development that is standing empty right now.
Mr. Fester,
So how is Ashland holding up? I have a link to the Southern Oregon MLS and it seems hardly anything is selling, but the prices are still high.
Mr Fester:
I think this is Billings Ranch? My mom and I drove through when we visited in October, and it’s a total ghost town. Empty McMansions and hidious town houses for obscene money. Most of the homes are listed on Foreclosures.com as pre-foreclosure. The developer has been unable to sell them.
Yes Lisa,
Prices remain high and almost nothing is selling. This is almost certainly a flip gone bad. Good news about the foreclosure status. Poetic justice. We have desparately needed affordable housing for years, but this is what the developers have built for us. For only $680k!
And the quote in the add is too good to be true from someone facing foreclosure:
“This is a great investment and Ashland home values will only go up.”
“This is a great investment and Ashland home values will only go up.”
Until the stream of Californians slows, which I think is already happening. There’s little point in owning a second home for vacation or “investment” purposes now, and I don’t think there are enough retirees alone to prop up values in a town of 20,000. And if Californians can’t sell their own homes, or can’t continue to pull equity out for a second home purchase, well, there you go. Wouldn’t it be nice if Ashland LOCALS could actually buy there and raise their families in town?
I’m dreaming of a little cottage above the boulevard for around $350K - $375K. Hopefully by 2007 or 2008.
“There’s little point in owning a second home for vacation or “investment” purposes now, and I don’t think there are enough retirees alone to prop up values in a town of 20,000.”
I posted a few days ago the FACT that the majority of retirees stay where they are. And, when they do move, most stay in the same state. Only a small portion actually leave, and when they do, it is primarily to the southern states. While there will always be a few retirees heading to the PNW, they will cannot and will not carry any particular market. And let us not forget, that most are looking to downsize, and are NOT RICH. I think these builders have been sniffing their adhesives for too many years, because there is simply NO MARKET for a lot of these homes. Some are now trying to unload entire developments to other builders as the carrying costs are ruining them. It is only a matter of time until these guys start to go belly up by the thousands. I might be able to open up a chic winter parka shop in Scottsdale, AZ and sell a few items initially, but eventually, the novelty wears off, and the lack of a fundamental need for them enforces it’s will. It’s no different with a lot of these McMansion and condo developments.
From the Ashland Craigs list Ad:
“Or if this is too much home for you…”
No idiot, 680K is too much PRICE for me…
Sounds like it is too much for this flipper too. Lisa says most of these brand new McMansions are in preforeclosure!!
Bwaaahaahaahaa!!!
BanteringBear, it was a few weeks ago when CNBC quoted a study that showed that 89% of all people want to stay in the same area in which they live when they retire. They don’t want to buy a condo on Venus. They just want piece of mind in a neighborhood they know, where they raised their kids and lived their lives. It’s only in the minds of Realtors and charlatans that everybody wants to move 1,000 miles away the moment they stop working.
On that CL ad: “You have to have good credit and a good job and can untimately afford the payments.”
Does he mean “ultimately” or “untimely”? I think it really could be both.
He really meant “intimately” — you will have to sell your body in order to afford the payments.
595k that’s just wrong
That house is not even worth $195,000. Granite counter top, did you see it? I’m assuming that cost less than $3500 to put that cheap thing on. How did things get this crazy!!!!!
Very, very quickly. My husband and I moved here in 97 from OC because we wanted out of the city and my husband had an employment opportunity. In 99-2000 homes such as this one were selling for 188 - 200K. We quickly forgot about buying a house in 2002 when things started getting ridiculous quickly. Things I have noticed lately indicating desperation: billboards that used to be predominately casinos are now advertising for homebuilders, these are everywhere! They have also really increased the number of radio and TV spots - I never used to see or hear these before. Sign flippers, couldn’t believe Firenze in Sparks actually had someone out there at 5 PM on Christmas Eve. Check out this blog about the area, the realtor kinda sorta tells it like it is. Most interesting is the Fate of Cinnamon Dr. This property was bought $595K eighteen months ago at the top of the market. The That home finally closed on December 21 for $439K after 75 days on the market. This house lost 27% of its value in 18 months. Not pretty. http://dianecohn.blogs.com/reno/2006/12/the_fate_of_cin.html#comments
I was out in Reno a few months ago. I was shocked the Hilton was sold. Later I discovered it’s now a condotel. Nobody else realizes this either, and the new owners keep having to say “formerly the Reno Hilton” all the time.
Now the Reno Hilton was decent but not fancy (and an example of what I like about Reno as opposed to Vegas). But they went all upscale trying to condo-ize it and the place now seems completely starcrossed.
How about this? It reads better and more truthful if we say that “this house lost 27% of its perceived value in 18 months. Who was it that coined the “wishing price”? Well, that’s all it is. It’s “wishing” value.
BayQT~
it’s=its
BayQT~
“it’s=its”
Such minor corrections are never needed. We know you’re intelligent enough to understand the distinction. I think most anyone who posts will make an error from time to time. I know there are some spelling/grammar freaks around here, but unless the post can only be understood with a correction, can we all discontinue this practice?
“wishing price”
Cote (where are you — it is safe to come out of hiding now… Gekko has abdicated his reign of dollar-cost-averaging terror…)
“This property was bought $595K eighteen months ago at the top of the market. The home finally closed on December 21 for $439K after 75 days on the market. This house lost 27% of its value in 18 months. Not pretty…..”
While this is the transaction record, I have serious doubt this much was actually a loss. These fraudulent cash back deals we now see so clearly in the end, were probably going on for 2-3 years before the great “End of Appreciation”. They are so much more obvious (Lincoln, CA) in a declining market.
And, on the “Not Pretty” side, any other GF’s who bought – based on the $595k, are really up Sh#t Creek without a HELOC.
Thanks, BBear. I’m naturally a little anal like that…always have been, especially about my own errors. But I’ll try to resist the urge to note the correction.
BayQT~
“I was shocked the Hilton was sold. Later I discovered it’s now a condotel.”
Nothing shocking. Owners ran the numbers found some fools and cashed out at the top. Nothing wrong there. Where is the cash now? Making money on Money Market Fund ready to buy again when the price goes down again.
How is that a 3 car garage ? It only has 1 wide door ? Man, that is a plain, ugly house. In the middle of no where. Nice view out the back of the dreary dead winter grass. I’ll pass for that price.
Here the HBs refer to that as “beautiful desert vista views”
They learned to lie by misrepresenting in the description and moved up to lieing about the value……
No need for a lawn mower, weed wacker will do just fine!
bantering, that is criminally bad ‘design’
I can see 2 garage doors. a 1 car and a 2 car. (1 car partially obscured by tree)
Remember when Rule #1 of home architecture was, don’t make the garage face the driveway? Anyone?
Architecture? That’s old hat. These days, it’s design and build yourself. Aesthetics? Functionality? Who needs that crap. Just buy me….
http://seattle.craigslist.org/sno/rfs/257263286.html
Guess now it’s ok if you have 2 doors as it balances it out visually. (i.e. a perfectly balanced sh#t box)
Second thought: Garage door in front makes house look like Slot Machine. Subliminal ploy to entice buyer to very own “cash machine”
OK. Just looked at Bantering Bears Link. He wins. This is a true abomination. Looks like an old fashion Maple Surup Tin!
Very talented builder to get two double wides to stack so nicely?
B Bear, that sh*thole definitely wins! What a POS.
I love Soviet era architecture.
Gulag, Sweet Gulag
Yes, only Stalin himself could devise such an eye pummeling structure. Putting something like that up in a lovely PNW forest is like crapping in a kiddy pool.
Thanks for that link BB!
Looks like 2 double-wides stacked on top of each other.
Front area looks like the entrance to a correctional facility.
~Misstrial
Wow! A double stacked double wide.
“I love Soviet era architecture.”
You remind me of my Russian teacher’s metaphorical description of Moskva k’vartiree (apartments) as “false teeth.”
It’s a double-double with cheese…
Truly hideous, but I wish you guys could see some of the Persian mansions that have sprouted in my area. They look a little like this one, only they are in a tiny lot and have a lot more fake moldings. I can’t bear to look at them.
let me guess, the flats of Encino?
Frank Llyod Wright inspired American architecture with the prairie style home 100 years ago and 2006 gives us this POS eyesore–so much for human progress…
The difference between this shack and the Stalin version is that the Stalin version was provided for free. Shitloads of Russians live in homes bought and paid for by their own government.
See, there really is a difference.
This looks like modular housing not “custom”.
with an acre of land why is it only a garage door wide?
Great post, Reno Girl.
I see the 3 car garage now. I must have been looking at the wrong one before.
“not including any money the owners spent on improvements” - heck, they probably didn’t even include commission and other transaction costs in figuring out who sold at a loss
There is NOTHING special about this house, it looks like millions of other houses. Reno has nothing that would make this house worth that much.
Somehow Los Angeles / Ventura county get left out a lot.
I found one recent sale in Ventura county where the guy took a TEN PERCENT loss. He bought in 2005. Its here on my blog the subject which is selling for a loss I just started it.
http://realestatehaircuts.blogspot.com/
How much for the house falling off the cliff?
The number of those taking a loss won’t come close to the number that go REO. FBs are in a corner 1000 ways now.
Fannie Mae announced they are requiring borrowers to be qualified at a fully-indexed rate that assumes a fully-amortizing repayment schedule. How many upside down sub-prime FBs stand a chance of qualifying. Think the MBS market will take enough risk in a declining market to bail these chumps out, temporarily? Nowhere to turn. The race for the exits may be short one that lasts for a few weeks early this spring. Then keys will start appearing on granite countertops…
Most people prefer to live rent free until the auction is near. That is the reasonable thing to do.
Second best is to rent it out(if its a flip) and get first/last/security and then then it go to foreclosure while you collect rent. I forgot the word for this.
Unfortunately this will become very very common. Had Casey Serin done this (he’s commiting fraud anyway) he could have made a huge pile of cash before entering foreclosure. But he’s not even good at fraud.
“Rent skimming” is the term you’re looking for.
“Second best is to rent it out(if its a flip) and get first/last/security and then then it go to foreclosure while you collect rent. I forgot the word for this.”
That’s called larceny.
There is a house in my neighborhood (Valencia 91355) that was REO and supposidly went to the auction block on the 2nd. The people are still living there? I thought they’d be thrown out on their butts? How do I find out if it actually sold at auction? I found out about the house on forclosure.com when it first went about 6 months ago. I say let them die!
Mostly panic selling by these stupid and morons in the hedge fund business. Expect another major bankruptcy and blow up like Amaranth. Wonder who leant all the money again ? It’s mostly weather and leverage related.
Yeah, I like how its always the weather. Its too hot. Its too cold. Its raining. It snowing. Its too sunny. What exactly does perfect real estate weather look like ?
Some economists are blaming the weak Christmas sales on the warm weather !
Very funny indeed. Most economists are morons and paid prosssstittutessss !
Strange nobody saw it coming. Global warming, the Iraq fiasco, the bankruptcy of Enron, the internet bubble bust and now the mega mega mega mega real estate and credit bubble implosion.
Ok a couple of exceptions like Robert Schiller or Galbraith, but so many few. And them you don’t see them on TV. You can read them but hey who ever reads today. They prefer to listen to the lies on TV.
Credit Managers’ Confidence Plummets
The monthly Credit Managers Index stands at its lowest level since April 2003.
Stephen Taub, CFO.com
January 03, 2007
Confidence in the economy among corporate credit managers has apparently been slipping for quite a while. The evidence: the monthly Credit Managers Index, which fell for the fifth consecutive month in December, now stands at its lowest level since April 2003.
What’s more, on a year-over-year basis, nine of the 10 components that comprise the index fell. The drop has been driven mostly by deterioration in the services sector, according to The National Association of Credit Management, which has conducted the monthly survey of the business economy from the standpoint of commercial credit and collections since January 2003.
advertisement The data “strongly suggests” a slowing economy, according to NACM, which pointed out that seven of the 10 components that comprise the index declined in the most recent month.
For the CMI survey, the association asks about 500 trade credit managers to rate favorable and unfavorable factors in their monthly business cycle. Favorable factors include sales, new credit applications, dollar collections, and amount of credit extended. Unfavorable ones include rejections of credit applications, accounts placed for collections, dollar amounts of receivables beyond terms, and bankruptcy filings.
While the scores of credit managers in the manufacturing sector, buoyed by increased sale, have risen in the past two months, primarily on sales, service-sector scores fell for the third straight month, dragging down the overall index. In fact, eight of the 10 components comprising the service sector fell, according to the association.
A CMI score of more than 50 reflect a view that the economy is expanding, while a reading below 50 suggests a declining economy. On a year-over-year basis between last year and the year before, the total CMI Index fell 3.6, from 58.3 to 54.7, as nine of the 10 components fell.
“Strange nobody saw it coming. Global warming, the Iraq fiasco, the bankruptcy of Enron, the internet bubble bust and now the mega mega mega mega real estate and credit bubble implosion.”
I know. Its like nobody has a BS detector anymore. They just take whatever guys like Kramer and DL and the media say at face value and get hammered.
At least now we have the Internet and people have blogs where everyone can talk about it and information of all sorts is freely available.
I wonder when the media is going to wake up and start doing investigative reporting ?
I read this in today’s SF Chronicle. The article also went on to say that the average length of home ownership was around 10 years, so of course, anyone who bought before all this madness has made out like a bandit.
For anyone who has bought more recently, I think the story will quickly become very different. With high mortgage payments and property taxes and the ATM mentality, I think there won’t be a lot to show for home ownership.
If houses resell every 10 years (I’ve heard 7 to 10), that means that 50% of houses have changed ownership since the balloon started around 2001-02. That’s a lot of potential downside after the upside.
Not to mention the folks that didn’t sell their house, thereby falling under the 50% that didn’t sell, BUT that refinanced their home for a down payment for an investment property…
Former SEC Chairmand Paul Volker gave a speach at Stanford. His point was noted regarding ATM mentality. Some one like Volker stepping forward was news worthy… His speach can be found on UTube, Yahoo and Google Video.
From the trenches in FL, I know a woman that works at Decision One Mortgage (d1mortgage.com), it’s a subprime lender affiliated with HSBC. She said there are rumors that the office may close down. She said it was because “they haven’t been hitting their goals.”
“There are still some solvent people left in this country! Why haven’t you put them into debt! You’re fired!”
As some quoted here before:
You want coffee? Coffee is for CLOSERS!
Credit Managers’ Confidence Plummets
The monthly Credit Managers Index stands at its lowest level since April 2003.
Stephen Taub, CFO.com
January 03, 2007
Confidence in the economy among corporate credit managers has apparently been slipping for quite a while. The evidence: the monthly Credit Managers Index, which fell for the fifth consecutive month in December, now stands at its lowest level since April 2003.
What’s more, on a year-over-year basis, nine of the 10 components that comprise the index fell. The drop has been driven mostly by deterioration in the services sector, according to The National Association of Credit Management, which has conducted the monthly survey of the business economy from the standpoint of commercial credit and collections since January 2003.
advertisement The data “strongly suggests” a slowing economy, according to NACM, which pointed out that seven of the 10 components that comprise the index declined in the most recent month.
For the CMI survey, the association asks about 500 trade credit managers to rate favorable and unfavorable factors in their monthly business cycle. Favorable factors include sales, new credit applications, dollar collections, and amount of credit extended. Unfavorable ones include rejections of credit applications, accounts placed for collections, dollar amounts of receivables beyond terms, and bankruptcy filings.
While the scores of credit managers in the manufacturing sector, buoyed by increased sale, have risen in the past two months, primarily on sales, service-sector scores fell for the third straight month, dragging down the overall index. In fact, eight of the 10 components comprising the service sector fell, according to the association.
A CMI score of more than 50 reflect a view that the economy is expanding, while a reading below 50 suggests a declining economy. On a year-over-year basis between last year and the year before, the total CMI Index fell 3.6, from 58.3 to 54.7, as nine of the 10 components fell.
“IMO, this is an attempt to polish the you-know-what.”
Polished or not, it still smells like you-know-what.
Oil at $56. Will it get to $40 before it gets to $80, or vice versa?
Well the stupid hedge funds managers are making them a nice new year present. Might I remind you, it’s still a bull market for commodities out there. China will be using this opportunity to accumulate and dump the US dollar and convert and buy useful things like raw materials. Good timing for them to accumulate and dump the dollar !
December 27 – Bloomberg (Li Yanping): “China will use its
foreign exchange reserves to buy minerals and other ‘strategic resources,’ the state-run news agency Xinhua said, citing Vice Premier Zeng Peiyan. China will build reserves of major mineral resources including coal, iron and oil, while improving the utilization efficiency to sustain the country’s economic expansion, Zeng said…”
December 27 – Bloomberg (Li Yanping): “China will use its foreign exchange reserves to buy minerals and other ‘strategic resources,’ the state-run news agency Xinhua said, citing Vice Premier Zeng Peiyan. China will build reserves of major mineral resources including coal, iron and oil, while improving the utilization efficiency to sustain the country’s economic expansion, Zeng said…”
“During the housing slowdown of the early 1990s, things were worse”
Stick around a while. I think you’ll long for the early 90’s before all is said and done.
“Of course that recession was caused by a sharp drop in employment. Today, the job market in California is strong.”
Really? Again, stick around a while. We haven’t even begun to see what the fall out will be from the recent slowdown on Cali employment.
Don’t forget this Cagan guy is the same one who found there were going to be $billion in California foreclosures but it wouldn’t hurt the market.
‘6.2 percent in San Diego County. The condo market in San Diego County is even worse, with 10.8 percent of units being sold at a loss in November.’
Didn’t SD lead the downturn? Also, I wonder what percentage of homes aren’t selling at all?
Another consideration: Sellers avoid selling at a loss if at all possible. So you might guess the 6.2% figure for SD largely represents the aftermath of foreclosures, and belies the large number of recent buyers who are sitting on unrealized home equity capital losses (e.g., I posted recently about condos in my hood that sold for up to around $650K in summer 2005 which are more recently going for under $500K), plus the incipient wave of resets, which may spur more underwater sales.
Sellers normally avoid selling a loss… true. But sellers also cannot afford their current house payments! Sheesh.
Housing starts, defaults, sales, prices… they’re all lagging indicators. Look at Dr. copper (the only metal with a Ph.D. in economics). Its at $2.59/lb. That over a 33% haircut already and the trend is down. It peaked just over $3.90/lbm.
A lot of hedge funds will feel that pain… (speculation in comodity futures).
Neil
*laughs… you read that too, Neil ! I thought that was great. I love Barry.
There is speculation today that hedge funds are starting to get hit by the drop in prices of copper and oil. Could be a big sell off shortly. Like a really big one.
Tweedle-dee,
I was wondering how much commodities have to fall to create a run by the hedge funds… I guess we’ll find out.
I cannot believe how much of certain commodidites (not oil) is sitting around waiting for a buyer. Any tick up in the market will be seen as a selling opportunity.
2007 is looking ugly. Bad Christmas sales, comodities dropping, mortgage credit getting ready to tighten, and I have a kindom to run.
(ok, bad mis-quote of the Princess bride).
Is the downturn going to estabilish itself in January giving the rest of the year no chance?
Maybe. Probably not. I’m still betting on May being the turning point.
Neil
Yes, lets take it nice and slow we don’t want to spook Bernake, or the FB chumps….
Is the downturn going to estabilish itself in January giving the rest of the year no chance?
That’s inconceivable!!
Could be unraveling quicker than any of us thought possible. Keep the Orville Redenbacher’s Smart Pop handy.
“My name is Enigo Montoya. You gave my father an interest only negative amortization loan. Now prepare to die!”
:))
It will eventually happen.
What’s interesting about the SD market is that houses went up in value so quickly and so high that some sellers have 2-3 years of equity they can heloc.
Or sellers can just lower the price.
But, which option do you think most people will choose? If you don’t have to worry about paying a mortgage for the next 2 years might as well “shoot for the sky” and see if you can catch a buyer.
Once someone caves in a sells for a lower price the games over though.
Are helocs easy to open even when prices are moving south?
At first it’s easy. Eventually banks will stop offering them if people default.
Right now it’s easy
There are still plenty of homeowners in CA who bought before the boom and have lendable equity. Believe it or not, not everyone has cashed out.
In short… Yes. A good enough appraisal and credit score and you’re in. A lot of folks will be taking this option before they just let their house go. Unfortunately, their spending habits won’t change and it only delays the days to the courthouse steps.
Well… smoke em, if you got em…
He also isn’t a very accurate forecaster.
About 6 months ago he forecast ~7,000 foreclosures for OC.
Last month his new forecast was ~13,000 foreclosures for OC.
It was on Lansner’s OC RE blog.
Give it another 6 months and we could exceed the early 1990s foreclosure rate.
Cagan’s foreclosure forecast is growing exponentially (in lockstep with the foreclosure rate)!
Ben’s “what percentage of homes aren’t selling at all” - I have several times posted about the Morro-Bay-below-$600K inventory, which hovers around 36-39 houses/condos. They have mostly been the SAME houses/condos month after month after month after month. Since I began paying much closer attention (Dec 19th), two listings disappeared and one new listing appeared. It would be premature to call this a 10-month inventory (2 listings gone in half a month), but basically, this stuff ain’t moving. Period.
“almost 97 percent of people who sold Bay Area homes in November got more than they paid for their properties ”
How many people who read this will think that if they buy a home now they have a 97% chance of making a profit?
“attempts to quantify the profit realized on home sales, not including any money the owners spent on improvements.”
What about property taxes, insurance, and maintenance?
“Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation”
Only 3.5 percent? This is huge. It must be one of the highest real returns on residential real estate in the U.S..
Thanks for the public service announcement Mr. Cagan!!
The notion that 97% of current sellers have met their initial purchase price (not knowing how heloc’d they really are) is being used to imply that RE is still a reasonable investment. Most of the folks who got out owned prebubble or were early flippers. The fact that most later flippers have not been able to even sell their heaps is missing. The “take the opposite message” rule applies. Anyone purchasing now probably has about a 97% chance of losing if they sell in the next 5 years.
Let’s try a theme park analogy here. Pretend there is a roller coaster that somehow lets the riders spontaneously board or exit the cars.
97% of people who jumped out of the roller coaster car just as it passed the top of the hill got out of the car at a higher level than the level where they boarded (somewhere between the bottom and the top of the hill). This definitely does not imply that 97% of those who get into a car (buy a home) right near the top of the hill will be able to egress at a higher level.
I loved that analogy GS. I was trying to say the same thing, with much less color.
And I think there will be a lot of heaving before the ride is through.
“Of course that recession was caused by a sharp drop in employment. Today, the job market in California is strong.”
Cagan should close the math books and brush up on his Shakespeare.
I pull in resolution, and begin
To doubt the equivocation of the fiend
That lies like truth: ‘Fear not, till Birnam wood
Do come to Dunsinane:’ and now a wood
Comes toward Dunsinane.
– Macbeth –
Macbeth? Is that one of the Macdonalds characters? Like the Hamburglars girlfriend or something?
And the time frame is…? 97% of all homes sold includes homes bought 50 years ago. I read this that just about everybody who bought last year, and some that bought in 2005, sold at a loss. Nothing here, move along. I suppose the better spin will be that ‘100% of sellers that paid less than what they sold for did not sell at a loss’. Spin, all spin
I do wonder about that 3.5% figure. If it’s calculated by looking at today’s asking prices vs some long-ago time, yes, I’d believe it. But if it were calculated by looking at 1994 asking prices vs some longer-ago time, I bet it would not come out 3.5% above inflation. And, it goes w/o saying, I believe if it is recalculated looking at 2010 asking prices vs some long-ago time, the answer will be greatly reduced.
3.5% annually higher than inflation? Maybe we’re misreading this.
Let’s do the math here. Assume a 3.5% inflation rate just for the purpose of illustrative discussion.
Over 100 years, unless I’m making a mistake (which I’m sure someone will point out - I’m using Excel’s future value function with a present value of 100 and 100 periods at 3.5% appreciation), an annual income of $100 becomes $3,119.
After the same 100 years, at an additional 3.5% above the rate of inflation, or 7% annual appreciation, a house which starts out at the same $100 value is worth $86,772 - it has risen faster than incomes by a factor of 28 times! Who is buying a house in this environment? No one, obviously.
So, perhaps when this person said 3.5% higher than inflation, he meant 3.5% of the inflation rate higher than inflation, i.e., if inflation is 3.5%, housing rises at 3.6225%?
While still theoretically leading to totally unaffordable housing eventually, and therefore still being unsustainable over the long-long term, at such a smaller difference this takes a much longer time. Thoughts?
“While still theoretically leading to totally unaffordable housing eventually,…”
Well, actually, I believe we were as close as CA ever got to 0% affordability in summer of 2005, but the toxic mortgages (loans to help FBs purchase homes they couldn’t afford) hid the reality.
Pay no attention to the CAR’s updated affordability figure (24% or somesuch), which required moving the goalposts to get the figure above 10%.
The “3.5% higher than inflation” includes years 2001-2006. If you excluded these last few bubble years, the figure would be much lower.
Ah yes, but according to Mr. Cagan, “Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation…”
If he knows that the last fews years significantly skew the results and that the gains of those last few years are unwinding even as we speak, then an assertion that Bay Area housing appreciates 3.5% faster than inflation over the “long term” can only be deliberately misleading…
In fact, even if we were to keep the gains of the last few years, the 3.5% number would still fail to stand for the “long term”, since housing prices cannot continue to appreciate at that rate…
Is it still 97% if you take into account transaction costs? Not even carrying costs, just transaction costs…
“Is it still 97% if you take into account transaction costs?”
Good point. Add commissions and other closing costs to the list of expenses.
“Cagan says, homeowners should not expect to see the same outsized gains they’ve gotten in recent years. Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation, he says.”
I guess that depends on whether you work for the REIC or for academia.
Because according to Robert Shiller, long term real estate (real) price inflation has been 10% in total– for the entire period from 1890 through 1997.
But then again, maybe it is different in The OC….
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
Sorry for my lame terminology. I should have probably just said “real price increases,” as “real estate (real) price inflation” sounds like pidgin Fedspeak.
Shiller controls for house size increases by looking at the same houses over time. I am assuming that Cagan just look at the nominal aggregate house prices and subtract the grossly understated inflation figure. 3.5% still sounds high, i thought it was around 1%-1.5% annually.
Shiller is also talking about the national market, while Cagan limits the scope to the Bay Area and Southern California, which in fairness have appreciated at a more rapid clip, thanks in part to ongoing westward migration since the 1840s. But these days, it is getting pretty crowded out in these parts, especially if you don’t much care for agricultural pollution or temperatures over 110 degrees F.
How much of that premium is a one time boost from Prop 13 in the late 1970s.
Most other states still don’t have this type of property tax system.
I was shocked about it in OR, getting re-assessed every year.
I was shocked about it in OR, getting re-assessed every year.
Exactly why prop.#13 passed…….The majority got tired of the greedy hand…..
Yea. The same way everyone was shocked that the bonds passed in ca. Now just think, everytime the state wanted to build something before prop 13 they use to put it to a vote and the majority (renters) use to vote a new increase of taxes of the minority (property owners)
“How much of that premium is a one time boost from Prop 13 in the late 1970s.”
Are you sure Prop 13 produces a premium? Or does it simply amplify volatility over the low-frequency high-amplitude (decadel) component of the California price cycle? Because I can tell you that about now, when falling California prices are a stubbornly persistent feature of recent MSM financial news, I am in less of a hurry to buy a home than I would be if I did not have to contemplate how high my tax basis would be compared to those who bought thirty years ago in the hills of Berkeley, Santa Barbara or La Jolla.
One of the big advantages in California of stepping aside while others volunteer to catch falling knives is the prospect of locking in a low Prop 13 basis. Once you lock in, your tax basis can only go up by 2% a year max thereafter. My understanding is that if you buy high, you are eligible for a future reassessment at a lower basis in the event that market values fall, but your Prop 13 basis is locked in at the high price forever.
Any thoughts or corrections to this explanation?
P.S. The effect of Prop 13 is not trivial. Another dimension of its impact is the increased incentive to stay put during a boom and invest dough in home improvements, rather than move up and lock in a higher assessment basis. If many respond to this incentive, the consequences would be a shortage of used homes on the market so long as prices were spiraling up, as well as “appreciation” in excess of what you would find in the midwest (maybe even 3.5% above inflation?), thanks to the uncounted money used for home improvement (sorry Dr. Cagan, but your results are highly suspect!). Of course, if you had the option to delay a purchase when prices were falling, you would want to avoid “catching a falling basis” until prices bottomed out
.
Ah… Prop 13 .. after which we also had declines of 15% in 1982 and then 35% in 1992. After the peak in 1988… prices rolled back 6 years in short time… back to 1985-86. My parents saw the market first hand.
Side note… Prop 13 shifted prop tax onto business. Therefore many manufacting left for Texas and overseas.
“But these days, it is getting pretty crowded out in these parts, especially if you don’t much care for agricultural pollution or temperatures over 110 degrees F.”
Add in the nasty problems illegal immigration brings, and the future for CA doesn’t look so good. The quality of life is declining so rapidly, that greener pastures can be found in almost any other state.
The interesting thing about that graph is that the houses have gotten a lot larger and better since 1890. In effect the $/ft^2 and $/feature is falling dramatically. I can’t wait until it returns to the long term norm.
‘A sell off in commodities — from copper to crude oil — over the past few sessions is telling some veteran market watchers that a slowdown in economic growth, likely one of considerable magnitude, is already underway’
It seems that the idiots who run (manipulate) Wall St didn’t get the memo. Whenever the market even thinks about a dip, it miraculously rises with gusto. Pure transparent shenanigans are taking place. Why on earth would we have a stock index at an all-time high at this very juncture when our entire financial system appears to be so at risk? I guess since everyone is making money and America looks good to the rest of the word, its all good.
I’ve been waiting for this for the last year ! You could see it coming. Actually, I am surprised that Christmas sales were as strong as they were. Its great to see it finally arrive. The only way to make money lately has been to do stupid things and I’m just not into that.
My guess is all the hedge funds manipulated both the commodity markets and the stock market higher the end of last year so that they could get their bonuses and now it is actually heading where is should have been.
It’s a way by the buumms at the FED and at Golman Sachs to get rid of the excess liquidity they continually create around the world. You squeeze one of these stupid hedge funds bastard and presto you get a 10$ discount on oil and much much cheaper copper. These guys are soo stupid that the folks at Golman Sachs and Union des Banques Suisses must really get a kick at taking contrary bets. Real morons these guys. But they are really useful in the creation and the destruction of programmed bubbles. Yes you can say that. As each day goes by I believe less in less in free markets. Arranged sports events. It’s about the same thing.
“The median estimated profit for the nine Bay Area counties plus Santa Cruz and Monterey counties was $315,000, or 88 percent, with a median holding period of six years. That works out to an appreciation of 11.1 percent per year, well over the rate of inflation, which averaged 2.7 percent during the same period….Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation”
now i am no math wiz, but in simple terms if people who on average held their house for 6 years had real average appreciation 5 points higher than average (11-2.7-3.5), then wouldnt the rational conclusion be that to come back to the long term trend, we would need annual “appreciation” of -2.5% (3.5-5) for each of the next 6 years (ignoring compounding)? why cant any of these real estate “experts” see this logic with their infinite prevailing wisdom?
I can’t even tell you how many times I’ve brought that up to fellow Bay Areans. People here don’t believe in mean reversion, at least not in real estate. Californians have become programmed to believe it only goes up, and any hiccup will be small (1-2%) and temporary (2-3 months). Many are so naive that they don’t even realize there’s precedent for California real estate dropping in value. Seriously.
Trying to convince them otherwise is about as effective and rewarding as trying to teach a dog how to ride a bike.
http://www.videovat.com/videos/838/dog-riding-bike.aspx
You got one of a chimp washing a cat? One of the funniest things ever.
Haven’t seen that one. I’ll look for it, unless you have a link. I also remember one about some guy in India, I think, getting stuck in an elephant’s rear while washing it?
I saw the dog riding a bike!
SF had a couple declines as I recall back in 72 then 82 then 92 … last one IN 92 was down around 15-25% … adj for inflation around 35%. They must be transplants floating on air.
Some experts do. Often the media has used the NAR as spokeman for the topic. Your numbers are right on. If you also compute rentals and income you will find that prices will need to down by 50% in the Bay Area to compete for rentals. Todays prices are around 10x income far from 4-5x norm to prices. As is the case prices do correct on the steep downward trend.. maybe 3 years.
Has anyone else seen this?
http://www.12modef.com/
A question was raised in a recent thread, “What exotic mortgage products will appear in the next bubble?” The most outrageous suggestion was a zero-payment mortgage with cashflow from a trust account. Well, you don’t have to wait for the next bubble. It is here now.
I/O mortgages were the most popular kind back in the 1920s. So maybe, if we are lucky, it will not be until 2090 or so before these come back into popularity again.
Everyone who remembers the Great Depression is either dead, senile or too old to care. It seems about right for there to be exactly one in any given human being’s lifetime.
Wasn’t there also a depression in the 1870s? Thus 60 years between that one and the Great Depression. Conisdering how life expectancies were shorter and the US culture and way of life were far less nationalized (no real mass media until the early 20th century) that seems about right.
don’t forget about the Hungry 40s, that’s 1840s.
I keep a little list of important stock market tops.
1796
1817
1836
1857
1873
1893
John — Was there a housing bubble preceding 1893? (I know there was in Cali, according to Shiller’s dredging up of an 1892 LA Times piece on the subject, but not sure about the rest of the country…)
it’s possible. people forget that there was wild land speculation in the early years. there was one in the late 1830s.
I’ve mentioned the Pay Anything You Want Loan™ on another thread today. Pay Anything You Want™ can even be a negative number, because hey, your house is going up faster than you’re falling behind on the amortization schedule.
A couple years back there were months when median prices in the SF Bay Area were effectively rising $1,000 a DAY. Don’t tell me we can’t have these.
They already have this kind of arrangement in the options market (naked shorts)…
No clearing firm that is interested in staying in business longer than next week will let you get away with endlessly writing naked shorts unhedged. Not if you only have a million or two, at least. If you have $50 million and your name is Victor Neiderhoffer or you run the desk and your name is Nick Leeson, maybe.
I watched Rogue Trader: great movie.
I can beat that. I was standing outside the S&P options pit the day Niederhoffer’s puts blew up.
everyone seems to be a rogue trader these days.
bubbly– wasn’t he running a hedge fund at the time?…By current standards small (150m). Thinking about the explosive growth in those I kinda break out in a cold sweat. hmmm.
I don’t know what is more difficult to imagine: a house going up in value $1000 a day for months, or someone believing it would do so forever.
As the former has already occurred (and hence demonstrably possible), I would say the latter is more difficult to imagine.
I don’t know, most buyers over the last 2 or 3 years believe houses will go up forever.
I was making a statement of my own beliefs. Shiller and Case surveyed Angeleno homeowners in 2003; the median expected annual average price increase for their survey participates was 23% over the next decade.
Certainly sounds more reasonable than 23% per year.
I think what Stucco is saying is, 23% ANNUALLY to persist over the next decade. ha ha ha
“23% ANNUALLY to persist over the next decade”
Yes (believe it or not), or if you prefer, a quadrupaling of nominal prices from 2003-2013.
In light of the Angeleno survey results (median expectation of 23% annual gains expected to last for an entire decade), do you guys understand what I mean by the idea that “money sometimes grows on trees, but not for very long when it does”?
The survey results show a median expectation of 23% annual gains for an entire decade? OMG! That is a mind-boggling result; it takes a minute to sink in…
That means that 50% of the respondents thought it would be even higher?
A quadrupling of home prices in 10 years?
Are people really that stupid?
I’m speechless.
I could be wrong, but I have a sneaking suspicion that 23% per annum won’t be happening.
Just a hunch.
GetStucko: 23% annual isn’t a fourfould increase over 10 years, it’s an eightfold increase. 1.2310 = 7.9259….
Now that I think about it, I had a friend in college who chose to buy weed rather than pay his rent. He was already on the Pay Anything You Want Program.
In Econ 101, it used to be guns vs. butter. Now it’s pot vs. rent.
Gee, my professor talked about the utility of pizza vs beer.
Ahh…the quit your job and use the HELOC to pay the mortgage. A favorite! Keeps the appraisers employed. Casey love this kind of mortgage!
Oh, why not: so few of the jobs in USA these days are adding any essential goods or services. Largely “waste” industries like insurance, just moving $$ around and around. I am no exception, I just take advantage of people who want stuff NOW that they didn’t save up for when they were younger. So I do no REAL work. Are the HELOC-eaters any worse? The main difference is, they will get caught sooner.
They’re using equity extraction to pay the mortgage. It’s just a refi in disguise.
That won’t work very long if prices stay flat or continue falling.
FB’s using this product could delay the crash for up to 36 months because they won’t risk default until the deferment period ends.
Exactly, that not what you guys think it is.
‘Defer your mortgage payments for 3 - 36 months using the equity in your home while you get back on track.’
Make the loan, then eat up any equity the poor smuck has left just before foreclosure. Nice.
I could see flippers being attracted to this product because it eliminates their out-of-pocket cashflow (at least those who weren’t first-payment defaults anyway)
I’ve thought of that too.
You have
30 year mortgages
longer term mortgages
IO mortgages (effectively infinite year mortgages)
less than interest mortgages (negative amortization)
The next step would be
0 payment mortgage (pay NOTHING!, negative amort. the whole thing)
and finally
negative payment mortgages (THEY PAY YOU!!) They pay you 2% of your balance every year for property taxes, etc. etc. for example. Buy a 2 million dollar house and recieve 40K in “income” per year. As long as the house is going up 20% a year (and why wouldn’t it with terms like that where anyone who wants to get money can ‘buy’ a house) who cares if you owe 2% + your interest rate more per year on it.
Want more income? Borrow more money!
The Federal Reserve has had this system in operation since its inception.
D’ya mean prices of everything really truly do always go up, despite the Fed’s mandate to fight inflation?
more this part:
“Want more income? Borrow more money!”
The FED loans $10 to make $90 more.
“Now it’s back to basic economics for us.”
Oh, I see, like “Real estate always goes up?”
“Most homeowners are extremely reluctant to sell at a loss”
CORRECTION: Most homeowners CAN’T AFFORD to sell at a loss. And a disturbing number are upside down.
Q: Guess what the real nuber to watch will be in ‘07 and beyond
A: REOs
And how would that reluctance factor into this result? He only counts sales, not non-sales or those who pulled homes off the market.
It depends on the question. If you narrowly focus on the question “what percentage sold at a loss,” you would probably get a lower number than the answer to the more elusive question of “what percentage of owners are underwater,” as underwater owners try to avoid becoming underwater sellers if at all possible.
Truth is, watching those taking a loss is almost an entirely irrelevant number. Especially now, given the liberal use of high stakes gambling instruments as judged by the volume of ARM/Int-Only, CASH-OUT-ReFi, HELOC…. in CA. I am convinced there simply isn’t nearly enough demand to take all the coming REOs off the lenders’ hands once they start rolling in. It may start slowly but without a bail-out program it’ll spiral quickly.
Prediction: Some measure will be introduced where IRA/401K money can be transferred tax-free to cover mortgage buy-downs. Won’t help for many since by default most FBs probably don’t have any to draw from…
You can already withdraw from your 401(k) for a first house purchase.
Yep, and recently. Those that took it probably already lost that $$$$$ with the declines so far.
It won’t be a stretch to pass another bill to bail out the lenders…
Do you mean the once-a-lifetime 10K withdraw? I thought you could not withdraw from a 401k tax/penalty free for anything except a hardship but I think a foreclosure/bk is considered hardship. I am not sure though if that is tax free or just penalty free.
I’ve been thinking about this alot. There will be a tremendous amount of 401k money withdrawn to not lose the family home. What happens to the stock market when this money is withdrawn???
“What happens to the stock market when this money is withdrawn???”
well, the way todays stock market works…a rally is in the bag.
Probably result in a pronounced dip but at least it stands a chance of lessening the blow to the financial markets of a complete mortgage default meltdown. Really, where else will the liquidity come from? It’s a small price for the USG to pay to forgive some future tax revenues. They can’t afford an RTC of the scale required to fix this mess. Hell, they’ll probably need one anyway as this bandaid won’t cover the wound.
My feeling is that the people we are talking about going under don’t have any 401k saving to speak of. If you are scraping by check to check the optional 401k deferments are prolly one of the first things to go.
What Robb said, the Average 401(k) balance of a 50 something in this country is what, 53k? Considering that this blowup will disproportionately affect the young and feckless I don’t think that will have that much effect. A bigger effect IMHO is likely to be the fact that all these bad loans are on SOMEBODY’s books as assets. Not all MBSs are bought by the Chinese. As an unusually large percentage of the loans in the 04-06 timeframe go bad, that’s alot of writeoffs on somebody’s books.
You’re 100% right about the FBs not having any retirement savings to speak of, in general. But, it doesn’t matter where the $$$$$ comes from, as long as it comes. What I’m thinking is if this program gets released a lot of people, especially those close to retirement who would be taxed on the $$$$, will take 401k $$$$ tax free and pay off their remaining mortgage or some part of it. That is a ready source of liquidity and could mitigate catastrophe when combined with a bank reserve requirement holiday. Never mind many of those taking the cash didn’t really need it…
“”Q: Guess what the real nuber to watch will be in ‘07 and beyond
A: REOs”"
Somebody gets it, all the other numbers are meaningless. Even with the occassional FB selling at a loss here and there it’s not enough to offset and truly correct the market. As long as there’s equity in the market every FB has the opportunity to stay in the game. The games won’t truly begin untill the R.E.O.’s start flooding the market and the interest rates raise.
If cashback mortgage fraud becomes the latest California craze, those REOs might pile up faster than expected.
The REOs will lead the market down, constituting the majority of the new comps as owners trying to avoid selling below their wishing prices will inadvertently price above falling market value, thereby pricing themselves out. Banks have no interest in morphing into real estate agencies, and hence they will price to sell, generally undercutting used home sellers’ wishing prices.
In the slightly longer term though, if this gets really ugly, I’m betting that bank regulators will become much more lenient about REO on banks books. It’s my understanding that traditionally, they didn’t like to see banks with alot of REO on their ballance sheet because until the property is sold, nobody REALLY knows how much it’s worth. But if there is enough money involved in the RE bubble to pose a threat to major banks, quietly allowing them to hold more repossed property as an asset will keep the FDIC from having to liquidate as many banks. Culling the herd of the unhealthy and injured is “a good thing”. Machine gunning them in massive numbers is not regarded as “a good thing”. Most importantly, allowing them to keep more property on their books as assets can be done on the downlow, back in the back rooms with the accountants. It doesn’t panic the passengers like FDRs “bank holiday”.
Woweee …. 97% of those that sold, sold it at a profit. What about the rest of the listings who are losing but not selling inspite of that. People who have bought long time ago are the ones likely to get more than they paid. That means new buyers are getting the shaft and those that owned for longer and making a profit.
That’s not counting incentives and under the table money.
Cool.
Cow_tipping.
I’m wondering if that’s a real number or a guess.
I researched in Washington D.C. and Ted Kennedy used to cite numbers from the then INS. I then looked in INS files myself and nmbers for the years he cited were not yet available — anywhere, either through INS, State Dept. or anywhere. He made them up.
Nothing news. Just like the stock bubble, sellers sold at the top and buyer baught at the top… OH ITS GOING TO BE UGLY!
San Diego Update - I walk around downtown San Diego on a regular basis and go into all of the condo sales offices. One of the condo complexes named the Atria has given up selling the rest of their condo conversions. They are leasing the remaining 20 condos back out to the public. They are asking a mere $2600 for a 2 bedroom condo. Keep in mind you can rent a similar place blocks from the beach for $1800 or less! I also noticed some of the other sales offices closed their doors. I wonder what will happen next?!
$800 for a 2BR in San Diego? That’s it, I’m moving.
Sorry, I misread that. I saw “1800 or less” and thought it said “1800 less”, without the “or”, and subtracted from 2600. What are respectable 1BRs going for around SD, anyway?
San Diego 1 bedrooms go from 600 in the hood to 700-800 near the beach to 800+ downtown. Anyone notice a problem here? Shouldn’t living at the beach be the attraction in San Diego, not living downtown? I would move to Chicago if I liked living in the city for that kind of $$!
That’s still cheaper than Chicago. Still, I largely agree; although my inpression of downtown SD is that’s it’s generally livable, you’re still gonna need a car and find a place to park, so it’s really more expensive than that.
One bedrooms are higher than $700-$800 at the beach, unless you are talking about south of downtown (Imperial Beach, National City, etc.). I live in PB and while I haven’t scoped one bedroom rents, two bedrooms about a mile from the beach are typically around $1,700. Hard to imagine a one bedroom closer to the water would be $1,000/month less.
When I first moved here in 2000, I rented a studio for $895/month a block from the water.
one bedrooms in carlsbad/encintas go for starting at 1200.00
Seal Beach is still quite high.
Homes $1M plus.
1BD apt. near beach rents for over $1,200. 2BD apt. over $1,500.
For almost 10 years, we’ve lived in our little 3BD/1BA bungalow less than a block from the beach, for $1,700.
They are counting on cheap oil and Saint-Bernanké ?
“Saint-Bernanké”
He’s not gonna like being buried upside down in somebody’s yard!
In the 2080 housing bubble, it will be Saint Bernanké, not Saint Joseph who is buried in the back yard by sellers trying to improve their luck…
“In Southern California, homes sold at a loss ranged from 1 percent in Los Angeles County to 6.2 percent in San Diego County. The condo market in San Diego County is even worse, with 10.8 percent of units being sold at a loss in November.”
What’s neat is that when you add transaction costs along with the difference between carrying costs versus renting an equivalent place, I bet these numbers double or triple.
Even without an honest assessment of basis cost, these figures are amazing - 10% selling at a loss and prices have barely even started dropping. As a renter, I have great optimism for the future!
The prospect of losing money by purchasing CA real estate probably has not sunk in yet to all prospective buyers’ minds, especially given all the “soft landing” prognostications. But the handwriting is certainly on the wall, and hard for the press to ignore.
Yes. Agreed, they just cite purchase and sales numbers and don’t mention costs of purchasing and selling, nor taxes, repairs and fix-it-to-flip-it costs.
The San Diego condo market is glutted with condos in Downtown SD. It is just crazy the buildings that keep going up. How can anyone afford a $400-$500k condo in downtown? There are no high-paying jobs in SD.
OC is even worst with the huge population that keeps growing. Housing prices just does not drop. Go to http://www.realtor.com and look at the listings for Irvine or any OC city and it is ridiculous. The lowest price property in Irvine is a $254k condo that is 475 sq ft. That is right 475 sq ft…a small box for a cool 1/4 of a million bucks…..that translates to over $500 bucks a sq ft.
The downturn has not hit prices in any part of California yet. That will take years before sellers give up via foreclosures/bankruptcies.
Check out the mobile home for $400K
http://re.ocrealestatefinder.com/realestate/Sales/Listing.asp?lid=159-U6603084
A 1978 mobile home, no less.
I can see some modern “mobile” homes being of similar worth to SFH; in fact, due to their construction, they may be better designed to deal with techtonics than standard buildings. $400K for a home on land you rent is just obscene, though. I have a friend who overpaid a bit for a nice three-year-old mobile home WITH land and it was a little over $200K.
But 1978. Egads.
Bah. Mobile home in Malibu: $699,000.
http://guests.themls.com/profile_page.cfm?mls=06-137517
Another one for $795,000
http://guests.themls.com/profile_page.cfm?mls=06-142087
I could go on…
GAH!Have come across listings from both places many many times.
We tried to go and look at a place on Heathercliff Rd last year, and were very rudely turned away at the gate by the guard, who told us that he wouldn’t let us in unless we had a realtor(tm) in tow.
Even though they were actually holding an open house at the time…
Needless to say the 90 minute drive back to Santa Monica (where we both work) further put us off, especially as this was on a saturday afternoon, nowhere near as bad as it gets during the rush hour.
Heathercliff Rd sellers have taken to listing the lot size as ‘51.7 acres’ for each property- in other words, they’ve listed the whole trailer park area as ‘for sale’ with their mobile home. Don’t know if its illegal to do that, but its certainly misleading and unethical. Like, in Malibu, how would you expect to get 50+acres of coastal land for ‘only’ $750K??
Interestingly enough, lots and lots of places on ZipRealty for both Heathercliff Rd and Paradise Cove (PC gets rammed with tourists most weekends, what with the popular restaurant and surfing beach there).
Some are what would be a ‘reasonable’ price for an SFR in one of the beach towns, but insanely overpriced for what is basically a double-wide with elite facilities. Although, I get to indulge in schadenfreude by noting how long many of these places have been on Zip for (some over a year), and how many of them seem to be for sale…
From what I’ve seen, they’re probably nice places for older couples who like the beach life, but no way, no how are they worth over 100K, max, even here in bubbleicious Los Angeles.
This has come up before. Unless some kind of long term, fixed price lease for the lot comes with it, what exactly are you paying for?
You’re right.
I made a comment above re: Seal Beach. Home “wishing” prices way over $1M, on the “hill” or in “old town.” This will take a while to unwind. My wife wants to buy so we have our own place to fix up, and one a little larger, but I remain convinced to buy now would be ridiculous.
fiveseals,
I lived in Seal Beach for 26 years on 14th and Landing. Was a nice small town. Old town was called Tortilla Flats and the Hill was called Mortgage Hill.
I’m also looking to buy in Seal Beach but it’s going to be a looooong ride down. So many older residents that don’t have to sell. Very few rentals even. Many of the SFHs I have looked up sold only a few years ago for 400-600K. Now selling in the 1mil + area. Crazy.
cfoofmofo,
I think it should now be renamed “Mortgage Hill.” There is a new Laing project on SB Blvd. with huge McMansions - $1.8 million. What a joke.
TechGirl,
I agree, it will be long and slow downhill. Interesting point on demographics, it’s a very gentrified. I don’t know of many (if any) people here that can afford the prices.
“not including any money the owners spent on improvements”
Yeah. All these houses took Dale Carnegie self-improvement route.
“ the report looked at all single-family homes sold in November for which the prior sale price was available….
It then compared the median sale price for all homes sold in November with the median price for all prior sales, “whether they were a year ago or 10 years ago,””
Let see.
10, 12, 14, 16, 18, 20, 22 –> median is 16
11, 13, 15, 18, 19, 21, 23 –> median is 18
Voila, median profit is 18-16 = 2. Although six of them has only profit of 1.
And there is no gurantte that the house bought for 16 and sold for 18 is the same house.
That is just considering that they were bought and sold at the same time. Whether those sales “they were a year ago or 10 years ago” would only add to the distortion.
This is just a meaningless piece of garbage. Given the same data, I can chose the methodology to produce any bull that suits my needs.
“The report did not look at the profit or loss on individual homes. But, if it had, the results would have been in the same ballpark, says Cagan.”
You think so?
Imagine going to the trouble of collecting all these sales data.
eg:
House1 bought for $B1, sold for $S1,
House 2 bought for $B2, sold for $S2,
……
They have the B series (buying prices), and the S series(selling prices).
They could not do a simple S1-B1, B2-S2 series to calculate individual gains.
Heck, they even have the data for the years they have bough and sold.
bought for B1 in year yb1, sold for S1 in year ys1
bought for B2 in yb2, sold for S2 in ys2
……
They could have done a simple S-B/(ys-yb), i.e. profit vs years held.
If that was plotted against yb, the year the house was bought, we could have some accurate information like, for eg: (all made up)
-most of the profit was made by people who bought in 1999 and held 5 years
-people who bought in 2004 and sold in 2005 made 100K on average.
Instead, we have this median garbage being paraded as gospel truth. It does not even have a range attached - what were the minimum and maximum prices and years held?
What a crock of $hit.
Speaking of “back to basics economics”, our favorite flipper has a new post up. Big news…in order to get his life back on track, he’s going to GET UP EARLIER IN THE MORNING. Boy, that oughta help! LOL…what a ninny.
http://iamfacingforeclosure.com/129/getting-motivated-and-organized/#comments-top
He also pays $50 rent, and all he has to do is take out the garbage! Wow, what a deal!
I think he is suffering from Narcissistic Personality Disorder. What a person wants when they have this disorder, is the attention, in his case, the blog comments, the news blips etc.
Psychologically, it’s not important to Casey to “solve” his problems. Quite the opposite; his problems “give” him what his psyche craves. For someone suffering from this, the “kind” of attention, from a societal standpoint, doesn’t matter. It’s the amount and the security of being able to “get more, another fix”.
That’s why “Casey” an obviously intelligent guy” keeps repeatedly and obviously screwing up. That is the thing that has “worked” repeatedly to get him what his psyche craves, regardless of the final out come on his life and relationships.
“For all the talk of a housing slowdown, almost 97 percent of people who sold Bay Area homes in November got more than they paid for their properties”
People around here can’t stop congratulating their good fortune, and by using the most obvious example possible. People were able to sell for more than they paid for–you don’t say? That’s hardly some feat if you bought your home over 5 years ago. It’s probably a different story for those who tried to flip their home in the past 6 mo. - 1 year. I find it rather ironic how highly educated SF bay people use the flimsiest reasoning imaginable to conclude “all is well” with real estate, the economy, and our way of life here. It’s almost beyond belief.
Most people are recent transplants from East Coast. I met a few and there is now way their income can support consumption. Its no wonder many in SF are using toxic loans. Im a financial analyst (budgets) for my company and have insight to what people are making. Most salaries are still around 65-75,000. Out of 560 employees only 25 make six digit salaries. Prices are nearly 10x salaries. Yet they still buy and are unaware prices have fallen in the bay area.
Is this in our future? FB’s setting themself on fire in front of the White House?
http://www.alertnet.org/thenews/newsdesk/N04172091.htm
>SANTIAGO, Jan 4 (Reuters) - A man doused himself in fuel and set himself alight outside Chile’s presidential palace on Thursday to protest housing debt. He survived and was arrested.
If an FB lit himself on fire, would anyone on this board try to put it out?
Give a man a fire, keep him warm for a night.
Set a man on fire, keep him warm for the rest of his life.
Imploder would piss on him only after he was dead.
And then drink it!
Sounds like something imploder would have said. LMAO
cfoofmofo posts ” Sounds like something imploder would have said. LMAO ”
Imploder has a big heart. I bet if the guy was truly on fire Imploder, would piss on him.
Imploder would piss on him only after he was dead.
Geez, I guess I better lighten up on the sarcasm. Apparently I’ve been coming off like Sid Vicious’ meaner brother….
BubbleButt posts “Imploder would piss on him only after he was dead.”
Well, my guess is he would be dead in any event. Imploders piss is most likey zlycon B.
Sounds like something imploder would have said. LMAO
Imploder, I’m sure that was a compliment. SunsetBeachGuy, that was really funny–yeah twisted, but still really funny.
“but oi, much mo dan dis… I did et Moyyyy Wayyyyyyy…..
Frankie “imploder”……..YEAH!!!!!!
That’s one of my favorite sayings. Along with:
“It doesn’t take all kinds. We’ve just got ‘em.”
Why bother flogging a dead horse….FBS those are toast, will be cooked from Inside.
I hope they learn a lesson, recover to some sort of normal existence, and pass on the lesson to there grandhildren….
you mean people are going to be driving the same car for more than one year???
I would, because I know that most FBs entered that status without a clue about what they were getting themselves into. There but by the grace of God go I — without my finance background, I would be right there with them.
You’re too generous to the FBs. Did we not ALL just witness the dot com and telecom debacle and bust? And did they learn a lesson when taxi drivers, barbers, waiters, school teachers and dentists all said that Global Crossing, TheGlobe.com and VALinux are going to the moon, buy the stock at any price, you can’t lose?
VALinux? There’s a blast from the past. I happen to know someone who was given (yes, GIVEN) enough stock in that company to have retired at a very young age… if only he had sold it when the lockup expired or sometime near that point.
I told him to sell it. He said he would sell a couple of million dollars worth.
He never did. It’s now worth a couple of hundred thousand, the last time I looked.
Pardon me…but…Um…am I nuts, or did I just see a picture of a man who set himself on fire over housing debt?
Have I entered an alternate reality?
Wow.
And to think some people called us ‘out there’ last year when we were all hear talking about this.
New topic:
Really big housing bubbles…
1880s (tailwinds of Civil War reconstruction)
1920s (”You can even get stucco” & Florida swampland for sale era — 40 years later)
1940s (troups return from WWII — 20 years later)
2000s (60 years later)
It looks like the really massive real estate bubbles happen every 40 years, on average. To anybody’s knowledge, have there been any others that
were bigger than the four I mention above? (Might have to dig into Shiller’s Irrational Exuberance or, better yet, to the data on his web site, to get a defensible answer.)
What do you all say about this?
http://video.msn.com/v/us/v.htm?g=12A9251B-CABD-4B65-AADB-E4275FB8D95F&t=m17&f=06/64&p=Source_Today%20Show&fg=>1=8921
Oops wrong one… right one here.
Small Florida town to become millionaires by selling trailers.
http://video.msn.com/v/us/v.htm?g=FC562861-0A3C-4B25-BE7F-2A7FFC709A93&f=06/64&fg=copy
discovery times channel is doing a thing on the realtor business right now, looks really interesting, tune in
ooohh , you guys have to see this
thanks, just turned it on…
Wow!! How abnoxious is that show?? Especially the hispanic realtor chick. Miami needs carpet bombing.
obnoxious
I was checking out on HGTV a couple that wanted 750K but the realtor told them its 625K. Should have seen the sellers.. they were dead silent. Ouch! They added so much upgrades that would suffer a loss. LOL! So much for equity…
OT: over at SDCIA, Jeff is feeding his alligators:
————–
Jeff - so what is your total actual pre-tax net cash flow on your block of properties? If it is negative, how are you feeding it with no other income?
This is all covered, in detail, earlier in the thread…
The short answer is I “feed it” the same way I purchased it–with 100% borrowed funds.
Comedy is not pretty.
Concerning the Cagan piece.
I will borrow a headline from Rich Toscano or Prof. Piggington.
Humongous profits, little relevance.
Until I invent a time machine all I am interested in is right now!
Right now is a historically bad time to buy RE. For a great dataset see analysis guy’s bubblebuster.com
“Right now is a historically bad time to buy RE……”
Okay, very late in the evening (PST…. Which means very late everywhere…) but just wanted to tell any ‘night owls’ about a contact today….
Rented a new place today, since the LeFantome’s are soon-to-be kicked out of their rental home due to it’s selling. The “new” property manager, manages about 200 homes in the city of Chico, CA. He and I talked for an hour at the property….. not about the house, but about the housing market in general. I kid you not, he beats any housing bear posting here! He is a realtor, but I got the gist, primarily a property manager.
He had more stories about “flippers/builders/well-meaning-investors” in Chico IN TROUBLE than I could listen to…… he has been in the property management business in Chico for 30+ years. I told him Mrs. L will be running out of ‘renting patience’ by 2008, and he flat out told me to WAIT! Literally counseled me on the diminishing buyer pool in CA, debt load problems of the potential CA buyer…. laid out his projection for a trough of …. 2012! I’ve thought 2010, but who am I to argue ….. he whuped my ass in discussion (not that hard to do …)
Even told me (on the QT) about how leveraged the owner of this rental property was, as well as the former renter (who bought a 900k house – confirmed this)..is.
un-b-leivable…. Chico.
I almost want to stay in Chico to enlist his service when buying a home in the future, but unfortunately the purchase will not be here.
The real pros, when they are candid are the biggest bears.
It is just that they lie to put food on the table.
Would you?
Here is a real great idea to further kill the flippers and floppers that can’t sell. Let’s send them and their Mc$hitboxes to France.
http://www.nytimes.com/2007/01/05/world/europe/05briefs-segoleneroyal.html
Ségolène Royal, the Socialist Party’s presidential candidate, said owners of unoccupied residences should be fined and even pressured to sell the properties to local governments as a way to ease homelessness. She also said that every city should be forced to create emergency shelters for 1,000 people. France’s numerous vacant investment lodgings “will have to be rented,” Ms. Royal said in her New Year’s speech yesterday in Paris, which was broadcast on national television. “To do that, lodgings unoccupied for more than two years will be surcharged and local governments will be given the chance” to acquire or requisition them. The latest opinion poll shows Ms. Royal leading Nicolas Sarkozy, the interior minister who is expected to be the candidate of the governing UMP party in the spring election, by 52 percent to 48 percent
Buyers vs. homesellers: Standoff could lead to recession
By Scott Van Voorhis
Boston Herald Business Reporter
Friday, January 5, 2007
How bad is the real estate market?
At a national conference today, Wellesley College housing guru Karl Case will release the results of a five-month groundbreaking survey of the housing market in Boston’s suburbs.
And it’s not happy reading.
After tracking 628 homes on the market from July through November, Case found that fewer than a third actually sold.
It paints a picture of a market nearing a standstill, in which would-be sellers are opting to take their homes off the market rather than accept big markdowns.
Over such a lengthy period, even in a slow market, one could expect 70 percent of these homes to have sold, Case estimates.
But Case’s study found only 30 percent moved.
The Massachusetts Association of Realtors has put the average time on the market at four months now.
The pain appears to be spread pretty evenly, from the Merrimack Valley town of Andover, which saw just nine of 30 homes sold or put under agreement, to Weymouth on the South Shore, which saw just seven sales of the 30 homes tracked by the study.
Despite the big drop in sales activity, there was no price implosion.
Instead, average selling prices fell just 6.3 percent.
After seeing the value of their homes soar during days of the real estate bubble, home owners are reluctant to give ground on price. Or, as Case puts it, it’s a case of “sticky” prices common to past market downturns.
That could help minimize the feared drop in the “wealth affect,” where a decline in home values puts a big dent in consumer spending.
But the standoff between would-be home sellers holding out for top dollar and buyers seeking a bargain is far from ideal.
Instead, the drop in home sales activity could be a more serious economic threat, Case believes.
Combined with an already-large drop in housing starts, it could put a measurable dent in the nation’s economy. The housing cool down, in turn, could lead to the loss of 1.4 million jobs by the end of 2008, pushing up the national unemployment rate to 5.8 percent, Case’s report estimates.
All of which is in marked contrast to the predictions of real estate industry organizations, which have been forecasting a big market rebound in the spring.
Still, the Wellesley College professor and nationally respected housing expert was shying away from grand predictions on where home sales and prices are headed over the next few months.
Instead, he is letting his research do the talking.
Such as this telling fact: real estate downturns have contributed to three prior recessions.
That about says it all.
RE has been seen as the financial “savior” for homeowners over the past few years. Once a mountain of mortgage debt is seen for what it is, a pile of debt and not a quick, no-risk road to riches, prices should get a whole lot less sticky.
Some banks think the Fed will raise 25 to 50 basis points in 2007 to increase volatility and put speculators on their toes.
http://www.bloomberg.com/apps/news?pid=20601083&sid=aB_0KaBE7SLs&refer=currency