Inventory And Must-Sell Inventory
Readers suggested inventory as a topic. “How about inventories? I have been expecting them to grow, but in Baltimore, inventories are flat or falling in many areas. Not falling by much, but not growing either. Are sellers a bit gun-shy and are going to hold off as long as they can, or are they just holding out until April and May?”
“It’s taking well over 75 days to sell a home in many areas here (on average), so listing now will sell half the homes by the middle of May. Do sellers realize this, and understand it will be even longer if they’re not reasonable on their price?”
“Inventory is MUCH higher now then this time last year (14800 vs 10600, +~40% higher), but is considerably down from it’s Sept 06 peak of almost 18,000. I suppose it’s unrealistic to see the rate of inventory growth we saw last year repeat, but I’m still anticipating surpassing the Sept peak. Of course, I check my zip codes this afternoon and there’s been a nice bump in listings.”
Another added, “I’m seeing invetories surprisingly flat here too, in Loudoun Co. It *might* be due to the two recent big winter storms though (not being facecious actually). Now that we’re finally getting into more spring-like weather we’ll see what happens.”
“Inventory’s still a little higher than last year at this time, just that it’s starting it’s spring rise a little later than the last couple of years.”
One from the northwest. “Inventories haven’t budged here in Portland Or. or in Boise. I track both on a daily basis and it has been basically flat to slightly down over the last month.”
One looked at the situation of the sellers, “Look at the alternative channels of distribution — Classifieds, FSBOs, Auction Houses, REO departments, and so on. If under water serfs cannot sell to pay off their mortgage and the realtor commission, they are going to try selling on their own for break-even OR give the home back to the lender OR continue serfing.”
One agreed, “Inventory itself is not so significant as must-sell inventory or, at least, really-want-to-sell inventory, consisting of foreclosures, empty houses etc. Both foreclosures and the vacancy rate of houses for sale have increased a lot since last year. On the other hand, some of the inventory last year might have been supplied by sellers who wanted to cash out on the top of the market or simply test the market. We might see less of those this year.”
The Rocky Mountain News. “Mortgage broker Jim Spray said it is easy to tally how many bad loans are in the Denver area. ‘Just look at the 19,000 foreclosures,’ he said.”
“On Wednesday, Spray counseled a woman who was about to lose her home because of an ARM that she could no longer afford. ‘I did something I have never done in 30 years in the business,’ Spray said. ‘I put her on the phone with her minister so they could pray.’”
“Ed Jalowsky, a real estate broker who specializes in selling distressed properties, said that 90 percent of these deals had ARMs, many of which are adjusting upward by thousands of dollars.”
“‘It’s too easy to get into these ARMs. They get you in with these low rates, but in a year or two, you can’t afford them,’ said Jalowsky.”
“Real estate broker Carolyn Sandberg specializes in ’short’ sales for lenders, in which the lender takes less than the mortgage amount in exchange for the house. When homeowners miss payments, some lenders don’t hesitate to play hardball with them, she said.”
“Sara Hays, a broker associate in Greenwood Village, works with Sandberg on short sales. ‘Every single short sale we have done has been with someone with a bad ARM,’ Hays said.”
“She said the problem is that when the lender explains that the monthly payment will be low for only two years, buyers aren’t listening. ‘All they are hearing is that their monthly payment will be $740,’ Hays said. ‘Two years comes around fast.’”
“Hays believes that buyers should only be using about 30 percent of their gross income on their mortgage. Often, buyers meet that ratio when they get the ARM with teaser rates, but the lender doesn’t explain to them that they will be much more financially strapped when the payments rise, she said. ‘And some people shouldn’t be homeowners,’ Hays said.”
“People who buy homes with little or no down payment are at the greatest risk of losing their homes, said Lou Barnes, co-owner of Boulder West Financial Services. If home prices had been rising, the loan type would have far less impact, he said.”
“‘We have had flat to declining prices in the foreclosure belt north and east of Denver,’ Barnes said. ‘Prices today are basically where they were at Christmas 2000.”
“Barnes said other formerly hot real estate markets such as California, Nevada and Florida could be facing the same kind of foreclosure crisis as the Denver area. But it won’t happen overnight, he said.”
“‘One of the best lessons of Colorado for the rest of the country is that our real estate market went flat in 2001, but we did not really start to see the rise in foreclosures until 2003,’ Barnes said. ‘Since 2003, foreclosures have been compounding 30 percent or 40 percent each year.’”
‘The last owners couldn’t afford to keep them. The banks don’t want them. So on Monday, everyone else will get a crack at buying 11 foreclosed homes in Greater Cincinnati, auction-style.’
This was just posted on another thread, about Phoenix:
‘In spite of the fact that, according to some analysts, we haven’t seen most of the interest-only ARMs kick into their higher payments, yet, we’re already seeing an alarming uptick in notices of foreclosure (an indicator of people who’ve already been in serious financial difficulty for at least 5-6 months). February saw a total of 1577 trustee sale notices filed. That’s off a bit from January’s 1623, but when you consider that January had 21 business days for recording documents, against only 19 for February, there really was no slow down at all.’
‘February 2007 had the highest average daily recordings (83/day) of all months for which I have data. It beat out January of ‘03 by 0.24 recordings/day. If the trend continues then this month should see over 1900!’
That’s easy, just Drama Price them!
A sub-discussion to this thread might be the crossing point at which monthly foreclosures are equal to monthly sales. Here in Colorado Springs, there were 669 sales in February, and 265 foreclosures. The sales figure is down about 11% YOY, while the foreclosure rate is up about 30%. Not sure what the cancelation rate is on the signed sales contracts, but we’ll leave that aside for now. At the point where the monthly foreclosures surpass the monthly sales - I predict September 2007 - I’m going to be on the prowl for potential buying opportunities.
Sammy, please keep us informed about Co Springs area. What kind of #s for taxes and insurance there?
http://andy.springssearch.com/browse/IDX1_ViewRecord.asp
Taxes and insurance are both relatively low here.
Colorado Springs is my top choice as a retirement place… decent schools and community, incredible beauty, perfect weather and reasonably priced.
Repeat #105,133…and counting.
100% loan programs were THE PRIMARY enabler of escalating artificial housing appreciation. Every transaction our office closed, every one (and counting), the purchase price was increased to offset the seller paid closing costs for the borrower. Never mind the I/O 2/28 loans and countless pre-payment penalties attached to these 100% borrowers. And to think of all the happy borrowers with this financing who just beat out 4 other offers, AND increase the house price again because of the financing program.
Sorry for the repeat. How can anyone be surprised at the failure of the sub-prime market and the fallout for the real estate market in general.
” artificial housing appreciation”
= equals ‘Artifical Demand.’
When history reviews this housing boom, I feel that the descriptions above will best summarize the debacle. Most folks were totally unqualified financially to be home owners
Most folks were unqualified for home loans….. but “not” their mortgage agent/real estate agent. They were “qualified” to look the other way to get their commissions/fees. Come on now. What’s most important here? You figure it out.Maybe the answer will come a little faster than what most thought.
I just got an email from Forbes trying to sell me on REITs, MBS’s and other way to get rich in real estate. No joke. This the morning after NEW and FMT implode and a week of lenders going in the toilet. It will be 2010 before the surviving REIC members find a bottom.
It came from newsletters@forbes.com
I just got one from Forbes, too, but this one is much more realistic:
——————-
Is A Recession Dead Ahead?
James B. Stack, InvesTech Research
WHITEFISH, MONT. - We wish it wasn’t so, and we wish we didn’t have to say it. But today’s economy is on a collision course with a recession…In the current climate, with the housing bubble unwinding now underway, we believe the landing gear has already fallen off.
———————
There are several independent analysts on the Forbes newsletter platform–some of them are worth reading.
Forget Forbes when you can have Donald Trump reveal to you the 5 mega trends in Real Estate that can make you Rich!
Come one — come all to the Learning Annex Real Estate & Wealth Expo. Rest assured it will be coming to a big city near you. Right now its in LA.
The Donald will explain how investing in the major mega-trends can make you a fortune.
Mega Trend #1 - Residential Real Estate will come back strong - hmmm - I mean ha ha ha ha ha…
Mega Trend #2 - Commercial Real Estate is booming (and financing is easy). Now isn’t easy financing the root of our current problem in residential real estate?
Mega Trend #3 - The Boom in Baby Boomer Real Estate - won’t we all be selling our houses about the same time to fund the retirement that hasn’t been saved for????
Mega Trend #4 - The Vast Migration to the Far Suburbs called the exurbs. Donald Trump believes that this migration is causing RE to double every five years. The reality is those houses in the exurbs will tank the farthest, the fastest and may never ever recover. Think Moreno Valley.
Mega Trend #5 - Immigrant Home Buying is Exploding with No End in Sight. The majority of immigrants I see around LA are on survival mode — not looking for a $600,000+ home.
Now doesn’t that make you want to race out and get a ticket???
Ben Aloia and his sons Ben, 14, and Nick, 8, live in a Green Mountain home that Aloia refinanced with an adjustable rate mortgage. Aloia said last year he had to scramble to raise $6,800 to avoid foreclosure.
Ben Aloia, 53, a Denver policeman for the past 25 years, is a self-described pack rat. Aloia, a divorced father, got an adjustable rate mortgage with his eyes wide open. He knew it had a hefty pre-payment penalty of as much as $25,000 for the first three years, but he wasn’t worried.
That’s all changed now that his loan has jumped to 13.5 percent, more than twice the cost of a market-rate loan. He narrowly avoided foreclosure last year.
Aloia still had to scramble to raise $6,800 to pay the additional charges and keep his house. But to do that, he had to postpone paying other bills. He’s approached about a dozen lenders, but none will refinance his loan because of his credit problems with HomEq.
His monthly payment has risen to about $3,500 from his initial payment of $1,500, and at different times he has received letters from HomEq saying his payment was going to be as high as $6,800.
“Six months ago, I was a total wreck over this,” Aloia said. “Now, it’s almost comical.”
Yes Ben . . . it is comical that as one of Denver’s finest, you re-fi’d your home (probably took cash out to buy some worthless crap), took on more debt than you can afford, stressed out your family and now it’s the lender’s fault.
Note the article does not mention what he makes or how big his mortgage is . . . these people must be protected from themselves.
Hate to say it, but this is where the PD professional standards needs to look at how he is making $$$ to avoid foreclosure….
>>>>“Six months ago, I was a total wreck over this,” Aloia said. “Now, it’s almost comical.”
Game over for this FB. No need trying to refi, anything he does to keep from losing the house will be money down the drain. The sooner he starts renting, the better of he will be.
Should have rented in the first place.
Gotta wonder about the judgement and ethics of some of these FB law enforcement personnel. I would think it would make cops a lot more susceptible to corruption and bribe-taking if they were sinking financially. Not to mention, people wearing a badge and carrying a gun don’t need to be under any additional stress and strain.
Imagine what what the inventory will look like later ths year, next year and the year after that when the loans originated in mid 04, 05 and 06 and early 07 reset.
Before all the BC (subprime) lenders closed up shop it was bad, as the bwr who frequently racked up more debt would have to either pay off thousands of dollars in prepay and/or face higher rates. So, that was the plan of the BC lender to refi them every 24 mths with a larger loan, and then sell the deal in Secondary. But that was then.
Now fast forward to Spring of ‘07. The 2/28s from ‘05 and the 3/27s from ‘04 are facing resets. This is not a drop in the bucket, maybe $100 to $300 Billion (with a ‘B’) in BC originations. Many of this group of bwrs were already at 40 - 55% DR, so how can they pay the extra 15 to 35% increase in monthly payments? Their only hope is that they increased their FICO.
Why is that?
Because no one is going to be doing high LTV deals for anyone with a sub-620 FICO Full DOC / 660 FICO Stated in the foreseeable future.
Even if by some chance their home went up 20% from ‘04/05 the 5 to 10% in points and fees leaves them with nothing.
Every year new resets will hit… ‘08 will have the the ‘05 3/27s and the ‘06 2/28s (imho the worst yr), then ‘09 will have the ’06s and the early 07s.
I heard (do not have the link) that 80% of BC deals are ARMs.
So the big question in the inventory riddle is how many homes will be put up for sale due to the inability of bwrs to continue the cycle of refi?
I think we should be able to take the dollar amount of BC loans set to reset in ‘07 and multiply that by whatever foreclosure rate (my wild ass guess is 50%) divided by the average loan amount. Should give an idea of the homes hitting the market later this yr, and then repeat for ‘08.
This does not take into account ALT A or A paper deals.
The point is to show that it doesn’t have to.
When lenders stop doing Alt A and certain “prime” products we can run the numbers again.
Got beer?
Make mine a Corona.
I think you are correct. These foreclosures will dribble onto the market overtime enough to keep prices depressed for years, until at least 2009.
Only IMO, but I would replace your “2009″ with “2012″… for prices not to be “depressed.”
Around here, thinking that barring exogenous events and/or helicopter drops:
2012 City of SF
2015 Bay Area
2018 California
Especially true if inflation adjusted.
Jack;
Cal is a differant market. I’m talking most markets, aprticularly Fla.
I don’t think anyone knows where Cal is going
…on second thought you may be right in general
…” I did something I’ve never done in 30 years in the industry. I put her on the phone with my minister so they could pray”.
Nearer my God to thee, nearer to thee…(gurgle, gurgle, gurgle).
let me see if I get this, Mortgage broker Jim Spray was counseling a woman who was about to lose her home because she couldn’t pay her arm so he “put her on the phone with my minister so they could pray”.
I wonder if Mortgage broker Jim Spray wrote her mortgage to begin with and how many others did he write?
Now He’s counsiling people???
Jim, Baby, write her another 0% down, neg am, ARM.
Her minister can also be reached online at McMinister.com
He also sells St Joe statues.
Make that St. Jude Statues, Patron saint of hopeless causes.
“…you’re f*cked, can’t help you, transferring you to the “God Hotline”. Next in line. Keep it moving…”
Do any of you read Robert Kyosaki’s column on Yahoo? He made sense this week and I learned something. Apparently if your house loses value and the bank decides you owe more than it’s worth, they can demand immediate payment! He’s advising people to hunker down for the next two years and keep cash, silver, and gold.
What is Kiyosaki’s track record?
That’s what I thought.
Kaylaw.
That is not always correct. Also, in some States it’s not legal.
Besides, thats just what banks need now, more real estate.
Incidentally, Kyosaki is basically full of s**t. Most of the crap he spews in his books is made up. It doesn’t mean he doesn’t occasionally make sense. He’s just bulls**ting most of the time
I wasn’t sure but doubted he would just make something like that up and put it in his Yahoo column. I’m not a fan or anything but I’ve been reading his column since he turned against most real estate investment.
They wouldn’t be able to do that unless your mortgage had a demand feature, and that is one of the boxes on the truth-in-lending form. Moreover, at least on a purchase, your lawyer should warn you about something like that and that you better get a different lender.
How many people bring a lawyer to the closing?
everyone in NY state for one.
true that
His advice changes daily, as does Cramers’.
Check the profile of Kyosaki on John T Reeds Guru page. He’s a total fraud and has no business giving advice. Good thing his “column” is free as that it exacatly what it is worth.
That could be said for just about any column cited on this blog.
How much did you pay for John T. Reed’s column?
Even where the bank has a legal right to demand repayment of a loan whose collateral’s value has declined below the amount owed, the bank would be crazy to make such a demand on a borrower whose payments are kept current. Whenever I have had a situation where I thought LTV was too high, I have kept my mouth shut, and crossed my fingers that the borrowers would go on making the payments (which eventually solves the problem). In a 10-year-old Forbes mag piece, I saw the best advice. The article was saying the Korean bankers (back then) would do better than the Japanese bankers, because the Korean bankers’ practice was to try to enable people to meet their obligations, whereas the J. bankers (according to the article) operated more in the mode, “I take your house, I take your boat, I take your BMW.” Who the hell wants to have to peddle a bunch of houses and boats and BMWs? I never make trouble on a “performing” loan. At the first sign of poor performance, I am offering restructuring options (”skip two payments and call me in the morning”) unless the borrowers have a real pattern of delinquency.
Since I left banking 10 years ago, I don’t know if this is still true, but major US banks used to have permanent “Loan Adjustment Departments”, which could temporarily call in additional bank employees in times of trouble. So the banks (a) preferred “adjustment” to foreclosure, and (b) assumed that enough loans would need “adjustment” even in normal times to keep a permanent department busy.
az_lender, your policy seems rational and ethical to me…
“March 3 (Bloomberg) — JPMorgan Chase & Co., Bank of New York Co. and State Street Bank & Trust Co. gained higher credit ratings from Moody’s Investors Service Inc., which said the U.S. government would back the banks if they faced default.”
Does this decrease the rating of the US government now?
“Apparently if your house loses value and the bank decides you owe more than it’s worth, they can demand immediate payment!”
I didn’t know that, could speed things up.
And if I understand correctly, it means someone could buy a note for the reason of demanding payment, in order to get the house on the cheap.
which is one of the many reasons it is not legal in most states.
I lost a job once in a company crash because one of the investors in the company realized he could become the only secured creditor this way, and get the company’s IP for less than it would take to continue operations. He got his just deserts later though, when the business shark/new partner that set up the deal for him rooked him out of $3M later…
Inventory still slowly rising here and in SoCal…up ~7% to 10% since January. Still no flood, but the pressure is slowly increasing, slowly increasing, slowly increasing, as sales stay low.
Yeah, no flood but I notice that here in Irvine inventory is nearly 1000 (SFR & condo) much more than the 500-600 range of a couple of summers ago…
In northern Arizona, we are at record levels of inventory and sales are in the tank. Especially raw land. And still they build. I mentioned earlier, cases of mortgage fraud are beginning to pop up, and still the construction continues; even spec houses.
“‘One of the best lessons of Colorado for the rest of the country is that our real estate market went flat in 2001, but we did not really start to see the rise in foreclosures until 2003,’ Barnes said. ‘Since 2003, foreclosures have been compounding 30 percent or 40 percent each year.’”
What he does not say here about the Denver real estate market is that after 2001 it was the lowering of interest rates, ARMS, No-Interest loans and other easy money arrangements that kept the real estate market afloat. The market here would have crashed because houses were very overpriced and the tech-bubble popped and with a great loss of high paying jobs. Now, we are having to pay the piper and it is worse than it would have been because of all the easy money. Fine for me…. I am a renter and will buy at the bottom….
A very good point. These later-turning markets won’t have the benefit of booming markets all around them.
I think the bottom is differnat than market equilibrium. Supply presantly has put us out of equilibrium, with supply exceeding demand. Price has to come down significantly, inventory will sell off, the market may bottom below the “normal price” but the market will stabalize or equalize.
The details will vary regionally, but what will happen is the market will be forced into equalibrium by supply and demand. This is elementary. Equalibriam meaning supply more or less equals demand. There is always a little see/saw so we never reach perfect balance.
Inventories would be decreaseing now because builders are cutting back and a lot of the “don’t have to sell” houses are being pulled off the market. This leaves the “have to sell” (transfer, divorce, ect), the “I want to sell” and the repo’s. This trend has begun in most markets and will drive down the median price. Inventories will pick up again due to the all the ARMS adjusting, If the last few months are any indication. This is somewhat of an unknown, but I believe it will increase inventories enough to effect overall price.
The plain fact is Banks have to short sell the repo’s, effecting comps, which effect all other house prices. In short everyone in the market will be competing with the banks and of course builders liquidating their past excesses. Prices come down.
This is real live, raw, to the bone supply and demand economics at it’s finest. Think about it. Banks will lower the price until it sells. Bingo, there’s your market price. Don’t pick apart my analogy by “I know this guy…” or “I was at this auction..etc. I’m speaking in generalities. Sure there are other factors but if 5 houses are selling for 200k and one is selling for 125K, all things being equal, whats the real price? You don’t need a calculator for that one. If the 125K one sells and you own one of the 200K units, what will your comp be?
Hell, I was at two foreclosure auctions this week in central Florida and of the 39 houses sold, (approx 50 didn’t sell because they had an unrealistic reserve…sigh, some people still don’t get it) 10 or so were probably bargains or at least decent deals, the rest were overpriced. “Foreclosure” doesn’t necessarily mean “Good Deal”.
Also, we obviously have not reached equilibrium yet. There is still some thinning of the herd. This is almost Darwinian.
Incidentally I am Broker and prices are coming down and units sales are creeping up, month over month.
Exactly when we reach bottom I don’t know (IMHO end of 2007, begining of 2008, still MHO). At any rate, after bottom, prices will return to “normal”, meaning median wage will buy the median house. Median houses will be priced at 2.5 to 3 times median wage. House prices are also related to market rents, but thats an easy one so go figure it out.
We have to chew through the glut of inventory due to overbuilding and the coming abnormality due to foreclosures. Once that happens prices will be “normal”, like i said I predict that prices will go below the 2.5 times median wage in most hot markets for a time. Excellant time to buy.
It’s is important to understand this: if unit sales are down yoy, 30% we are still selling 70% of the houses we sold last year. it would seem to indicate that if the speculators have left the market, the presant buyers are “normal market buyers”. Thats a good thing. You want a good sales base because if you buy RE at a deal, you need someone to sell it to. Also, it’s good for the economy.
It also says the base line RE market is solid. We’re at 2002 or 2003 levels in terms of units. We have a s**t load of units, with another load of foreclosed ARMs coming up, so prices are gong down.
IMHO, inventories are up but slowly decreaseing. They may uptick in the next 12 to 24 mos as ARMs reset and the houses are repo’d. But I think they will dribble on to the market over time and builders will build less. Prices will remain depressed for 1 to 3 years, IMHO starting in Jan of 2008.
Sweet!!!!!!!!!
boy you contradicted yourself several times about the timing of a bottom.
Things like this dont work themselves out overnight. We could see some decent deals start to develop over the next year or two. Especially if the stock market is signaling a recession. If the market pulls back >25% from current valuations then I’d say we’ll have one on our hands. We’ll know soon enough.
The homebuilders bounced in September and Only now are they starting to fall again. Thats telling me that in 6 months time, we’ll be seeing another glut of homes entering the market. Which also coincides with the unlocking of most mortgages.
Bob;
End of 2007 beginning of 2008. I don’t see a contradiction.
Under 2.5X in hot markets!!!???
You tellin’ me that San Diego houses will fall below 150k by the end of this year? Awesome, dude. (I had planned to pick one up at about that price sometime in 2012)
My timing may be off, but it will happen.
Understand he has not included regression/depression and high gasoline prices in this analysis. The caveat is local governments must get tax revenue so we will see falling home prices and rising taxes as job loss at the same time.
I postulated that we could easily see some homes go down to almost zero with a 2k monthly tax. Crazy but this is how trailer parks work the cost of the pad equals are exceeds the cost of the trailer. So I could readily see trailer home economics take hold in the housing market.
No freaking way we’re getting to the bottom by 2007-2008, at least not in California. Take a look at the last downturn, which was from a much smaller peak. It took nearly 7 years to bottom out. Why would it be faster this time?
I think you’re calling the bottom way too soon. Without subprime lending and liar’s loans, CA housing would have to drop 70% for first time buyers. The Wall St boys are feeling the pain from the junk they have been taking the past few years. It doesn’t matter what interest rates the subprimes are charging if nobody is willing to buy the MBS. They figured out that a FPD doesn’t really pay 14%
Jerry and Bob;
You guys may be right. The end of 2007 ain’t that far away and a lot of stuff that has to happen to hit bottom, hasn’t happened yet.
However, it went up quick and has been heading downward for a year. Remember when people were saying it was like someone threw a switch and buyers went away?
Things can happen quick. They usually don’t but they did then.
We may very well be poised for a quick decline in prices with the future ARM foreclosures bribbling into the market in sufficient quantities to keep it down for a while.
I am beginning to see more and more examples of extreme short selling, like the 3700sq foot pool home in a gated community that was listed for 425K and sold for 199K. You see desperation sales in any market, but they seem to be escalating. To early to tell if this is it, but this is how it starts.
I love you.
…so…what are you wearing, stud…..
My understanding is that housing underwent a major jump in the percentage of income that people were willing to pay for it sometime in the last 20-30 years. That pyschological factor seems like it could deflate back to the previous level once real estate Investment == idiocy becomes the common wisdom. I’m not sure this possible result is being factored into the equations when people draw the mean line that may be reverted to…
Inventory levels in Humboldt county, California (Eureka) has fallen again this last week, down to 537. That is the lowest in over a year. Can’t say for sure if it is the result of sales or people pulling homes off the market. I would be interested in hearing from anyone from Ashland, Medford, Brookings, Chico, Redding, and other nearby bergs as to their situation. The equity locusts are still flying around here, that is for sure.
In my experience, the stock market and homebuilders signalled a bounce in September. We are just seeing signs of that now. However, now the homebuilders are just starting to fall again, so we’ll see those inventories start to climb as a recession creeps in on us by the fall.
Bob;
I hope you are wrong about a recession but you may be right.
For there to be a recession the stock market must lose at least 25% of its current price. Thats one indicator of an upcomming recession.
I don’t know if I agree with your stock market theory. Where do you get that?
Take a look at all confirmed recessions in the united states since the great depression. What are the common denominators. The average loss in the stock market before a recession is greater than 25%.
Look at the last recession in the late 80’s and early 90’s. The Dow lost more than 25% prior to the recession.
Hey, Anthony:
I made a general reply to your comment, about Jackson County. I will be more brief in my reply to you: In June 2005, there were 350 homes on the MLS. Now there are over 2000. We did have a little bump in activity, the last three weeks, but more and more homes are sitting empty, and auction signs are beginning to appear all over the valley. The underlying economic indicators have always suggested that housing prices have gone far beyond sustainable levels. Rent-to-Mortgage ratios and medium income to median mortgage rates have become irrational for four years.
Now, things are coming back to earth. In economics, everything eventually reverts to the mean. Sometimes in one day, sometimes in one year, and, yes, sometimes in ten years….but it eventually reverts. And baby….we are reverting!
re; Inventory.
I had a house for sale last summer. No action. Rented out. Will likely go up for sale again when this rentor moves out. This dynamic stretches out the return of withdrawen houses to the market.
Good point.
Robert;
You are a “don’t have to sell”, so you had the luxury of pulling your house off the market.
Guys like you will be a factor in the next 12 to 24 mos.
Hi, first time posting (on any blog actually), I live now on Long Island in New York, although I’m not a native. I love this site as it reflects my inner sense of things out of whack I’ve felt ever since living here for about 5.5 years. The thing is I’m not sure if it is justified by the numbers here, and wanted to get people’s thoughts. In other words, things are overpriced here, but how much is just that you ALWAYS get less for your money on this overcrowded rock (Nassau County, particularly, as it is close to NYC and an old suburb)? I am here because my wife’s family is from the area.
Ever since moving here I’ve been browsing at bigger/nicer houses, but couldn’t justify the expense in this area, where more money usually gets you a “nicer area” (North Shore is tonier than the South shore generally) but still leaves you for 750K (vs. 450k) on the same 60X100 postage stamp lot to live in (say) Port Washington in a moderate 2000 square foot split house. It only seems that much worse having waited, but I intend to continue as the signs of meltdown overall seem to be beginning. So I sit tight but wonder.
My question is on income/price values on Long Island. Do the numbers indicate that things should drop here as much as people are seeing in California, Florida, etc? Because they haven’t much yet. In my town the median household income is around $85-90,000 (projecting from 2000 census) and the median price today is around $450,000 (pretty close to the Nassau County average). Typical taxes are around $7000. (Again, this is the CHEAP part of the island, amazingly, very middle class ordinary). To me these prices are crazy, as in 1997 the average price was around $190,000 or something like that. The thing is, based on 6.25% fixed mortgages and people saying “pay up to 30%” gross on mortgage, I do the math and with say 10-11% down, a $400,000 mortgage comes out to around 29k in interest/principal + 7k taxes. The mortgage itself is right around the 30% amount, so this does not suggest a huge drop to me in in the offing unless median income really were to drop.. Perhaps in 1997 prices were UNDER the historical median for the area. I know prices dropped in the early ’90’s and perhaps were still historically LOW in ‘97 when median prices were around $200k. While prices have come down already here from the recent insanity, I wonder whether they will revert to the inflation-adjusted numbers from 1997. Will prices drop from 450k median to 300k? I hope so, since I’m hoping that more expensive areas will drop more (even percentagewise, they went up much more, so I’m feeling priced out of moving up). But I’m wondering despite the huge runup if the math for the drop is justified here, based on those income/price numbers. Anyone familiar with the Long Island or the numbers want to comment? Thanks again for the insightful postings.
Hi, first time posting, I live now on Long Island in New York, although I’m not a native. I love this site as it reflect inner angst / sense of things out of whack I’ve felt ever since living here for about 5.5 years. The thing is I’m not sure if it is justified by the numbers here, and wanted to get people’s thoughts. In other words, things are overpriced here, but how much is just that you ALWAYS get less for your money on this overcrowded rock (Nassau County, particularly, as it is close to NYC and an old suburb)? I am here because my wife’s family is from the area.
Ever since moving here I’ve been browsing at bigger/nicer houses, but couldn’t justify the expense in this area, where more money usually gets you a “nicer area” (North Shore is tonier than the South shore generally) but still leaves you for 750K (vs. 450k) on the same 60X100 postage stamp lot to live in (say) Port Washington in a moderate 2000 square foot split house. It only seems that much worse having waited, but I intend to continue as the signs of meltdown overall seem to be beginning. So I sit tight but wonder.
My question is on income/price values on Long Island. Do the numbers indicate that things should drop here as much as people are seeing in California, Florida, etc? Because they haven’t much yet. In my town the median household income is around $85-90,000 (projecting from 2000 census) and the median price today is around $450,000 (pretty close to the Nassau County average). Typical taxes are around $7000. (Again, this is the CHEAP part of the island, amazingly, very middle class ordinary). To me these prices are crazy, as in 1997 the average price was around $190,000 or something like that. The thing is, based on 6.25% fixed mortgages and people saying “pay up to 30%” gross on mortgage, I do the math and with say 10-11% down, a $400,000 mortgage comes out to around 29k in interest/principal + 7k taxes. The mortgage itself is right around the 30% amount, so this does not suggest a huge drop to me in in the offing unless median income really were to drop.. Perhaps in 1997 prices were UNDER the historical median for the area. I know prices dropped in the early ’90’s and perhaps were still historically LOW in ‘97 when median prices were around $200k. While prices have come down already here from the recent insanity, I wonder whether they will revert to the inflation-adjusted numbers from 1997. Will prices drop from 450k median to 300k? I hope so, since I’m hoping that more expensive areas will drop more (even percentagewise, they went up much more, so I’m feeling priced out of moving up). But I’m wondering despite the huge runup if the math for the drop is justified here, based on those income/price numbers. Anyone familiar with the Long Island or the numbers want to comment?
IMo …If a area gets a bunch of forclosures and you have speculators and flippers and sub-prime borrowers needing to sell creating increased inventory, a market could overcorrect to the down side . In other words ,at some point supply and demand take the prices lower than the 30% gross on income mortgage ratio ,especially when you have a tight money market .
I live in queens, and i wonder the same thing, how many people are here for life. They wont upgrade to a bigger home.
My landlord has owned this house for 45 years and others on the street even longer, New people moving in are Families some Indian and latinos, so are they here for the next 15 years till the kids graduate high school?
So will the few fire/short sales determine the new comps for the area, or will they be viewed as a one day drop on the market like when someone dumps a big block of stock, then it rebounds the next few days?
You need more than one sale/foreclosure to set a new values IMO.
The inventory in Portland, Maine is at pretty low levels:
352 9/6/2005
394 9/19/2005
400 9/29/2005
425 11/3/2005
406 12/5/2005
352 1/3/2006
344 2/2/2006
345 3/3/2006
351 4/4/2006
409 6/4/2006
477 7/22/2006
467 9/9/2006
437 11/5/2006
355 12/15/2006
311 12/30/2006
269 2/2/2007
289 3/2/2007
This reflects SFH in Portland (zips 04101, 04102 and 04103), Falmouth, Cumberland and North Yarmouth.
I know some people are suprised that inventories have dropped off a bit in some locations, even I thought they may just keep growing and growing. You have to assume that there were at least some people who saw what the Jones’ house sold for and decided to put their place up for sale. They didn’t need to sell, they just thought they would try to cash in. After some time on the market they realize they can’t get what the Jones’ got for their home so they pulled it off the market. Also in the colder climates I think some people, again people who don’t really have to sell, pull their homes off the market for the winter. I think that was some “fluff” in the market that got shaved off for winter. I suspect once the weather starts to warm up we will see inventories go through the roof, pun intended. Unless of course real estate agents are turning down some of the crappy houses… Yeah, right! What do you guiys think? Will we see more record high inventories this Summer?
“After some time on the market they realize they can’t get what the Jones’ got for their home so they pulled it off the market”.
Bingo.
Found a “Manager’s Walk Through report at Home Despot last night. Someone accidentaly (??) left it on a shelf in the plumbing department. It was shocking! Question: Would I be in legal trouble if I divulged?? It said “Confidential. Do Not Duplicate” It had all the stores sales from every Dept. compared to last year’s… Month/Month.
My guess if your real name is Carlos Cisco you could have a problem.
Cisco Kid revealed the bottom line,
It turns out sales weren’t all that fine,
All the heloc moolah, that was another time…
Send it to Geradlo, not Lou Dobbs..
If its that bad, he would be ahead of the HomeyDeePot corporate spinners
Montgomery County, MD. inventory has been slowly dropping as well. The further away from the city, the inventory has been flat - slight sales pick up in Bethesda, Potomac, Rockville, but not sure what the values are doing - Good things cone to those who wait. I will keep waiting!
No need to worry
“There will be growth in the spring!” Chance the Gardener, National Association of Realtors
he also likes to watch
Just looking at the first part of this article… The people with the least equity are most likely to lose their homes.
Well, what are they really losing? They walk away from a bad investment and fight the 1099 forgiveness of debt with the government. With the high numbers the IRS will be cuting deals anyway as the realize these people will not have the ability to repay. So, the banks are the ones that take it in the shorts… along with all the MBS people.
Upper middle class people with pretty high incomes will take it in the shorts. They are over extended and will sit on the sidelines for a long time; locked in to a house that is underwater. They have some equity and income the government WOULD go after.
So, basically the middle will get punished by a lot of this. Not to mention a lot of the little guys that held NEW, FMT… and subprime or MBS.
Anthony:
I moved to Medford, from Alaska, four years ago. Could not believe the rediculous pricing and escalations. Decided to wait out the market. Was told I was “making a big mistake”, that “Medford/Ashland RE was just going up…up…& away”. Being an old student of economics and common sense, I knew it would eventually cool off. And the market has changed. In the summer of 2005, there were 350 homes in the MLS, in Jackson County. Now there are over 2000 listings. The RE Agents tell me sales have picked up, but the reality is that there are more and more homes sitting empty, and more auctions signs. Also, many newly built homes are coming up on their first anniversary sitting empty. I follow the foreclosures listed on Foreclosures.com, and the number of Preforeclosures shot up last fall, fell a bit in Dec/January, and have now begun to climb again. For those of you in the know, Medford/Ashland has some of the most ‘out of sort’ economic indicators in the U.S. The rent-to-mortgage ratio is bad (not as bad as the Bay Area), and the underlying medium income is even more of a problem than in California. If you take away the retirees, Jackson County’s working salaries are lower than the Oregon averages. And the average worker in Medford/Ashland makes much less than his/her Bay area relatives.
I have lived in two boom/bust housing cycles (Anchorage, in the 80s) and the Tri-Cities, Washington, in the early 90s, and while the magnitude of this runup is much greater, and some of the catalysts are different, the end-result is the same; everything eventually ‘reverts to the mean’, and the same laws of economics apply. Even if government, or private industry (or both) act to delay the inevitable. So, here comes the inevitable!
Regarding inventory, Tom Doyle at Naples Insider states it pretty well:
The majority of homes listed for sale do not have a snowballs chance in Naples of selling. Most communities have homes available for sale, with asking prices 20% to 30% higher than similar or better value comparables within the same community.
From my observation of asking prices, I estimate 60% of homes with the snowballs chance, 30% in the ballpark, and 10% in the aggressively priced category.
Naples has a 3 year supply of homes listed for sale, but that is an average. Clearly the better priced homes will be sold in the coming months, and year and the worst priced homes will be selling 3 or more years out, at their current prices.
What I am suggesting is that there are only 4,000 or so listings in the area that are truly for sale. The rest appear to be just taking up listing space.