Bits Bucket And Craigslist Finds For February 23, 2007
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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The CEO of Masco was on Squawk Box this morning. He was talking about the earnings for Lowe’s. Both Lowe’s and Home Depot have reported a decline in same store sales. In retail that’s bad. He believes the housing mess will take down the economy.
He made the point that people are neither buying homes or remodeling now. The reason is simple. They pulled out all the equity and spent it already. They have nothing left. But he did say once the industry works off the excess inventory in a year or two it will be back to normal.
Does this not wreak of what we were hearing in housing a year ago. They are walking this thing down in stages. “There is no bubble.” “If there is a bubble, it’s only local.” “There might be a national bubble but prices will level off, not go down.” “Prices will go down a little but stop.” Oops!
The next step on the overall economy analysis is, “by the time the excess inventory is worked off the economy will resemble a flaming pile of dog doodie.” Sure as $hit, that’s what they will be forced to say.
p.s. How’s the H&R Block lending area doing? Bwahahahahaha.
–
“Home modernization,” as Greenspan called home improvements, in LA Area was bigger boost to the local economy than the new construction based on the conversations with people who work in that industry. As prices drop that will be back to “normal,” i.e., down some 80% from the levels in 2006.
Jas
(He made the point that people are neither buying homes or remodeling now. The reason is simple. They pulled out all the equity and spent it already.)
It’s different this time. In the past downturns, established homeowners who couldn’t move up to fancier houses remodeled their existing houses instead.
The good news? The remodeling boom did lead to a lot of reinvestment in older housing stock, revitalizing older neighborhoods. That offends me less than all the farmland paved over for excess McMansions, and all the renters evicted from affordable apartments being converted to “luxury condos.” Too bad if it does not continue.
Shouldn’t be a problem for a while - says
http://www.census.gov/hhes/www/housing/hvs/qtr406/q406tab1.html
(last 4 columns)
Minus 80% is realistic. That’s what scary when you think how real estate values are soo strongly related to consumption and economic activity. It means nothing else than a depression.
“They are walking this thing down in stages.”
Does your crystal ball provide any hints about how many more stages there are to go before the Fed is making open announcements about ‘providing liquidity to the markets?’
I threw my crystal ball at the TV set on Tuesday night when I accidentally flipped to channel 15 and saw Cramer’s bulbous melon.
normal is good
1990’s when home prices were flat or down we had a huge productivity boom because money went into new technologies instead of paying for non-performing assets
But he did say once the industry works off the excess inventory in a year or two it will be back to normal.
Normal. Normal does not mean the garbage we’ve seen the past three to four years.
–
“Normal” in LA Areas would be down 80% from the 2006 levels, as I have indicated above. You can say that there was a home modernization craze in LA Area during 2004-2006. I will talk to people in the business during summer to find out how things are going in 2007.
Jas
All economies are created normal.
Some are more normal than others.
An interesting overview from Roubini:
http://www.rgemonitor.com/blog/roubini/179416/
QUOTE
What can we make out of the latest housing and mortgage market news and analyses? What are the risks of a hard landing of the economy? Here is is a list of recent news and their implications for housing, mortgages and the economy.
Over 22 subprime lenders closing shop in the last two months; subprime meltdown and carnage getting worse by the day
Other subprime lenders losing money and/or being on the selling block
Default and foreclosure rates soaring in mortgages. 20% of subprime mortgages expected to end in foreclosure
Cost of insuring against subprime defaults - ABX BBB- index - soaring: 1000bps above LIBOR
Homebuilders having massive losses, lower revenues and sales. Their stock prices beaten down again
Vacancy rates in housing at unprecedented highs; overhang of unsold new and old homes is massive
Housing starts plunging 14% last month; building permits falling further
Home completions starting to fall as they lag starts by 6-9 months
Job losses in housing increasing as completions and starts head south. 600k job losses in housing alone expected in 2007
Various indeces of home prices showing sharp slowdown or outright fall …….
A few mainstream analysts starting to worry about the subprime credit crunch spilling over to prime mortgages, consumer credit and risking to cause a hard landing of the economy, if not an outright recession.
Housing recession, auto recession, manufacturing recession, real investment recession already present in the US economy. Risk that the consumer will falter next taking the whole economy into a hard landing
Risk of vicious cycle where the credit crunch weakens the real economy and the weaker real economy makes banking problems and the credit crunch worse.
The Iowa Attorney General has issued the following news release:
Attorney General Tom Miller unveiled a package of legislative proposals aimed at predatory mortgage lending. He said the worst abuses tend to occur with “sub-prime” lenders, who provide mortgages to borrowers who have impaired credit, limited income, or other situations that prevent them from obtaining loans in the prime market.
http://brokerwatchdog.com/
Too little, too late, but it won’t help the subrpime implosion.
Does anyone else interpret the rhetoric to read a movement towards “credit challenged” as a protected class? We continue to move away from personal responsibility in every other aspect of life….why not with credit?
Dishonest lenders should be dealt with…..absolutely, but more and more FB’s are blaming everyone else for their own decisions.
Yea - but in Texas - often times, these mortgage brokers will pull in immigrants whom are functionally illiterate. They tell them “sure we can get you into a house no problem on 103% financing.” These people are never told about prepayment penalties, a variable interest rate, etc…. There is a basic duty of the lender to assure that the borrower is capable of making the payments and understands the rules of the game. Instead these people operate like used car salesman - get them into the office, sign the paperwork, and get them off the lot. Who cares if the car breaks down 3 blocks away - by that time, it’s the banks problem NOT the salesman’s.
“immigrants whom are functionally illiterate”
Seems like they should get literate BEFORE considering buying a house; but I agree these slimy agents should be dealt with.
Ditto this for Socal. These people actually believe that the streets are paved with gold before they get here, so when someone hands them the American dream on a platter they go for it.
Functionally illiterate and financially nieve.
The State of Iowa cut off funding for loan programs to the poor and some developers recently. The cities are crying as are the FB sellers. Without the State, “gift” I think perhaps sales under $100,000 have slowed considerably, the bottom of the pyramid is broken. Perhaps the subprime lenders have already squeezed all the potential buyers out of the area. The TV airwaves used to be full of commercials for no money down loans, the commercials seem to be gone now. There are still low rates advertised by the lenders, but no more no money down commercials. Just like in Chicago?
Got a call yesterday from a friend who is a mortgage banker and one with some scrupples. He stated that I needed to change the lender on an appraisal report he submitted to Coast Bank. Yes the infamous Coast Bank has ceased operations.
Regulators are all over them.
———————-
Yes the infamous Coast Bank has ceased operations.
———————-
That’s big news - got a link for that?
I don’ think it is public yet.
AWESOME! Kiss the Florida housing bubble bye-bye!
Oooooooooh, now the fun REAAAALLY STARTS!
“Regulators are all over them.”
LOL. What took them so long?
People on the blog thought the regulators would take it over on the 3 day weekend. Maybe that just shows how much cr@p there is to dig through.
“Scrupples.” LOL. Is this kind of like that pork crap from Philadelphia (you know, all the pig unfit for hot dogs) that my mom used to fry up for breakfast?
Kudlow’s interview of Bob Toll was the funniest thing I’d ever seen.
Kudlow : Calamity Jane, blah, blah
Toll : New York City strong. Me not subprime.
Kudlow : Florida, California, inventory, goldilocks.
Toll : Daisy chain, right sizing, we make 800 million 2 years ago and 240 million this year. Big money
Kudlow. Greatest story never told! Let’s check with panel. Calamity Jane?
Panelist one : No
Panelist two : incoherent rambling
Panelist three : No way
Panelist four : No
your summary is pretty funny too!
“daisy chain” - what’s that about?
ROFLMAO! Great synopsis, Andy!
However, I’d say Kudlow was the most bearish I’ve seen him in a long time. He kept trying to press Toll about the subprime market & if it would affect him. When Toll tried to divert by talking about strength in NY market, Kudlow asked about CA & FL (BT thinks CA is going to remain strong & FL will sink).
BT mentioned the “daisy chain”, meaning the subprime mkt. He inferred that if the implosion leaked into the prime mkt…all hell would break loose (my interpretation). The daisy chain was basically a “domino” reference.
Oh, and Kudlow (& some panelists) said there was not a crisis that “pricing couldn’t fix.”
How about that!
me think funny
me lagh hard
Off-camera talk…
Kudlow: Toll, you no playing ostrich, right?
Toll: Me, hells no. Bubblehead hole-pluggers.
Kudlow: Subprime meltdown? AAAAH!
Toll: Fundamentals, fundamentals.
Panelist one: I need changing. Topic boring.
Kudlow: Anna Nicole?
Panelist two: Bahamas! Howard K. Stern! I know his whole name!
Kudlow: Florida impact, Toll?
Toll: No news is bad news.
Panelist three: Need a break. Panties bunching up.
Firing More Silver Bullets at the Vampire:
http://wallstreetexaminer.com/blogs/winter/?p=456
‘“The weather does not appear to be the driver.” The analyst said he expects builders will have to cut prices further before there is a meaningful increase in demand.’
That demand will never be at the same level as in the bubble years, even if they lower prices significantly. The reason is that during the bubble many wanted a house because the prices were increasing, cutting prices will create the opposite premise, and many will be scared off no matter what the prices are.
In terms of demand per population I think you’re right - this may be a once every 100 years (or more) occurrence. Dare I say demand has *never* been this high in the U.S.; even in 1926 it was localized to Florida.
Long-term eventually the demand, in terms of sheer numbers, will eventually be back up to bubble levels - however that may only be after the U.S. population has increased two to three-fold - in say another 30-50 years.
P.S. This “analyst” obviously doesn’t know econ 101. Decreasing prices do not cause demand to increase. The demand is the same regardless of the price*. It’s the *sales* that go up when the price goes down, not the demand.
* Caveated to previous comment - the bubble created temporary extra artificial demand based on speculation - that portion of the demand is now gone, and will be for decades - we’re now back to pure housing demand - i.e. the need to actually live in what you buy.
People are especially wary of leveraging a falling asset. That’s why RE downturns take so long to unwind, because price discovery through transactions slows down to a trickle.
“P.S. This “analyst” obviously doesn’t know econ 101. Decreasing prices do not cause demand to increase. The demand is the same regardless of the price*. It’s the *sales* that go up when the price goes down, not the demand.
* Caveated to previous comment - the bubble created temporary extra artificial demand based on speculation - that portion of the demand is now gone, and will be for decades - we’re now back to pure housing demand - i.e. the need to actually live in what you buy. ”
Very good point. Prices only affect quantity demanded, not demand.
“One of the prevailing myths out there is that 2006 vintage subprimes are the ones blowing up because lending standards for those were much looser.”
Exactly Russ, as you’ve stated, 2005 vintage loans had basically equivalent lending standards…it’s just that housing prices were still going up enough to cover the naked swimmers. Now that the tide is receding, we’ll see how badly the 2005 swimmers will get sunburned…
Looks like we’ll have another good down day in lenders and builders. I don’t see this short run ending real soon.
For all of you who wonder how to make money on the downside of this bubble: Go short overextended builders and lenders.
Sorry, but you are late to the party. The easy money has already been made. You might want to consider a disclaimer on your investment advice..
jb
Disclaimer, I’ve only made 4K on my FMT short these last three days, so be careful everybody.
The only thing that can stop this meltdown is emergency action by th gov. or fed.
The other risk is that the financial media may be overly bearish on housing and lending….HA.
Additionally, I’ve been at this party for a couple years now, and it’s just starting to get good.
It’ll be over when nobody on the street can understand why someone would own a builder or lender.
I’m more interested in tech shorts and money center banks/REITS. But not yet (except for the REITS)
I agree on the money center banks.
I agree that there are attractive opportunities in shorting builders and lenders. There are still subprime lenders priced right for short selling, IMHO. Take a look at LEND and FED.
FED and DSL — both California-heavy — are my big shorts. Look like they just got discovered today.
maybe a double post.
pimco hits the home run again.
“hall of fame” a new era / pimco
a msut read. best summary so far why almost all asset markets are at highs.
plus some japan, reits and healtch care / inflation numbers
http://immobilienblasen.blogspot.com/
countrywide broke the magic 40$!
–
“Lowes: The Housing Trend Has Bottomed.”
This was reported on CNBC. How the hell do they know that it has bottomed? Perenial liars are in control of the economy and corporations. That is the real problem.
That’s not a lie, it’s an “asperational statement.” ; -)
they are forward looking which can turn out in the exact opposite way
Financial networks have gone from ignoring subprime implosion and housing decline to denying them. Next up; the blame game. The truth is out there, and gaining traction.
“How the hell do they know that it has bottomed?”
The nice thing about claiming the market is bottoming OR has bottomed is that everytime it goes lower the statement is correct.
How it all plays out across the entire economy….
“An inverted yield curve almost always points to a deep business slowdown. The Fed publicly claims there’s a 40% chance of a recession. However, a model of the Federal Reserve Bank of New York is essentially forecasting an outright recession.
Double-digit corporate earnings growth will be a thing of the past. Companies should consider themselves fortunate to experience single-digit growth.
The housing industry remains on the verge of a massive collapse. In our estimation, this real estate debacle is only in the top half of the second inning of a nine-inning ballgame.”
http://tinyurl.com/yuxcq3
Problem is, with builders and lenders pitching and fielding like they are now, some of these innings could be VERY LONG. What’s the record for most times through the batting order in a single inning?
23, set on June 18, 1953, when the Boston Red Sox scored a record 17 runs in the seventh inning of a 23-3 rout of the Detroit Tigers at Fenway Park.
??? Let’s see 17 runs plus 3 outs plus at most 3 on base - oh 23 HITTERS. That makes sense. I was thinking 23 times through the order. So 23 hitters means 2.5 times through the order.
Still waiting for Jim’s response to see if I am correct….
Does anyone know what is going on in Springfield, IL and why their real estate market is one of the three worst in the country? I can’t imagine that they had a run up in prices like FL and AZ.
Also, can someone explain in simplistic terms what happens if the subprime market fails? Who is left holding the bag? Thank you.
The governor is sending the corruption dollars to Chicago area cronies; disposable income in Springfield has plummeted.
But… but… the Midwest has its own microeconomy and we dont need no stinkin’ macroeconomics. I dont believe there is an exporting industrial or military base in Springfield unlike most major Midwest cities. Three hundred miles East we have had 24 percent increases in home values in the past few years, has to be 30 percent to be a bubble? New job creation is when a business relying on the housing industry or the auto industry expands (using credit and tax incentives) into a new building leaving two empty buildings that stay empty… go figure.
Those wondering who will be the sucker holding the bag are the suckers.
Nobody wants to live next to Lincoln’s log cabin anymore. I wonder how much the old 1 room place is worth.
Here’s another Palo Alto gem. It must be one of those forts for kids. 890 sq ft on THREE stories. That works out to a nice even $1000/sq ft.
http://tinyurl.com/2gyoq3
Holy Moly! 1000 a sq ft for a 74 year old bungalow!
“890 sq ft on THREE stories.”
How much ot that square footage is just STAIRS?
That looks like one single story to me.
Sometimes they make mistakes in the data.
If you want to see great wailing and gnashing of teeth, go over to Investor Village, the NFI board. Retirement savings lost, tales of woe.
NY Post: “Dreams Fall on Novastar REIT Wreck”
http://tinyurl.com/38oofu
” A poster named “Bubbygator” wrote yesterday to say he had lost 40 percent of his net worth, or $335,000. Another poster, “Sealman,” said he sold out his 21,000 share position yesterday, convinced that the “income stream” for retirement was gone.
Other posters told The Post that NovaStar’s collapse would affect their ability to fund their IRAs.
While no one blamed Saunders, they did confess to being unaware of the declining subprime mortgage sector. ”
Might as well have taken the retirement money to Las Vegas and placed it on “black”. What ever happened to due dilligence before investing, especially since it’s your retirement money? This is *exactly* like the tech bubble, people throwing money around willy-nilly, on the recomendation of some guy at a party, or the shoe shine boy, or a pumper on a blog. ‘unaware of the declining subprime mortgage sector’. *Sigh*.
“Studies have shown a link between acute financial stress and physical health are clear: People who are constantly worried about financial problems experience depression, hypertension, insomnia, fatigue, ulcers, migraines, gastrointestinal upset, and weight gain.”
I guess it’s time to buy stocks in health care and weight loss products!
The Second Great Depression
http://www.informationclearinghouse.info/article17145.htm
A good read!
Thanks invest3, interesting read.
Beware that when we went into the first Great Depression, we had DEflation. It will happen again, the dollar will soar in value (domestically) and everything else, including PMs will plummet. The reason: Debt is denominated in Dollars, and must be repaid in Dollars (and not gold, silver or chickens).
I guess that’s possible but during the Great Depression the US was on the gold standard. These days the Bernanke fed can just “drop dollars out of helicopters.” I would bet on a fed policy of repaying trillions in debt with worthless paper. That isn’t to say that asset prices won’t first plummet as interest rates spike.
Please note what they’re saying about RE. This explains the sudden sruge in buying in NYC… From the WSJ:
“WEEKEND JOURNAL; The Wealth Report: ‘What, Me Save?’; Wall Streeters Put Bonuses In Homes, Art, Not Banks; Not a ‘Generous’ Group”
“…According to a survey of more than 200 Wall Street professionals who took home at least $2 million in cash from their 2006 bonuses, respondents are spending 11% of their payouts, on average, on watches and jewelry. For even the lowest-paid bankers in the survey, that’s a bling budget of more than $200,000….
“While the poll, by wealth-research firm Prince & Associates of Redding, Conn., is only a sampling of the Street, it adds to growing signs of an entirely new level of consumption there. Last year, Wall Street bonuses jumped an average of 15% to 20%, meaning that the senior bankers with the title of managing director received average pay of between $2.2 million to $3.8 million, according to the Options Group, a New York consulting firm. Overall, according to an estimate released by New York state, Wall Street will pay a record $23.9 billion this year in bonuses.
“Bankers’ spending — what they call their “burn rate” — is growing as fast as their bonuses. While the national real-estate market is suffering, multimillion-dollar homes continue to trade briskly in the Hamptons and Manhattan. Art prices keep soaring, and the Armory Show in New York this weekend is sure to bring crowds of bankers looking for the next Chuck Close or Richard Prince. Wine purveyors are drunk with delight as financial types fork over $345,000 for a case of 1945 Mouton Rothschild.
“For the survey, which will be released today, Prince & Associates worked through six large investment banks to set up interviews with top earners; about 8% of the respondents were women. Participants reported how much they had spent and how much they’d budgeted for purchases. The researchers added unearmarked funds to the savings-and- investing category.
“The Street crowd is spending the biggest share of its bonuses on homes, especially second or third ones: Some 16% of last year’s bonuses went toward purchasing residences, with another 10% going toward home improvements. Respondents say they’re spending about 12% of their money on fine art and collectibles, while 14% went toward “other” — a category that includes hobbies such as horses and flying lessons, as well as “mistresses and other lovers.”
“The average amount diverted to savings and investments, meanwhile, is 16.5%. “What surprised me is the low savings and investing rates for people who are making millions of dollars a year,” says Russ Alan Prince, president of Prince & Associates. “This says to me that Wall Street expects the good times to continue.”
“Nearly three-quarters of the Wall Streeters surveyed said they expect business in 2007 to be “excellent.” Most expect bigger bonuses for this year. Since so many of today’s top deal makers and proprietary traders are in their 30s or early 40s, they figure they have plenty of time to save and invest. And so, they say, they’d much rather spend.
“In interviews with several bankers — all of whom refused to comment on the record about their bonus allocation — most said the survey findings are broadly in line with their own spending. “I work 18-hour days, six days a week. I’m sitting on planes for 20 hours straight and I’m dealing with high-pressure decisions,” said a top banker from Morgan Stanley. “I deserve rewards.”
“On the record, these bankers say they lead relatively modest lives and give generously to charity. Jonathan Knee, a top deal maker at Evercore Partners Inc., a New York investment advisory firm, believes the Wall Streeters he knows aren’t buying watches and art to the extent that the survey suggests. “Many bankers cringe when they see their brethren engaging in stereotypical conspicuous consumption,” says Mr. Knee, author of “The Accidental Investment Banker.” “And I honestly believe this kind of spending is the exception rather than the rule.”
“Others caution that today’s free-spending Wall Streeters could be headed for a fall. “Some of this generation of bankers are in la-la land,” says Peter Solomon, chairman of investment-banking firm Peter J. Solomon Co. of New York. “This is a cyclical business. We’re in a period of easy credit and people throwing money around, and no one in investment banking should assume that next year will be better than last year.”
“The bankers spent an average of 6% of their bonuses on personal services — such as nannies, maids, tutors, cosmetic surgery and spas, according to the Prince survey. Despite media reports of bankers rushing to Ferrari dealerships, the survey showed they spent a relatively small 3% of their bonuses on luxury cars. (That’s still $149,000 each, based on the average payout.)
“Wall Streeters spent less than 2% of their bonuses on personal or family travel. Some bankers say they simply don’t have time to take long vacations. Others say that when they have time off, they’d prefer to spend it at their second homes instead of getting on another plane.
“The richest bankers are the most lavish spenders — deploying a larger proportion of their take toward homes, cars and luxury goods. Roughly half of the survey’s respondents took home bonuses of more than $5 million last year; this group spent 16% on watches and jewelry and socked away about 9%. By comparison, the other half of respondents — those who received $2 million to $5 million — spent only about 7% on baubles and put 23% into savings.
“And despite the notion that the really rich give more to charity, the rule didn’t seem to apply to the bankers in this survey. Respondents gave about 4% to charity. Those receiving bonuses of $5 million or more gave the same proportion as their poorer peers. Says Mr. Prince: “This is not an especially generous group.”
I noticed a big drop in stocks thus far today. I have always gotten the feeling that whenever stocks drop on a Friday, it is because traders are worried about what will come out over the weekend. They are more concerned will bad news trapping them in a downturn than good news causing them to miss a rally.
Pathetic, isn’t it when we think 50 dow points or 14 nasdaq is a “big drop” that’s how we’ve been conditioned. To me, a big drop is anything over 200 dow points.
Agree with you TX. Anything at 100 points or under seems like just noise in the system.
yeah, the drop is insignificant, but I do find it interesting that we have had declines 3 days in a row without any real news driving it. The “drift” on newsless days has changed lately and might be indicating an underlying position of the bears getting traction in the tug-a-war.
Subprime is getting crushed again today. I don’t think I’ve ever seen anything get walloped this hard in “real time”. Maybe I just didn’t pay close enough attention before…….
Take a look at a chart of MSTR circa early 2000 and beyond . . . lol
Were you watching the US stock market on Oct 19, 1987? (I was…)
Well, we made an offer a few weeks ago on a house in metro-west MA. 3000 sq. ft, 1 acre, 4 bedroom. Originally listed July ‘06 at $740, by October down to $680, by December $650. Tax appraised at $640. Offered at $590, they countered at $630…we settled at $620.
Could be a falling knife, but good neighborhood, solid 1982 construction, some updates. Still a little nervous, but haven’t seen anything in Metro Boston like it that was able to sell for under $650.
Probably getting somewhat hosed, but plan to be there forever and was finally worn out by the wife after holding out for 4 years. Would love to wait another year or two, but wife has a relocation package (approx. value of $30k) that lapses June 30.
So, there will be at least 1 sale in Massachusetts this quarter.
Good luck to you. Hope for her sake any depreciation stays below $30K because if it doesn’t, I’d never let her forget it.
It pencils out to just under $200/sq. ft.
All things considered, not a horrible price for a house on an acre in the Boston metro.
It’s just the caving in to her divorce threat that is a little unsettling. Now she knows how she can play you.
Bingo.
I’ve found something around here that’s very decent. $70 bucks a square foot, can you believe that? A 30 year old place, 3200 sq. ft., 1.5 acres and very nicely renovated, outside of town a bit but not much. I was thinking about buying it so I could go off this summer and not worry about where my stuff will be. Again, though, hit by the “don’t want to be trapped” bug and waffling yet again. I think I’d reject a free house at this point if it meant I was responsible for it.
I know the feeling. But, now that the death of the housing bubble is in the main stream media, and I like to somewhat go against what the active advice is, when everybody is saying wait, it sort of makes me want to go in and buy (unlike 2005 when everybody was saying Buy Now or Be Priced Out Forever).
The mainstream media is saying that we are at the bottom, and that housing will rebound now, and now is the time to buy.
Uh-oh, you renters really are afraid of commitment!
yeah - been in the market (active) since Columbus Day - things grew to a head of steam - but outside of the theatrics, it pretty much played out as anticipated
Good for her. Girl Power.
“Would love to wait another year or two, but wife has a relocation package (approx. value of $30k) that lapses June 30.”
Are house rentals in the area not an option? Just asking.
currently renting - we’re mid 30s professionals- she’s sick of not owning/missing out/blah blah - so its more of a bet do we take the $30k relo now and possibly suffer through a 10%+ loss of phantom nominal value in the near term (with odds that we won’t need to sell) vs. passing on the relo package, continue renting, buy for similar to -10% price in year or two and come up with closing costs, moving expenses, etc. (the $30k foregone relocation package) out of pocket?
We took the $30k relo now, vs. 50/50 shot that equivalent house would fall in value by $50k+ and then having to come up with additional $30k out of pocket (beyond down payment) (essentially meaning it’s a wash)
Gillsie,
I know it’s a done deal, but I’m just curious about one thing:
Did the 30k re-lo package only apply if you and wife were
to buy a house? She wouldn’t get the money if she decided she wanted to rent in new location?
right - only for buying - current place is 70 miles from her tranfer site - so she can get either the re-lo package or a commuter package - the relo was worth way more
It would be difficult to ignore that incentive.
I just checked the NCC spreadsheet. I like that one because it pretty accurately reflects what occurred in my market. Can’t speak to anyone else’s. According to their data, Boston metro was 8.3% overvalued (as of Q3 06). Your final cost is about 21% lower than what seller first asked.
So you probably didn’t do too badly. It sounds like you’re prepared to weather a depreciation. It will happen. In the meantime, your wife won’t care. And now you have leverage next time she stamps her foot and demands, well, you know - whatever. “Honey, I bought you your dream house, blah blah…So STFU now and crack me open a beer.”
Kidding.
Props to you for setting the comps lower!
thanks - do you have a link to the NCC sheet?
i expect the era of good feelings to last exactly 2 months and then when the spring comes, it’s on to Lowe’s to help revitalize their same store sales
NCC link
there’s three icons under the map. Click on: Updated dataset Q3 2006.
just so you know - I believe my metro is about 5-6% more overvalued than NCC’s figure. However, they do a good job of tracking the way the market moved. Also, the numbers on the downside are ugly, so be prepared.
No, I meant renting a house at the relo area. Get the package AND rent in the new area.
We’re late 30’s ‘professionals’, and we’ve both owned and rented; we are currently renting the house we are living in, and we still own two rental properties. Tell your wife that she will still be invented to dinner parties even though she is “just a renter”. Take the monthly savings of renting vs. paying a mortgage/insurance/taxes/gardening and save or invest it.
Just a suggestion.
no - package only applies to purchase
we’re currently on south shore of MA - I work in Cambridge - her job is moving from Boston to Southern NH - Relo stipulates need to move within 50 miles of tranfer site (we’re 70 miles from it now)
My main goal was to be within an hour commute of Cambridge (currently, during Rush hour, it’s an hour from our place off Rt 3 to Cambridge)
“no - package only applies to purchase”
Oh well, take the money (relo package) and run then. At least you are getting a discount now, eh?
I hope it works…giving it is for living, congrats. Just be prepared for the worst…it’s a $400K-$450K house in 2010. May not get that bad…but it’s certainly possible.
I’m finding this conversation very puzzling. This guy sounds way worse off than Diane the other day and people were all over her about her “stupid purchase”.
These 650K homes are the ones that scare me the most. In Seattle anyway, all those 650- 1million $ homes were under 200K 10 years ago. Seriously, that price range is my top candidate for 50% off (at least!) in a few short years.
I can’t imagine jumping on that just to “save” 30K.
At the very least, I’d check the county records and find out what they were selling for pre- bubble before I jumped in.
Is it because he’s buying outside of Boston that people are thinking it’ll hold value? If so, that seems like a strech. I mean, Boston’s nice but not really “special” in a “RE never goes down” sort of way.
Gillsie,
What does Zillow show as the value of this house in 2000?
Read today’s column by Jim Jubak (MSN):
Debt-market Bomb Could Hurt Us All:
http://tinyurl.com/yp2mqs
“The homeowner with insurance, as a result, has less financial motivation to avoid the risk of floods or hurricanes.”
However, if the risk premiums are significant enough (and proportionate to the risks and possible losses), they would deter people from building in risky areas.
The same goes for other forms of “insurance” (like using houses as collateral for a loan, and Credit Default Swaps on MBSs). If the insurance is essentially free, perhaps because PERCIEVED risk is low and there is an excess of liquidity competing to sell the insurance, then all bets are off.
And that’s how we got to where we are now.
Agreed. There’s a happy medium here. Unfortunately in recent years coastal properties have been getting a subsidy … and when the private insurers won’t provide it, the government has been happy to step in.
Help with young newleyweds wanting to buy in Nashville please…
I’m no expert on explaining the housing situation right now, but how would y’all explain to these youngin’s to wait a little while before jumping in the Nashville market.. they are just starting out and not making a lot of money. Any thoughts appreciated. Thanks!
Just give them a link to this site as a wedding present. If they take the effort to read it at least for one week, they will be gratefull for the rest of their marriage.
I’m so done trying to talk people out of it. I just shake my head and say, “Yeah - good luck with that.”
(Sorry if the double-posts. Tried it once, but it didn’t seem to come up.)
Read today’s column by Jim Jubak (MSN):
Debt-market Bomb Could Hurt Us All
http://tinyurl.com/yp2mqs
KB Home said in criminal probe over options
BOSTON (MarketWatch) — KB Home is under criminal investigation by the U.S. Attorney’s Office in Los Angeles over so-called options backdating that triggered the resignation of the home builder’s longtime chief executive, Bloomberg reported Friday, citing people familiar with the matter.
Why do ya think Senor Toll is backpedaling so furiously? He wants to keep all that money he made selling stock.
Karatz is F’d. He was pumping all last year and selling at the same time.
Yeah, not unlike Mr. Tool, err I mean Toll, “Shorts will get crushed” all the while unloading.
While I didn’t get crushed, let me use a bit of Realtor speak and call it a mild compression. LOL!
Here is some local news from Santa Barbara. I’ll post the full article since it is still subscription only.
Check out Liareah’s comments. Is he starting to see the light? Even he says we’re in a “real estate recession” caused by flippers and speculators!
And Mark Schniep, who used to be a fairly credible economist, is now basically a schill who knows where his bread is buttered. He thinks we’ll bottom out this year. Now, it truly “is different” in Santa Barbara (we’ve always been more expensive, and deservedly so IMHO), but how different?
“Home prices may fall again
MARIA ZATE, NEWS-PRESS BUSINESS WRITER
February 23, 2007 12:00 AM
Home prices on the South Coast will fall slightly again this year, following a drop in 2006 that marked the first time in a decade that the median turned downward.
The median price is expected to decline by another 1 percent in the year ahead — to about $1.185 million — but it will take another three years for it to surpass the recent peak of $1.25 million, according to the California Economic Forecast.
Housing experts presented their projections for 2007 at a gathering Thursday hosted by the Santa Barbara Association of Realtors. More than 350 people attended the event at Fess Parker’s Doubletree Resort.
From 1995-2005, South Coast homeowners enjoyed steep increases in the value of their properties, with the rise in prices resembling the incline of an advanced ski slope.
The median hit a record $1.25 million in 2005. In 2006, it finally fell for the first time, but it shed only 4 percent of its value — a mere bunny slope of a slide compared to the huge jumps of prior years.
Median price is the point where half the homes on the market sell for more and half sell for less. It represents the mix of all homes sold during a specific time period and not appreciation rates on individual properties.
Price declines should hit bottom this year, said Mark Schniepp, director of the California Economic Forecast and main speaker at the event.
Those who purchased homes in the last two years, however, will likely not see much in the way of gains until 2010, the California Economic Forecast predicted.
Between 2005 and 2007, the median is expected to decline more than 5 percent, the economic group said. Adjusted for inflation, the drop could be as much as 12 percent.
“There has been no major price collapse,” Mr. Schniepp said, “but we had a much larger correction than we all predicted.”
While total home sales fell significantly over the past two years, transactions are expected to bounce back this year, he added. Sales are expected to keep increasing through 2011.
Single-family homes and condo sales on the South Coast combined took a dive in 2006, hitting the lowest level in more than two decades, Mr. Schniepp said.
But compared to the rest of California and the nation, the South Coast sales slump appears mild, said David Lereah, chief economist of the National Association of Realtors, who also spoke at the conference.
“Santa Barbara’s road is less bumpy than Los Angeles and a lot less than San Diego,” he told the audience. “You’re in pretty good shape.”
Mr. Lereah said that the nation’s home buyers “strayed from the fundamentals,” and that has led to a “recession in real estate right now.”
Exuberant investors flocked to places like Las Vegas, Phoenix, Fort Lauderdale and Miami, scooping up as much property as they could get their hands on, he added.
“These were flippers and speculators. In 2005, 40 percent of all home sales were to investors and second-home buyers,” he explained. “Everyone got carried away.”
On the South Coast, investment purchases have already been curtailed by one-third of what they were a year ago, the California Economic Forecast reported.
“We needed to learn our limit. And today we are faced with the remnants of our limits,” Mr. Lereah said about speculative buying.
Despite the rough patch, he expressed optimism for the home market in the years ahead.
Baby boomers are in their peak earning years and will still buy homes, as will the boomers’ kids. And immigrants coming to the United States in record numbers, along with retirees living longer, also will add to demand for homes, Mr. Lereah said.
Demand for property in the wealthy Montecito area remains strong, even though the rest of the South Coast has gone into a pause, according to Dan Encell of Prudential Fine Homes.
Montecito was the only area on the South Coast that had positive price gains last year, and the market for homes priced at $5 million and up is expected to stay hot, said Mr. Encell, who also spoke at the conference.
The brisk sales of multimillion-dollar homes in Montecito, as well as its counterpart, Hope Ranch, have served to buoy overall property values on the South Coast, said Mr. Schniepp.
When Montecito and Hope Ranch sales are taken out of the total, he said, the median price on the South Coast is just around $1.04 million, instead of close to $1.2 million.
e-mail: mzate@newspress.com
Is Oxnard considered part of the South Coast? We call it North Coast down here
High-rise projects soar in Oxnard
http://tinyurl.com/33hh7p
“But compared to the rest of California and the nation, the South Coast sales slump appears mild, said David Lereah, chief economist of the National Association of Realtors, who also spoke at the conference.”
“But compared to the rest of California and the nation, the South Coast sales slump appears mild, said David Lereah, chief economist of the National Association of Realtors, who also spoke at the conference.”
“Santa Barbara’s road is less bumpy than Los Angeles and a lot less than San Diego,” he told the audience. “You’re in pretty good shape.”
Gets out the Data Quck numbers for Feb 2007…flip flip flip…hmmmm!
http://www.dqnews.com/ZIPLAT.shtm
LA County Median price (yoy) increase: 5.8%
San Diego County Median price (yoy) increase: -3.6%
Santa Barbara County (yoy) increase: -22.8%
Is that “appears mild”, and “pretty good shape”, David L?
Again, newspaper reporters (MARIA ZATE), how about calling these shills on some of these statements?
Funny/telling anecdote from SB:
Got a wrong number from a mortgage broker returning a call about a refi in downtown SB (I rent near Goleta).
Told him I was a renter, and prices would have to drop by half here before I even thought about buying.
His jolly tone turned grim, and he confided:
“you know, they may just do that…”
Sounds like a man who knows what he’s talking about.
Inventory update: The areas in Cali that I’m watching are still showing a “two steps forward, one step back pattern.” No flood of inventory, but steady increases (and no flood of buyers).
Also, the sellers are made up mostly of “we REALLY want to /have to sell” people, unlike the “fishing expidition” listings of last year (ie “we will take a magical price, otherwise we are staying here”).
Stay tuned…
I’m seeing much of that also…gotta find that “motivated” seller…or else you’re wasting your time…
Does gold get priced into the CPI? ‘Cause it is getting awfully near to $700/oz…
http://www.marketwatch.com/quotes/?sid=2011166
With overpriced real estate and overpriced stocks, I cannot think of anything but precious metals as the place where smart money will go for those who want above 10% ARR. Maybe also oil trust stocks earning 14% yields too. For your emergency fund, smart money would be in T-bills and savings bonds. I predicted a few months ago that we’d see federal fund rates at the end of ‘07 at 7.5%. Now I’m not so sure they will go anywhere the next 12 months. that would only make gold and silver continue 10%+ annual gains.
It’s not gold going up, gold is a constant, a “thing”.
It’s the Fed debasing the dollar by printing up or magically creating 10-11% more dollars every year. Year after year after year.
Price rise probably due to Iran. I wouldn’t be surprised to learn they are loading up on gold in case of a US attack.
Cracks beginning to show in Santa Clara, North California.
I get a weekly email of for-sales in the area. it’s different here, Silicon Valley has great job growth that supports these high prices. Not.
Try again.
missing text, grr.
less than 1000 square foot. Wishing price $570,000.
Last sold Jan 2005 for $545,000
New Bathroom, carpets and paint.
Taxes not paid since June 2006.
Holding costs for 2yrs, back taxes, sellers fees, renovations = flipper under water.
Need popcorn.
A fascinating link to words of wisdom from James Grant:
http://www.lewrockwell.com/orig8/grant1.html