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How will you know it’s the bottom (ie. not by those representing the sellers saying so)?
how about when price = 110 times rent
like the last 100 years
Question:
How does one determine the amount to calculate for rent?
SKB
1) Home prices are less than 3 times income (or as high as 6 times income in places where everyone wants to live, like San Diego)
2) Foreclosure rates hit a permanently high plateau
3) Everyone says real estate is a terrible investment
4) Subprime lending goes out of style for another 80 years
Wait untill the bond market goes down the drain, and you can pick up junk bonds for pennies on the dollar. Wait untill “PIMPCO” goes bankrupt ?
HIGHER INTEREST RATES MEAN TROUBLE AHEAD
by Peter Schiff
Euro Pacific Capital
January 26, 2007
When I last commented on the bond market (December 5th’s What’s really going on with bonds), bond prices were inexplicably rallying, sending yields on ten year Treasury bonds to 4.4%. At the time, Wall Street was offering a variety of half-baked explanations as to why the market had moved beyond the cause and effect stimuli that had ruled for generations. My advice to investors was simply to sell into the rally and ask questions later. Since then, bonds have reversed course, with ten year treasury yields hitting 4.9% (a five-month high). Just as Wall Street’s explanation for falling rates was way off base then, so too is their explanation for rising rates now.
The consensus asserts that yields have turned around because new “evidence” of a bottom in the housing markets will keep the economy from tipping into recession, which in turn will diminish the likelihood of a Fed rate cut. The problem with this explanation is that there is no evidence of a bottom in the housing market. Despite the self-serving rhetoric of biased real estate industry spokesmen, a bottom is nowhere in sight, both in terms of price and time.
Although 2006 saw existing home sales decline by 8.4% (the biggest drop in 17 years) and new homes sales fall by a stunning 17.3% (the largest in 16 years), Wall Street Pollyannas stressed that opinion and sentiment trumped data. For example, based solely on a 7.9% decline in existing home inventory, perennial real estate shill David Lereah (chief “economist” for the National Association of Realtors) claimed “It appears that we have established a bottom.” (Mr. Lereah has seen more bottoms than a diaper attendant in a hospital nursery.)
However, the drop in inventory in existing homes is most likely the result of discouraged sellers taking their homes off the market with the intention of re-listing them in the spring. This is a common tactic among realtors as spring is traditionally the strongest home buying season and stale listings are a turnoff to potential buyers. Also, my guess is that lots of other potential home sellers are planning on listing their homes for sale for the first time come spring, and many more would list their homes now if they thought they could actually get their “appraised values.”
New home sales figures are even more misleading. Although the headlines trumpet that inventories dropped in December, the figures ignore cancellations which are running at record highs. So while cancelled contracts are excluded from the “official” inventories, they are definitely part of the real inventory that will ultimately exert additional downward pressure on prices. Also, while new home prices “officially” fell by a modest 1.8% in 2006, the real decline is likely far more substantial. That is because the sales incentives now typically offered by developers, such as paying closing costs, free upgraded floors and countertops, free appliances, free swimming pools, free plasma TVs, free landscaping, decorating allowances, health club memberships, vacations, etc., are not reflected at all in sale prices. However, they are reflected in recent home builders’ earnings reports, which have been universally dismal.
The elephant in the living room is that the recent jump in bond rates suggests that things are about to get much worse for the housing market. Since January 5th, interest rates have risen by over 30 basis points and gold has risen by over $40 per ounce. When rates and gold prices rise together the most likely explanation is escalating inflation fears. Indeed, my guess is that rather then sensing a bottom in the housing market, bond investors around the world are beginning to appreciate the inflationary implications of a real estate crisis.
A substantial decline in real estate prices will either produce a severe recession on its own or exacerbate one that arises from other factors. In either case, the result will likely be the Fed coming to the “rescue” with inflationary monetary policy. Inflation will push long-term rates even higher, causing more loans to default. With credit destroyed and home equity and jobs lost, foreign creditors will rush for the exits sending the dollar into a tailspin. The Fed will be forced to buy all of the paper foreign lenders no longer want and that savings-short Americans cannot afford. Domestic money supply will explode sending consumer prices soaring.
As is so often forgotten, interest rates are merely the price of money, which like any price is determined by supply and demand. In the United States, where hardly anyone saves and almost everyone borrows, that price should be very high. Our low interest rates are a temporary fluke, once made possible by naïve foreign savers but now mainly a function of misguided foreign central banks.
Instead of trying to fabricate benign explanations for why interest rates are rising, Wall Street should instead prepare investors for the unpleasant consequences to their portfolios should rates continue doing so. The true mystery is why long-term rates have remained this low for so long. Unfortunately by the time Wall Street solves the riddle many of their clients will be broke.
“3) Everyone says real estate is a terrible investment”
If you look back at articles from the end of the 90s boom, this is the key thing that will signal the bottom.
You’ll never know it IS bottom but you’ll know it WAS bottom (this is where I agree with the NAR). But that’s okay ’cause tops are sharp & pointy while bottoms are nice, broad and flat, giving bears like us plenty of time to react (this is where the NAR disagrees with me). So I’d say we just passed the bottom when YOY edges back up after 12 consec. months (way beyond dead cat bounce).
Exact my thinking too! Besides, it may not be the best time to buy when price hits the bottom. Let say you buy 1 year after bottom and price increases by 1% which is less than inflation so you actually pay less than a year ago.
YOY sales or prices?
Prices. Sales mean nothing to me.
The bottom is when:
1. You find a house you really like.
2. You make a low-ball offer.
3. The seller rejects your offer, but counters.
4. You reject the counter, but make another low-ball offer, but slightly higher than your original.
5. The seller accepts.
6. You found the bottom.
4. You reject the counter, but make another low-ball offer, but slightly
higherlower than your original.5. The seller accepts.
6. You found the bottom.
4. You reject the counter, but make another low-ball offer, but slightly higher lower than your original.
5. The seller rejects
6. Seller calls you back a month later, wants your last “low-ball” but you counter EVEN LOWER.
7. Seller accepts
8. You found the bottom.
(Friend did the above in 1990, Newton Ma. Walked the seller down in three stages. There were NO BUYERS, period.)
Fantastic! I thought I was just being humorous, not describing history…
“How will you know it’s the bottom”
The one and only sure way…to look in the rear-view mirror.
That’s the Fed’s way, but there are better ones, such as looking at metrics as described above, and comparing their values to the values at the bottom in previous cycles.
Who cares? When you find exactly what you want where you want it and can afford to put at least 20% down on a 30-year fixed such that PITI is 30 or less of your pay, buy it. Until then, just hold tight.
Sorry.
PITI is 30 “percent” or less.
That is not a bad rule of thumb, but be careful — you don’t want to be the guy coming in with a 30-year-fixed only narrowly outbidding the last remaining subprime borrower who is destined to go bankrupt in five years because he stretched his household finances to the breaking point. Because the other guy will only be making 60% of what your household makes, and when his ilk are no longer setting the price floor, prices will continue falling until they reach the 30-year-fixed support level.
at some point you just have to know what you want, know what your finances can tolerate, know what’s a reasonable price - using your preferred benchmark- and buy the dang house.
This is starting to sound like calculating how many angels can dance on the head of a pin.
It is also starting to sound like Realtorspeak (TM).
Not really. I’ve dealt with three different realtors since I started looking this past May. Not one of them has been interested in what I want, what my finances can tolerate, or knowing what a reasonable price is…by any affordability standard, rent vs. buy calc., or price per sq. ft. measure.
They have however been interested in augmenting their own bank account via a commission check courtesy of moi.
Don’t worry, Stucco. Some of us have a good read on our local markets and know how to manage our personal finances. I won’t succumb to the lure of Mr. Smooth Realtor.
I sense that Phillygal is on top of it.
Phillygal you are spot on about what some/most stealtors want. I have had the exact same experience over the past 5 years. I have had only one encounter with an Agent who did listen and did want to know what I wanted and how I wanted to pay for it. And that Agent was frank and to the point and told me there was nothing I could afford on those terms in my area.
GS, well said. If most buyers buy with the same kind of loan, that evens the field. But how do you find out what kinds of loans people are getting besides news reports?
“If most buyers buy with the same kind of loan, that evens the field. But how do you find out what kinds of loans people are getting besides news reports?”
You have to pay close attention to changes in the different types of loans that are being used; news reports occasionally show graphs of the percentage of subprime, for instance.
That said, it is not so much whether most buyers are using the same kind of loan at a point in time, but how the type of loan most buyers are using changes through time that you should focus on. For instance, I/O option ARMs were almost negligible as a share of all new originations pre-2000, but were a huge percentage in 2005.
You must be young. At my age I don’t want to get into a 30 year mortgage. My criteria is 40 - 50% down and able to pay it off in 10 years. I’m 41 and have kids to put through college. I don’t need a 30 year note hanging over me till I’m 70. I like PITI to be less than 25% of my NET pay.
You can always pay off a 30-year fixed faster than 30 years by paying additional principal. IMO, a 30-year fixed is better than a 15-year simply because you protect yourself a little more in case of a job loss or pay cut. Sure, you’ll pay a slightly higher rate (probably a 1/2 point), but I’d rather have the security of knowing I can still afford the house in case of a drastic change in lifestyle. I guess it’s all a matter of how much risk you are willing to live with. When it comes to my primary residence, I’m not willing to entertain much risk at all.
Makes sense, why back yourself into a corner.
Toast have to disagree with you there, it really is a function of how much the loan is versus your job stability/ease of getting more work/ and how much the payment is.
Approximate:
The 15 moves your 1st payment to 2/5 P/I.
The 30 your 1st payment is like 1/20 P/1.
And you usually save a point.
If you have a job with good hireability, and the loan is a comfortable ratio to income 3/1 4/1 and you have a cash cushion then a 15 can result in substantial savings. Without taking the chance of not being able to pay it for like in a 7/1 ARM and then having to Refi.
It will be the bottom when it looks like the aftermath of hurricane Katrina and you’d better be armed when you go to an open house. Yeah, things are going to get that bad.
How about a topic of “Which bubble city (100k+ population) is the most overpriced and will experience the largest correction?”
Sacramento
Just tried to read Casey Serin’s site. It was up a few hours ago — but now there’s just this:
This Account Has Been Suspended
Please contact the billing/support department as soon as possible.
Well. I’m shocked, I tell ya.
Could someone tell me the site one of his readers put up where they cross-posted the comments they tried to post on Casey’s ex-blog? It should be an interesting read today.
Thanks.
(By the way, as soon as I clicked “submit” on that post, I realized I may have committed an etiquette violation. I apologize for not suggesting a weekend topic.)
Every time I read his site i felt like I lose 1 IQ point.
It reads like a 4th grade social studies project about ‘Money’ gone horribly wrong.
Except the teacher is Robert Con-u-saki.
I have no idea what the appeal was for me. Being fairly new to housing-related sites, I wasn’t sure if he was for real. I think I just kept reading to see how it would turn out — either some commenter would bust him for being an elaborate hoax, or he’d post “If this goes to trial I’m looking at 15 to 20. I’m thinking about a plea bargain — I think I can make a sweet deal.”
The appeal for me was shooting ducks in a barrel. Only it was the same duck over and over again. But every time I thought that I had hit it, the damn thing would start quacking again.
“Corporate credit to pay off my wife’s personal credit cards!”
“100-200 unit apartment complex to generate passive income!”
“I will be successful because I’m creative and curious and because sweet deals just magically appear. Whenever I check my email, there are hundreds of unsolicited offers! I’m king of the world!”
I hope he can get his site back up and running. I’ve got a sick fascination with the little sh-t.
The enduring appeal of Casey’s site is that he is having a devil of a time getting rid of his houses and is frantically trying to hold onto some. I predict that he will slowly lose them and then finally manage to sell the last one at a terrible loss to himself. It will take a few years for this to finish, but this will finally mark the bottom of the housing trough and it will be time to buy.
NR
Remember Casey already took cash-out from the houses he bought ,so even if he sold one for a profit hes not entitled to any profit because of his fraud .
I never went to his site because Casey is just a criminal punk that was trying to get stupid people to bail him out . All his talk is pure BS and I’m just waiting for the arrest . As a tax-paying citizen of the United States I’m entitled to have criminals taken away . Think about it people ,Casey’s transactions raised the appraisal comps ,maybe the taxes in those areas, so this punk is affecting everyone and “sorry ‘ isn’t good enough .
Casey is doing everyone a HUGE favor unwittingly of course by bringing to light the fact an unemployed punk with no skills can get 125% with cash back on 8 homes.
He’s too stupid even to attempt to rent them out, he had one plan - flip for huge profit. When it failed it was ‘ruh roh’ now what? start blog!
Perhaps he has embarrassed enough lenders to cut off or tight up credit! think about it. If you had lent him money youd be soooo embarrased. Anyway his site is unique on the internet something very rare due to everyone else is too smart to blog about thier crime.
Imagine ‘IamAdrugDealingPimp.com’ that would be a very popular site as well.
“Casey is doing everyone a HUGE favor unwittingly of course by bringing to light the fact an unemployed punk with no skills can get 125% with cash back on 8 homes. ”
I agree. Every time I hear some lame-ass argument about banks not being too loose with their money and forclosures not being that bad, all I have to do is say “Casey Serin”.
Just shows how far reaching the real estate bubble implosion will be! It’s now hit the entertainment industry.
Finally, the NYTImes takes note of the sub-prime blow-ups and resulting problems for MBS sellers and holders. If you waited for the MSM to post this news, you could go broke. Maybe a sidenote for the implode-o-meter.
Wall Street’s big bet on risky mortgages may be souring a lot faster than had been previously thought.
http://www.nytimes.com/2007/01/26/business/26mortgage.html?_r=1&adxnnl=1&oref=slogin&adxnnlx=1169814336-NgecX7pmlyCHKADk+rz/8g
This MSM confirmation is huge. Just one example:
I suggest this topic deserves it’s own thread: “Does everyone know about the risks of using subprime loans to buy a house now?”
High profile MSM case in point:
———————————————————————————-
Escape From the Money Pit
EDITOR’S CHOICE
JANE BRYANT QUINN
• Time to Reconsider Home Mortgages
Home buyers thought they could put their house under their pillow and let the tooth fairy raise its value while they slept. Too bad.
Jan. 29, 2007 issue - This could be your magic moment to save some serious money. The mortgage you chose during the heady housing boom may soon cost you more per month than you really need to pay. On home-equity loans, rates are up by 4 or 5 percentage points—far from the supercheap money you expected when you first signed up.
The tooth fairy probably made your problem worse. Buyers thought they could tuck their home values under their pillow at night to double while they slept. In that kind of dream, there’s no such thing as a risky loan. But the tooth fairy has been missing in action for more than a year. If you made a bad mortgage choice, you’ll have to unwind it yourself.
Two types of mortgages need special attention. First, the “interest only” loan, where you’re paying the interest but not reducing the debt itself. And second, the “option ARM” that allows you to pay even less than the interest due (any unpaid amounts are added to your loan, so your debt rises over time). You usually have to start repaying the principal after three to five years. At that point, your monthly mortgage cost could jump by 50 percent to 200 percent—ready or not.
http://www.msnbc.msn.com/id/16720755/site/newsweek/
P.S. Let me preemt the REIC insiders who might be tempted to correct my “mistaken” use of the term subprime. I know you guys only apply this term to the borrowers who are deemed “bad credit risks” because their FICO scores are too low. But I suggest you should rethink the definition, because lending risk does not just depend on history, but also on a given household’s prospective likelihood of repaying a loan. By enabling even households with outstanding credit histories to borrow more money than they are likely to ever be able to repay, the subprime lending scourge has raised the prospect of creating a much broader swath of loan customers with credit problems going forward. Like homebuilders who have built so many homes that they have cannibalized their future customer base, subprime lenders have degraded the lending industry’s future customer base.
It is seldom wise to warm the room by burning the legs of the chair where you sit.
I agree with your more flexible use of the term subprime as I also believe these lenders have played a significant role in assisting otherwise good or prime credit risks/individuals to “supersize” beyond their perceived credit risk due to subprime’s “loose” lending standards.
Get Stucco,
You are so right. The friend I’ve posted about who sold her studio to “stretch” into a 2 bed with an 1/0 loan, is a trauma doc at Bellevue. It’s a city hospital, so she doesn’t make major bucks, but I doubt she’s ever been late on a bill. But like a lot of doctors, she’s too smart and too well-educated to know how little she understands about financing. Her pal, a corporate lawyer with a second home in the berkshires, has a 1 bed on riverside, but he too has an I/0, on both–despite an inheritance as well–because as he told me at Thanksgiving–”it’s just such a shrewder way to go, real estate is all about leverage”. And this guy is a corporate legal shark–no innocent. I think there must be plenty of successful, well-paid folks who have been taken in by the risky mortgage mantra as a “smart” move–and this while fixed rates were at historic lows!! When everybody wants to be a shrewd financial player–lots of everybodies get taken.
“But like a lot of doctors, she’s too smart and too well-educated to know how little she understands about financing.”
Lots of smart folks like your friend are about to get the lesson of a lifetime in the school of hard knocks. No amount of medical school loans could provide for such a great financial education…
Good idea GS,
it would be kind of neat to see the actual dynamics of it in action on a few real homes, ie, look at mls#djdjdjd and it’s an interest only, which started at gugu% and now resets to yuk% and the payment goes from$777 to $777777. lol
I’d like to see a bunch of samples with so many of these toxic mortgages.
GS, you have made an important observation. In the past (over 10 years ago), underwriters would look at not only your current credit situation, but what you did for a living and your prospects for future earnings, before they approved a loan. So there was more work and thought put into the underwriting process. Now there are advantages and disadvantages to a credit score - driven underwriting model. An advantage is limited discrimination on the part of underwriters. A disadvantage is limited ability for judgement calls by underwriters. Having worked in internal audit for one of the larger sub-prime wholesale lenders, I can tell you from experience that in the last few years the level of expertise of underwriters has dropped drastically from what it was say 10 years ago and prior. Now all underwriters do is review the file and check off their lists. If the score is high enough for the program and the current ratios are met, then the loan is approved. Forget about the fact that a L.O. can get a credit report temporarily changed by Credco to boost the score (and) a L.O. can obtain phoney paystubs or VOE’s all day long.
This is just one more example of the lack of my generation’s ability to critically think and do meaningful analysis (i.e. use their brains). They have thus taken thought out of the loan process.
I’d have to agree, GS…
As an investor, I’d demand a big premium on anything:
1. That didn’t have at least 80% Loan-To-Value (LTV) ratio. 80/20 would NOT meet this criteria. As an investor, I want you, the buyer, to have some skin in the game in order to be labeled ‘prime’.
2. That was not fully documented income and assets…EVEN IF THE LTV RATIO IS LOW. As a prime loan, I don’t want to have to foreclose to get my money back….EVER. I just want you to make the freaking payments. SISA, NINA, or anything in between? Welcome to sub-prime. Self-employed? Bring me 1040s. Medical Doctor just starting out? Rent for a few years until you have the docs. Or get a sub-prime loan.
But that’s just me.
Agree, a diversion from any of the five C’s of credit should mean it’s sub-prime.
Do you think the Five C’s will return to fashion some time soon? (The passage below pertains to corporate borrowers, but I am guessing it would have been traditionally applicable to homeowners, with minor adjustment in the language; for instance, replace the word “company” with “household” and “the business” with “your career.”)
——————————————————————–
While each lending situation a bank reviews is unique, most banks utilize some variation of “The Five C’s of Credit” when making credit decisions - Character, Capacity, Capital, Conditions, and Collateral.
Character
Banks want to put their money with clients who have the best credentials and references. The way you treat your employees and customers, the way you take responsibility, your timeliness in fulfilling obligations - that’s character.
Capacity
What is your company’s borrowing history and track record of repayment. How much debt can your company handle? Will you be able to honor the obligation and repay the debt? There are numerous financial benchmarks such as debt and liquidity ratios that banks use before advancing funds.
Capital
How well capitalized is your company? How much money have you invested in the business? Banks want to see that you have a financial commitment; that you have put yourself at risk in the company.
Conditions
What are the current economic conditions and how does your company fit in? If your business is sensitive to economic downturns, the bank wants to know that you are good at managing productivity and expenses.
Collateral
While cash flow will nearly always be the primary source of repayment of a loan, bankers look at what they call a secondary source of repayment. Collateral represents assets that the company pledges as an alternate repayment source for the loan. Hard assets. Most collateral is in the form of real estate and office or manufacturing equipment. Your accounts receivable and inventory can also be pledged as collateral. Unless you’re a business with a proven payments track record, you will almost always be required to pledge collateral.
http://www.pnc.com/webapp/unsec/ProductsAndService.do?siteArea=/PNC/Home/Small+Business/Financing+Your+Future/The+Five+Cs+of+Credit
Chrisusc ..Knowing how underwriters use to underwrite loans, I am in shock over current underwriting .
Good underwriters use to be able to spot a weak or risky loan in a minute ,fraud was easy to spot , they would question everything ,As you said ,job history and type of job was important ,not just a credit score . Also a solid appraisal was important in prior lending cycles ,and that went out the window with the new age lending .
I know underwriters from the past that would even look at spending patterns to determine the risk of a loan as well as checking for reserves etc. .
I know a underwriter that cut back a loan one time to 70% LTV because the borrower went to Vegas to much .
You have to go alot deeper with a loan application to determine risk and certainly to check for fraud .
Housing Wizard, if the underwriter cut the LTV today for the Las Vegas reason, the lender would probably get sued no doubt.
sarcasm off
About your Doctor friend:
1. Unless she loses her license shes making at least 250K in NYC no matter what. So she has guarnteed employment.
2. I/O is for people with big money, they can dump cash in to the loan if they need to from other investments. She has the money, and the interest is one of her few deductions.
“She has the money, and the interest is one of her few deductions.”
You should ask more questions before advising.
1) How much does she owe in medical school loans? It isn’t just about income.
2) How much house does she own? (Determines the effect of rising ARM rates.)
3) How deeply did flippers armed with subprime loans penetrate her market? (Determines how far prices will fall when subprime bids no longer set the price floor.)
Chrisusc , the underwriting I spoke about wrote it up as overextended credit risk patterns at the time . The guy use to spend about 50k a month and somehow pay it off every month in spite of a income that would not explain it .
I know what you mean by people crying the blues if the lender doesn’t give them what they want . They cry discrimination ,but really its just good underwriting .
I think that the site you’re talking about is http://exurbannation.blogspot.com/
You know, I’m not sure if his site was suspended for nonpayment or if there was some entity that successfully got an injunction against him. Seems a little too fast for the Phoenix women to shut it down (he posted their confidential “contract” late yesterday, along with their NDA). But maybe his ex-agent (Cute Amy) or one of his lenders had something in the works? He got a few new sponsors earlier, so perhaps someone is trying to prevent from profiting from his story? Any lawyers out there… on what grounds could an injunction be secured to shut down a website?
Then again, he probably did just fail to pay the bill…
I think that the site you’re talking about is http://exurbannation.blogspot.com/
That’s it — thanks!
I can imagine if it was some legal thing getting his site shut down; in a little while, he’ll figure out a way to come back with a new site. He’ll say “Yeah, I screwed up with the first blog (look, everyone, I’m Taking Responsibility!) — but I failed forward. I’m pleased.” And then he’ll screw up again.
Ah, good times.
exurbannation is Robert Cote’s blog, not Casey Serin’s, although Casey appears to be the dominant topic these days.
There is also:
http://www.iamnotfacingforeclosure.com
OMG I can’t remember the last time I cried from laughing so hard. Great link, Hal.
I’ll bet Casey was out with his “cute realtor” looking for a “sweet deal”, and forgot to tell his “CPA dude” to pay the internet bill. Or maybe he was busy signing a contract he couldn’t be bothered to actually read, which wore him out so much he had to take an afternoon nap.
hmm…”The East Coast Mentor” does not approve.
Basically, Casy is just a NAR piñata.
You know, it has occured to me that we don’t even have the Monthly Payment Consumer (MPC) People are agreeing to loans that they have no capability to meet the payment of. Many people just don’t have any idea how much they can spend a month. People seem to think that if they make an “average” salary than they can affort an “average” house. With affordability ratios as bad as they are, this is a recipie for disaster, even without TV making them think that the “average” home is a McMansion.
Is 1.2M foreclosures for real? If there are about 1M new houses and 6M existing houses sold each year, does that mean that one house is foreclosed for every 7 that is sold?
The 1.2M number is accurate, I believe. But I’m not sure if your reasoning to get to 1 out of 7 homes sold go into foreclosure. The pool of financially distressed homeowners include people who bought their homes in previous years. If they bought with interest-only, option ARMs, etc. then they might have been able to “afford” the home for a brief time, but now they can’t handle the much higher payments. The problem is, a good number of new home buyers since 2001 or so fall into that category.
But yeah, its starting to get really ugly. I not the most imaginative guy, but I can’t see anything that will mitigate this trainwreck. We’re probably about a year away from a huge number of listings being REO, but once that happens we’ll see the dramatic correction in prices that is inevitable.
The party’s just getting started.
“The pool of financially distressed homeowners include people who bought their homes in previous years. ”
I think that’s ok with the 1 in 7 conclusion, because the pool of sellers of existing homes also includes people who bought their homes in previous years.
I’m not trying to suggest that 1 in 7 homes bought in a given year go into foreclosure that year. Just that there is 1 foreclosure somewhere for every 7 sales.
Another way to look at it might be that “net” sales is really 6M.
Another even more surprising way to look at the numbers is that there are about as many foreclosures each year as there are new homes sold. That really takes my breath away.
at 2% your in recession
? % = depression
with all the big news on the msm this week is it finally to big of a implosion for them to ignore anymore?
just this morning on fox 5 in nyc they had a story about how long island is too expensive to raise a family and that only 2% of the homes are affordable if you use the 2.5 x income method when purchasing.
2.5x income oh that is like a 20% downpayment who does that anymore? like it was some big revelation
pass the popcorn please
I mentioned the 2.5x income things to anaquaintance of mine and she told me “that’s silly, if you were to do that, no one would be able to afford to live on Long Island! Danni, you can’t always go by what your parents did…these are different times.”
Yes, its a new paradigm.
LMAO
NY is really strange
homes in the burbs are expensive, but the foreclosure rate is still very low. i checked it last night. the towns are working to improve it though by raising property taxes every year by 10% or more
Here is the Times article that generated the TV report
http://www.nytimes.com/2007/01/26/nyregion/26long.html?ref=nyregion
So we’ve gone from 60% of the households being able to afford the median priced home in 2000 to 2% today. But you know what? The NAR has said the market has bottomed. So I guess only 1% will be able to afford homes in the near future. And if real estate becomes a really good investment, that will drop to 0% with really high sales volume.
formulas of the past
rent x ? = price
foreclosure rates during 1990-93 ?
nod to foreclosure rate ?
past is prolog
On yesterday’s California thread, it was pointed out that Athena’s blog (www.sonomahousingbubble.blogspot.com) has a thread around Dataquick counting foreclosures as sales. More specifically, not differentiating between transfers to a real buyer, and transfers back to the mortgagor.
1. How much could this distort the statistics if foreclosures keep increasing?
2. Does this mean that when a bank passes on a REO to get it off their books, that the stats will show 2 sales for the same property?
(Apologies to Athena if I’ve just committed a net faux pas by suggesting a topic from another blog.)
Interesting observation and needs to be examined closer to clarify if the REIC is pulling another bizarre count similar to cancellations not being backed out of the sales and inventory figures.
Yesterday there was a post on the Florida thread that foreclosures exceeded sales for Palm Beach County in 2006. If foreclosures can exceed sales then it would seem they are not included in the sales figures. But when dealing with the REIC and statistics–who the fyck knows.
I think this ‘quirk’ was reported as being specific to Dataquick.
To count a foreclosure as a sale WITH THE OWED AMOUNT AS PRICE would manipulate price statistics greatly upwards in the current situation (which would certainly not be a reason for many in the REIC not to do it). I strongly doubt that any bank would buy a place for this price to flip it to another seller - they are in the money business, not in house flipping business. How is the transfer of the house recorded at the counties, as a “sale” or as something else? If anybody would do it differently from the counties, they would have to justify that.
Any advice for us people graduating college in a bubble area n the next 6 months? I asked Ben about this and then I realized it was leading to ask that and a more open ended question was needed.
rent
Well that’s a little simplistic ( I actually bought my own place before starting school in 03, it is 1/2 of renting though so it was a good idea ) but most of my friends are not able to do that.
0. Simplify life, dont get the 3 series on lease.
1. Max out the 401K match
2. Max out the 4K for the IRA
3. Pay off the school loans…..
You live in a world that’s so vastly different from mine, I couldn’t even offer advice. I have never known a single soul who bought a place before starting college.
And I’m really not sure what kind of advice you’re seeking. You say you’re graduating in a bubble area, but already own a place. What’s the question? Just seeking other financial advice?
Pass the bubbly and east coaster
Well it’s a small studio co-op I figured if I had to get 1099ed from walking away ( from reading SoCal’s ) I better get that bill for 30K instead of 300K or whatever. My goal was 50% of renting and I found it. But that was 2003, we did not know what to expect. Soft landing, hard landing, great depression 2.
And I worked for a couple years before going to school. That’s all my money, saved from eating way too much Pathmark pasta in the big bag
20% down 15 fixed BTW.
But I am now in the age of weddings and I have friends some who are quite smart who want to start settling down and having kids ect. I hear the throwing away money quote alot.
Here is where I do not know what to say, it feels to me that NNJ and LI ( where I am from originally ) to live in a decent neighborhood with decent schools has gone from BS degrees needed to afford to Masters ( at least one of the two ) needed to afford. 500-600K houses is my example.
The thought of plugging through another 3-4 years of school is not applealing to me right now. The thought of paying for that masters for the next 10 years is not very appealing either.
And to only do that not because I want to for providing better patient care but so I can take on a 520K mortgage to afford 1/2 a house in fort lee or a 1200 square foot house in Fairlawn ( or equivilent )
Can you keep living where your live? Don’t worry so much about being of the age of weddings - what is that magical age anyway?
Find a job - they may even pay for you to pursue a masters. Don’t worry about a house right now - enjoy your life! I’m guessing you’re around 25 (which, IMO, unless you have a long-time sweetheart is not wedding age but, rather, have-as-much-fun-as-you-possibly-can-so-you-don’t-have-any-regrets-when-you-finally-settle-down-age).
Just put the kool-aid down and go grab a beer.
As to weddings, people get themselves into a world of trouble when they worry more about when than who.
Did YOU buy the place with assets YOU earned from your OWN work or this your parents’ money? Huge difference. Try to avoid economic outpatient assistance. Very difficult at first, and I cannot claim I never received any myself, but necessary for success in the long run.
As for this:
1. Max out the 401K match
2. Max out the 4K for the IRA
You cannot do both; the amount you can deduct in an IRA is phased out to the extent you contribute to a 401k. I do agree with saving as much as possible, however.
Not if you have a spouse who doesn’t work.
There is still a phaseout; it’s just higher when filing jointly.
Seek out a competent CPA.
You CAN max out both if it’s a Roth IRA. and your income isn’t too high.
Yea, buy it like I did with a 1.9% fixed loan for 5 years - that was in 2005 though. Maybe I can sell you mine as I am upgrading to a 5 series soon.
Here is what worked for me. Have as a goal to spend as little as possible and still be happy. You’ll spend what you earn in the end, but if you spend before earning you spend less because of the interest; and if you earn before spending you spend more than you earn because of the interest.
1) Find soulmate and get hitched. Saving together is better than saving yourself and marrying debt!
2) No credit card debt. No debt at all.
3) Live in the cheapest apartment you can find in a safe area. If you are single, live with roomates.
4) Live in a place where you don’t need a car. The first car is saved for and paid with cash, as is every subsequent car. Brooklyn worked for me; walking and transit.
5) Pay off student loans, unless you are sure you can get a higher rate of return by investing. I wouldn’t bet on that how.
6) Cook your own food, immigrant style. Rice, beans, pasta and vegtables. Brew your own coffee.
7) Live in a place with lots of cheap/free entertainment. Again, Brooklyn worked for me.
rpatrick,
WT Economist is giving you great advice. Some more…furnish your place with tag sales, thrift shop stuff, especially kitchen stuff–just look in high end neighborhoods.
Don’t waste your money on a lot of clothes–if you’re in your 20s, you look great now. Second hand or cheap stuff will still look good on you.
Build up a savings stash–as housing unwinds, the economic picture will be shifting–you want to be able to move quickly if new opportunities/better options arise. Don’t get tied down financially, and cripple yourself.
Dig out from any debt, but build an escape/emergency stash. He’s right–cook like an immigrant, hang out with friends, party at home. Enjoy being young and free.
(Enjoy being young and free.)
You got that right. I recall before I was married I could pack up all my possessions in one hour, stuff them in and on a friend’s care, and unpack them in another hour. Now, forget it.
Were I young now, I wouldn’t even have a fixed phone and mail location. Just a cell and box in a store in the neighborhood where I wanted to live. I’d move between roomies/sublets. It would get old after a few years, but would be great for a while.
Actually I have most of my kitchen stuff off of freecycle
I already do most of that, I pay off my bills every month, and plan on knocing out the student loan debt this year and then the mortgage leftovers the next year.
What I seem to be looking at is couple or not, the cost of buying a 400-600K house seems insurmountable to do it “the right way” in a reasonable time frame. ( 10 years )
I mean think about the amount of money 500K is thats HALF A MILLION DOLLARS. Like if you pay that bill every month you have given the bank a MILLION DOLLARS in interest.
Thats my problem because I think “wow 8% return on a mil is 80K or 50K after taxes” And here I am giving the bank 1.25-1.5 MIL for my 500K house.
Does this not make your head explode?
(the cost of buying a 400-600K house seems insurmountable to do it “the right way” in a reasonable time frame. ( 10 years ))
Would have seemed the same to me in the mid-1980s. Our plan was to save in a bubble market, move to a non-bubble market. But guess what: savings earned a return, the bubble popped, and our incomes rose. Suddenly we could stay where we were. It took 7 years, the last three waiting for homeowners to sell for what it was worth.
Make water your beverage of choice. Not Coke, not Diet Coke, not milk or OJ… water. If you don’t like the taste of tap get a Brita pitcher instead of buying the bottled stuff.
Learn the patterns of when stuff goes on sale at the grocery store. Usually this is every one to two months. Stock up when the sales hit.
Buy (and eat) stuff that is unprocessed as possible. Not only is this cheaper, it makes you less fat.
The vietnamese market sells 10 pounds of best Jasmine rice for same price the chain charges for 5 pounds, and it is fresher.
passthebubbly, are you a monk?
Make water your beverage of choice. Water is water, Scotch however, now that’s a beverage.
I meant to make water one’s everyday drink: at work, with most meals, etc. Trust me, I can drink like a fish. There’s a reason my username alludes to an alcoholic beverage.
Is your favorite movie “Waterboy” with Adam Sandler?
Bubbly how about your dentist bills
I drink alot of water with a little lemon juice. I work with Renal patients and more fluid to keep my kidneys happy the better
How about the starbucks addiction, thats a running gag between my boss and I. Netiher one of us can afford it, and both have the clue to realize how stupid itis to spend 5 dollars a day on it.
My last day I am bringing him something from there as a joke, great guy but once I finish school it’s time to move on
I see my dentist twice a year and pay cash (write checks). People ask me what my “dental coverage” is and I respond, “flossing”.
Water - No man live and drink Vino - I don’t live in the Yakima valley for nothing - We have some of the best reds at excellent prices in the world!!
I don’t know why you’re getting so much advice geared towards being married, but please don’t make any financial goals based on having to have a spouse. Please.
No but my sister is getting married in June and theyw ant a house in a nice hood. but it’s not happening with their money on LI even wiht cash money wedding proceeds. She asked me some questions and I wanted a wride range of ideas. 27 does not make a wise man
It’s really quite simple…if they can’t afford to buy a house in the area they want to live, they will have to rent and keep saving. Or move to another area.
I thought that same thing as eastcoaster. Your “soulmate” will probably wipe you out financially sometime in the future. But we all think we’ll be the exception to the rule, but won’t be. Stay single. Women usually have needs that require lots of money.
And some men will rob you blind as well…
eastcoaster,
Matter of fact, I’ve seen **far more** men than women who destroyed the family’s finances.
Nothing like drinking, drugs, expensive toys/hobbies and “other” women to wreck a family’s economic situation…for life.
Very simple: Always live below your means.
Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.
Charles Dickens, David Copperfield, 1849
simple answer: rent.
do the rent versus own calculator at eloan.com to find out why it makes sense to rent.
I am already in and it is much cheaper for me to own this small place, now it is bubbleicious, but the price when I got it was delicious. And if I have to bail I still come ahead since rents are crazy by me.
Something I’ve been thinking about recently:
Not only do real estate bubbles exist from time to time, but it seems RE is the asset class that is MOST prone to bubbles extreme and boom/bust cycles.
Consider: In the past century there have only been two real US stock-market bubbles (I won’t count ‘87 because we were higher by the end of ‘88). There has only been one real gold bubble; 1980. I wouldn’t count any of the runups in oil prices as bubbles, becuase they were in response to fundamental shifts in supply and demand. There was only one tulip bubble ever, and so on.
But RE… we’ve had three in the last 30 years or so: late 70s, late 80s and 2000-05. We also had one in the 20s in addition to various smaller, local bubbles such as Denver in the late 1990s. Look in other countries: The UK has had two in the last 20 years, Germany had one in the early 1990s, SE Asia had one in the mid 1990s until 1997 and of course Japan had the late 1980s… all these bubbles were NOT correlated in time, and formed independently of each other.
So I ask: (1) do you agree and (2) why is unique about RE that causes this to happen? One answer to #2 may be that RE is the one asset that is most accessible to the public at large, where herd mentalities and ignorance in financial matters are prevalent.
My .02 -
Real Estate bubbles continue to happen primarily because they’re not (or haven’t been, until now) as dramatic as more liquid bubbles - e.g. stocks and tulips. In particular - the last two bubbles haven’t really been “bubbles” per se, in that the non-inflation-adjusted prices didn’t actually go down in most areas. Thus even after a “small bubble” RE is seen as a low-risk (even no-risk) investment. Contrast with stock bubbles - “holy schnikes - Nortel just went from 100 to 2!” which are obvious risks.
The only real bad price declines in real estate have been very localized and/or distant history, at least in the US anyhow - Florida in the 20’s, and Hawaii (kind of) in the 90’s, and the latter still wasn’t that terrible.
That’s all about to change.
I think that because RE is the only asset class where J6P can get leverage, relatively small price movements (and expecially falls) have an exaggerated impact on the popular consciousness.
Also, RE experiences can be far more localised than Stock Market ones. Consider that since 1968 the NAR’s numbers have never shown a national full-calendar-year annual decline.
You could in theory argue that the US as a whole has had zero fully played out RE bubbles in that time, since there have been no actual nationwide busts. (Mind you, have fun arguing that proposition to anyone who lived in the Houston region during the 1980’s.)
RE has (at least) two differences to the stock market: much larger leverage, as ajh already wrote, and less comparability between objects. One IBM stock is the same as another IBM stock, but houses are not alike. Larger leverage might explain the magnitude of booms and busts, and the incomparability might explain the inertia of RE, which also masks some bubbles in retrospect. You have to plot house prices as a ratio to wages or to consumer prices to see the ups and downs clearly (well done by Robert Shilling or by Rich Toscano about the San Diego RE market).
Interesting points from packman and ajh… if one accepts there were no national bubbles in the last ’70s and ’80s we have dicussed local bubbles during those years many times here. And many people certainly got hurt, even in parts of the country you wouldn’t initially expect. (Example: My family moved to NC in 1988; folks moved away in ‘93. Dad lost about 25% on our house in NOMINAL terms. In North Carolina, not Boston or LA.)
If there was never the “zero to 100 to zero” effect in RE, the runup and pullback still affected a lot more people, becuase as realtors™ like to say, everyone needs a place to live, and it’s the middle class’s largest asset.
It may be high time to dust off the 1979 edition of Henry Hazlitt’s book, “Economics in One Lesson.”
(My editorial remarks are in italics.)
Chapter XXIV
The Assault on Saving
From time immemorial proverbial wisdom has taught the virtues of saving, and warned against the consquences of prodigality and waste. This proverbial wisdom has reflected the common ethical as well as the mereley prudential judgments of mankind. But there have always been squanderers, and there have apparently always been theorists to rationalize their squandering (Like folks who say, “Asians save too much money, forcing Americans to borrow too much,” for instance?).
The classical economists, refuting the fallacies of their own day, showed that the saving policy that was in the best interests of the individual was also in the best interests of the nation. They showed that the rational saver, in making provisions for his future, was not hurting, but helping, the whole community. But today the ancient virtue of thrift, as well as its defense by the classical economists, is once more under attack, for allegedly new reasons, while the opposite doctrine of spending is in fashion. (History does not repeat itself, but it sure resonates.)
Here’s my question for the gang - when did lending standards start changing so much? I was involved in real estate 20 years ago - mostly as a property manager, but also doing some sales in Capitol Hill/DC — a lot of shells and distressed stuff that was being rehabbed by investors. I remember how difficult it was to get “investor” loans back then — and that rental income was really discounted in terms of qualifying, etc. — as a result, we did a lot of seller-financed deals with a baloon in 3 to 5 years (usually paid off in a year or two when the property was rehabbed and sold).
When did it start becoming easy for folks to get these low- and no- doc loans and by 3, 5, 10 — whatever — properties to try and flip?
I’d love a history of the change in standards if someone has some good insight — who (agencies/companies) started this shift?
read the community banking bill of the clinton era
rubin,raines every man a king
911 came and then it was the excuse to open ALL flood gates……
Your question is good . I want to know who started the low down stated income loans and when did appraisers start coming in on any sale .I also want to know why the lenders didn’t think it would be risky to sell to short term investors on low down loans etc. From what I have seen so far the lenders just stopped underwriting loans based on “real estate always goes up “.
Just because the money was there from the secondary market ,it didn’t mean the lenders should of been entitled to stop making prudent loans and resort to fraud and liar loans to meet the quota . The money would of gone to a better place and we would not of had this run-up like we did .
“The money would of gone to a better place and we would not of had this run-up like we did .”
Nor the glut of unneeded, unwanted McMansions…
Not sure when it started, but I believe that there was a great acceleration in lender stupidity after 2003. Summer 2003 was when fixed rate mortgage rates hit their nadir, and the only way for prices to continue to appreciate was either wage inflation or lowered lending standards. Well we haven’t had double digit wage increases….
I think it started (just a little bit) in 2001 or before. By 2003, ANYONE who wanted a mortgage could get one.
Not everybody thinks the Fed is going to lower interest rates in the near future. This is really bad news for the Wall Street cargo cult, as the gauntlet is cast. If the Fed does not follow through on the expectations for tighter money, the invisible hand will retaliate in anger as it did yesterday in the gold and long-term Treasury bond markets.
———————————————————————————-
Fed’s View: Steady but Set to Boost
By Greg Ip
Word Count: 828
WASHINGTON — Surprisingly solid economic growth hasn’t only persuaded investors that the Fed won’t cut interest rates, it also has prompted some to predict that an overheating economy will trigger rate increases before long.
Fed officials don’t appear to share that view — at least not yet. They believe the housing downturn has yet to show its full impact on the economy. As it does, they expect growth to remain slow and unemployment to rise, hastening the recent downtrend in inflation, which is now running roughly from 2.2% to 2.6%, excluding food and energy. Indeed, officials are more comfortable about …
http://online.wsj.com/google_login.html?url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB116977369843488466.html%3Fmod%3Dgooglenews_wsj
http://www.chinapost.com.tw/news/archives/business/2007124/100847.htm
http://www.philly.com/mld/inquirer/business/16530064.htm
Is the Fed playing freeze dance with the markets?
http://www.abledata.com/abledata.cfm?pageid=19327&top=14763&productid=77856&trail=22,12691
—————————————————————————-
Fed will hold rates steady
By Holden Lewis • Bankrate.com
Most observers expect the Federal Reserve to keep short-term interest rates steady when the central bank’s rate-setting committee meets Jan. 30 and 31.
If those forecasts are correct, the prime rate will remain 8.25 percent, and consumers with variable-rate credit cards and home equity lines of credit won’t need to worry about rate increases.
There’s also little hope for a rate cut — not at this month’s meeting, and not anytime soon. At the Chicago Board of Trade’s futures market, traders have priced in a 4 percent chance that the Fed will cut the federal funds rate at this meeting, and a 96 percent chance that the central bank will hold steady. Futures traders have priced in low probabilities of rate cuts anytime in the first half of this year, and they figure about a 22 percent chance of a quarter-point decrease by Halloween.
Some economists and financial analysts have predicted that the Fed will keep short-term rates unchanged through the end of this year.
http://www.bankrate.com/nltrack/news/fed/main-jan07_fed_advance.asp
Here is a question for future generations of economic historians to ponder:
What were the long-term costs of the housing bubble to America’s future prosperity?
I will submit one example: A historically high rate of real returns to real estate investments created a bias for building larger houses than end user demand could absorb. In the wake of the bubble, the American landscape was blanketed with a glut of tract home developments designed for a much larger number of upper-income households than actually existed in the American income distribution.
A big cost will be the tranfer of money from lower income suckers to the more financially shrewd, thru foreclosure and the new bankruptcy law. The serfs from the past will have ancestors in the same position. I just hope to be able to take advantage of them as well.
ancestorsdescendantsThank you for the correction.
I’m not so sure about this. It looks that way currently because the defaults are still only a trickle. When they become a torrent, the people who lent out the money will be in trouble. New BK law or not, you really can’t get blood from a trunip and alot of FBs will never be able to pay, even if they do reintroduce debt-peonage.
It will only be possible to see who the bagholders were through the rear view mirror.
And through the lens of a bankrupcy court/RTC2.
So we have more homes built for higher income buyers than we have higher income buyers. How does it play out?
That’s what subprime mortgages are for.
Think of the McMansion glut as providing a price ceiling on older, smaller, less-desirable tract home developments in the surrounding vicinity. When the McMansion prices fall, so will those of the earlier vintage of smaller tract homes nearby.
This reminds me of a nagging question: Given the massive overbuilding of McMansions, and the high future cost of owning and maintaining them, is it possible that we may face a future “price-quality inversion” in some markets, where McMansions sell for a lower price than smaller comps which are less expensive to own and maintain?
“price-quality inversion”
P.S. Already seeing this in 92127 in terms of price per square foot; but my question is intended in terms of absolute price; e.g., will there be a future point where 2000 sq ft homes sell for the same price as otherwise-comparable 3200 sq ft homes, as end users avoid the albatross of maintaining a super-sized house?
Interesting…. I don’t think that would happen unless holding costs (energy mostly) skyrocketed. You COULD have a situation analogous to the gas crisis, where a used lincoln town car cost than a used honda, but I don’t think it’s likely. At the end of the day, I think that with an oversupply of housing, the least desirable housing gets HAMMERED. I don’t think that more square ft become less desirable on average.
The housing bubble is only the last, great gasp of a nation — maybe even a world — gone horribly awry.
The coming “greater depression” will certainly have it’s costs. However, IMO it’ll clean America’s house and set it up for even greater future prosperity.
I was curious about how many foreclosures the SD market would have to have before even investors stop buying (keeping in mind that almost anything built in the past 5 years has hefty HOAs + mello roos in addition to regular upkeep)? Plus a lot of stuff is so far out in the sticks it’ll be hard (Hemet? Menifee?) to find renters.
They will not stop buying until they finally grasp the implications of the subprime lending implosion that is currently underway. At that point, “real estate always goes up, in the long run” will be reinterpreted with a better grasp of how long the run can be.
In the long run, we are all dead
–J M Keynes–
Topic : “When you eventually buy, would you or should you use a Realtor? What are the pros and cons? Have you ever worked with any very good or very bad Realtors? Are you a Housing Bear Realtor?”
For anyone with a work sponsored 401(k) now is a good time to start sending them letters asking them to avoid risky mortgage backed securities. It’s in the news and you can mention to them that you’re keeping a record of your correspondence (copy your state Atty general as well).
Hopefully you can afford to lose a portion of your holdings since the funds can’t all get out whole. You may as well pressure your fund to get out near the front of the line.
Topic: “Why I read the housing bubble blog so much. What does it mean to me and my sanity. What others have told me about the THBB when I refer them to it. How it may have saved me from making a costly mistake.”
Can we talk about the poor quality of new construction again? Will it get worse (if this is possible) as builders race to the bottom? Here’s a great thread about a HVAC install on a brand new house in Texas, be sure to check out the pics: Linky
Long time lurker, first time poster….
JSTAB’s questions has been much on my mind of late. Luckily, my spouse and I sold our San Diego condo near the top of the market, making a nice profit. It was out first “home.” Currently we are renting. Soon, (exactly how soon to be determined by the results of the spring market) we will be looking to buy. My question is this. With the rapid rise of McMansions and other housing projects, would it be wiser, in terms of the actual physical quality of the structure, to buy an older, non tract home, or one of the newer ones? Also, what is the general feeling about future (10 + years) resale of said homes? Will the new houses in these major developments hold their value over time, or would a 1970’s non tract ranch house be a better value?
It would be wiser to sit on your hot green hands until 2010 or so, unless the paint dries much more quickly than it has been until recently.
From Dean Baker:
“I must not understand something about journalism. I thought reporters are supposed to seek out the views of neutral commentators on important issues, not just those who have a clear stake in pushing a particular line.
Apparently that’s not the case. In an article reporting on the largest plunge in annual home sales in 17 years, the only expert cited is David Lereah, the chief economist for the National Association of Realtors, and the author of the 2005 bestseller Why the Real Estate Boom Will Not Bust and How You Can Profit From It.”
Well said.
http://www.prospect.org/deanbaker/2007/01/will_the_real_estate_market_cr.html
Has Ben turned his attention yet to the burgeoning foreclosure biz? How are former go-go-’00-’05 scammers going to make hay and fleece the greedy in a DOWN market?
Just reading some of the commentary on some of those foreclosure.com genre websites creep me out. Yah, there’s never been a better time to acquire a distressed property, and I’ll just kick myself if I don’t act RIGHT NOW!!!
A suggested topic: the public’s perception of real estate agents. Seriously.
http://www.nytimes.com/2007/01/28/realestate/28cover.html
“A Harris poll conducted last year that ranked occupations in terms of prestige placed real estate brokers at the very bottom of a list of 23 professions. (Firefighters and doctors were at the top.)
Brokers themselves seem well aware that their business isn’t always held in very high regard. The National Association of Realtors has an advertising campaign called “Someone You Can Trust,” which stresses that Realtors are subject to mandatory ethics training. “Not many professionals can claim that on their résumé,” the ads read.”
I just figured out a new way to use limited information to estimate the median SD wishing price. I am estimating that it fell by about $1300 since yesterday (that would project to roughly a $39,000/mo rate of drop). This may be unrepresentively large — I will have to wait until at least after the Souper Bowl to have a better sense of how the data varies over time — but the estimated one-day decline is worth over half my rent (and the home we rent is worth right near the median).
Topic: There’s more to the 2.5x income ratio than just true affordability.
Talbot’s excellent 2003 book on the housing bubble discussed how it’s important for total debt (as opposed to debt service) not to exceed certain levels. Specifically, high leverage magnifies losses beyond the ability of the borrower’s income to recover should the borrower be forced to sell.