New Home Sales “Tumbled” In February
Some housing bubble news from Wall Street and Washington. “Sales of new one-family houses in February 2007 were at a seasonally adjusted annual rate of 848,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 18.3 percent (±12.2%) below the February 2006 estimate of 1,038,000.”
From MarketWatch. “Inventories of unsold homes rose 1.5% to 546,000, representing an 8.1-month supply, the largest inventory in relation to sales since January 1991. The inventory is up 27% in the past 12 months. Inventories are probably understated, because they don’t include homes thrown back on the market due to buyer cancellations.”
“The number of completed but unsold homes rose to 179,000 from 177,000, up 43% from a year earlier.”
“Residential builders have piled on incentives, including free vacations and new cars, to sell homes and reduce inventories. Such incentives are not subtracted from the sales price reported to the government.”
“Sales are reported when a contract is signed, not at the closing of the sale. Builders have reported a large increase in cancellations in recent months. Since cancellations are not reflected in the government data, reported sales are likely overstated.”
“Sales in January were revised lower to show a 15.8% drop to an 882,000 annual rate, compared with the 937,000 reported previously. Reported sales for December and November were also revised lower.”
From CNN Money. “The pace of sales tumbled from February 2006, with all four regions of the country showing sharp declines. New home sales are more of a leading indicator since they are booked when a sales contract is signed, not when the sale is closed, as is the case with existing home sales.”
“Monday’s report suggests the housing market weakened further in February rather than stabilizing. It also raised fears that problems in the subprime mortgage sector first seen in February could further batteer the struggling real estate market. A recent survey by the National Association of Home Builders found builders saying the subprime woes were already cutting into their sales.”
From Origination News. “Nearly three-quarters of Washington-area real estate agents in a recent online survey said the availability of subprime mortgages and tighter standards for alternative-A loans have hurt their ability to get homes under contract, according to City Influence.”
“In addition to the 73% who responded affirmatively on this question, 60% said their clients are having difficulty qualifying for the loan they need to buy a home, the firm reported.”
“‘I think this raises a number of questions about the longer-term impact of mortgage availability on the velocity of sales in the market,’ said Kim Hoover, president of City Influence. ‘We know that a significant portion of buyers who were able to enter the homeownership category over the last decade took advantage of more flexible lending standards. The question is, if that group is unable to buy a home going forward, how much of a ripple effect will that have up the chain?’”
From Reuters. “Bank holding company OceanFirst Financial Corp. said it sees an additional provision in the first quarter to repurchase subprime loans due to first-payment defaults.”
The Wall Street Journal. “Mark Ernst, CEO of H&R Block Inc., has said repeatedly the company will announce whether it has reached a deal to sell Option One Mortgage Corp. by the end of March. But it may have to lower its $1.3 billion asking price on the unit, which deals in risky subprime mortgages, if it wants to cut a deal by then.”
“In regulatory filings, H&R Block said Option One’s delinquency rate in its fiscal third quarter that ended Jan. 31 rose to 11.2 percent from 5.6 percent last year. Because of a jump in defaults, the lender recorded loan-loss provisions of $111.1 million, a nearly 750 percent increase from $13.1 million a year ago.”
“Of those delinquencies, 84 percent were on loans written during previous quarters, indicating that H&R Block had sharply underestimated the increase in defaults. ‘There are likely to be more provisions in the future, and you would think an astute buyer would know that,’ said Donn Vickrey, co-founder of equity research firm Gradient Analytics.”
From Bloomberg. “U.S. foreclosure filings last month jumped 12 percent compared with a year ago as homeowners struggled with declining home values and higher adjustable mortgage rates.”
“More than 130,000 homes entered foreclosure last month, according to RealtyTrac. That’s the second-highest since RealtyTrac began collecting data in January 2005.”
“‘The rise in foreclosures over the past year probably only marks the beginning of the problem,’ wrote Jan Hatzius, a Goldman, Sachs & Co. economist. ‘The main reason to expect further deterioration is that house prices are likely to fall significantly in 2007, with further declines possible in subsequent years.’”
“Interest rates on about $775 billion worth of subprime loans are scheduled to rise in the last nine months of 2007, according to Bear Stearns Cos.”
“The median U.S. home price was $212,800 in February, 1.3 percent less than a year ago and down 7.6 percent from a record in July.”
“One-fifth of home loan borrowers have adjustable rate mortgages, according to Credit Suisse Group. About 15 percent of the $9.5 trillion U.S. mortgages are subprime, according to Bear Stearns.”
“‘People who bought homes in the 1980s and 1990s started refinancing their equity out in the 2000s, so we can’t assume that foreclosures will only affect people who bought their homes in the last couple of years,’ said Schahrzad Berkland, who publishes the California Housing Forecast in San Diego. ‘And a lot of adjustable-rate mortgages were taken out by prime borrowers, so we can’t assume that the more qualified borrowers will be immune to losing their homes.’”
As always, the link at the Commerce Dept website is a PDF file.
Has anyone gave any thought to the possibility that the appraiser’s may be the ones that inconspicuously bring this whole mess back to earth? After all, the appraisers are getting the blame for putting whatever value the lenders requested on the ride up, so what if they do the same thing on the downhill slope? IE, lender dials up the appraiser and says “values are declining, you make sure I’m not overexposed in this thing by lowballing it at least 10%.” What could a seller do but lower their price?
and the sad thing is, most people in NJ are really clueless
That’s kind of how it used to work in the old days 7 years ago. Appraisers would typically return conservative (somewhat lowballed) appraisal values because the bank’s no. 1 priority was to protect their investment. Waiting for the appraisal to come in to see if your loan was approved used to be a nervous time for many buyers and sellers & killed many deals.
Then things changed. It became very easy to sell mortgages into the secondary market. Also, with home prices climbing, it didn’t matter if the appraisal was too high. Just wait 6 month and the home value would come up to the appraised value anyway. The Bank’s priority shifted from protecting their investment to getting the deal done, collecting their fee, and repackaging the loan and shipping it out the door to Wall Street.
With lenders being forced to take back a number of non-performing mortgages and with prices flat to falling, I have no doubt that we will see a return to more conservative appraisals.
Doh, stuck in the wrong opening quote…meant to say values are declining, you make sure I’m not overexposed in this thing by lowballing it at least 10%.”
Fake appraisals are the product of fake multiple bidding.
Faked loan documatation is the product of fake appraisals.
Get rid of fake multiple bidding — Get all the biders in the same room to make offers. Buyers emotions are a weak link which agents have twisted around and used against us to drive prices higher.
Once you cut the head off a snake it wont grow another tail.
Re-appraisals by themself wont change anything.
I overheard a realtwhore(he was talking loudly as though he wanted to be heard) talking about getting 12 bids on a property in sherman oaks last week. Unfreakingbelievable.
I was at an open house 2+2 , 1400 sq ft for 800k. Take em all down!
Lender can’t have the appraiser checking the declining value box on the appraisal form because Fannie/Freddie won’t buy the loan, so the originator has to charge a higher rate of interest and go peddle the paper somewhere else.
It’s a real mess.
But you have a good graps of what happens when the appraisal system becomes corrupted either on the way or the way down.
Appraisals have an inherent problem beyond the tendency to just parrot what the selling price. Appraisals are based on comps, which, because they necessarily are based on past purchases, will tend to overstate prices when prices are dropping.
Ben, it must be getting hard to decide what to post here lately. Newspapers, radio, television, magazines are all full of information that has been common knowledge to your readers for some time.
The seeds planted on this blog have grown up into a vast, dense forest.
1991 wow that was a fun year
1996 doesn’t sound too scary ,but 1991 hits you right in the jock
Where is that damn Spring bounce!…….it’s got to be hiding somewhere.
It’s bouncing alright - down the staircase and into the basement.
“It’s bouncing alright - down the staircase and into the basement.”
But if you have no basement, does it bounce. . . into the grave?
It’s amazing because the other shoe is dropping at the exact time that will cause the most damage. The spring surge in inventory + evaporation of exotic loan options means a ton of supply and little demand which further means a bloody, bloody summer of 2007. We’ll be in the panic stage by August.
Where are we right now? Just getting out of the anger phase into a minor bargaining phase (I just want to get out with a minor profit). Panic will be when people get out in order to avoid bankruptcy. I’m sure despondency will occur when all hope is lost and bankruptcy and foreclosure is the only option.
We’ll be in the panic stage by August.
If the MSM keeps talking about it like they have over the last month or so, the panic might begin a lot earlier than August.
Could be June when people realize that the spring bounce didn’t happen and the inventory skyrockets even more. Or it could be August when the summer selling season is coming to a close.
My gut feeling is that it’ll be the lending side that’ll tighten the noose a lot harder than the inventory. Wait until the 2nd wave of lender blowups gets underway & banks report next quarter’s earnings….
I’m noticing Tualatin inventory going up. Spring price increases right on schedule.
I’m watching the buttload of ‘pendings’ that happened in Feb. to see how many go back on the market. I’ve seen one so far. Nothing to write home about yet.
price increases dont mean anything unless they sell. i wrote in a post last week how i visited portand nearly a year ago, drove around and picked up flyers. i recently checked and of about 15 homes, i would say 10 sold, 8 below asking price (range of about $250-400k) gap between ask and actual was around 20-30k. the only 2 that sold @ asking were the cheapest ones. some still havent sold. keep in mind that when i was in portland there was plenty of “this market is hot” and “its different here” “californians are driving up prices” yet many took months to sell, usually below asking.
keep the faith, the higher the asking prices, the longer the houses will sit
Oregon prices are laughable when median income is considered. Many homes in the more rural areas are approaching 2 years on the market. It’s only a matter of time until people realize they will never sell at their current price.
I think it will be August. Just when all the families have given up hope to sell before the new school year starts. You have to remember all the families with children and not wanting to move during school year.
Rate of ARM resets will double between April and Nov 2007.
What do you think of Portland? I see some new starts out Newberg way, still for nosebleed prices. I did notice DR Horton isn’t using nice kiln-dried 2×6s any more for wall studs, and the baths aren’t as fancy - for $500K +. I wonder if they’re planning for a major decline.
Portland is not different. The bust in Portland will be faster than FL/AZ/NV/CA and other major bubble areas and by late Fall this year Portland will is going to catch up with those leading edge areas - sure some properties here are selling but many more are just sitting, some of them for more than 6 months. The lending crunch will be the same and as Arbor, Centex and other builders continue to build like you mentioned, the inventory is going to get ugly. I saw some 300K+ wishing prices on $hitboxes close to I-5 in South Salem the other day. Who is going to buy all these boxes with funny money no longer available? How many people in Oregon make 6-fig incomes that already don’t own a house?
Well, they just announced the Ladd Tower on the South Park Blocks will now be apartments instead of condos. This was the latest development by John Carroll (McKenzie Lofts, Edge Lofts, Elizabeth Lofts, The Eliot), a fairly successful developer whose projects are generally well-regarded. It tells me that some of the people with vested interests are seeing the writing on the wall and acting accordingly.
I do hope that other developers follow suit. I’d hate to see Portland littered with half-assed projects that were in mid-construction when the boom went bust. Fortunately, Portland is about a year behind on the bubble curve (just arrived at the stagnant price and growing inventory phase), so what is happening in the rest of the country now may influence what developers do over the next six months.
It may already be too late, though. I think South Waterfront is going to bring us a huge inventory bubble over the next few months.
Is there a Cartman Tower, @ The South Park Blocks?
Nah, average person doesn’t read the paper or watch the news. I live in one of the most expensive and supposedly most educated areas of SD, and when I go out early to retrieve my newspaper, I’m the only one who gets it delivered on my street of ~20 townhouses. This is especially surprising since many of the people on my street don’t work and would have plenty of time to read the paper.
Nah, average person doesn’t read the paper or watch the news. I live in one of the most expensive and supposedly most educated areas of SD, and when I go out early to retrieve my newspaper, I’m the only one who gets it delivered on my street of ~20 townhouses.
Nah, newspapers are in serious decline. I subscribed until about 5 years ago, when they clearly became obsolete. You can find comprehensive news online for free, and don’t have to deal with old paper clutter/disposal. If you want the best local coverage you may need to pay for online access. Even the NY Times is talking about a future where physical papers are a footnote to web distribution.
are you sure you pick up your newspaper early enough than your neighbor?
Love the idea of going out to breakfast and I feel like i’m hanging out in my birthday suit, sans newspaper.
Love that printy residue on my hands.
It’s a boomer thing, you wouldn’t understand.
So, if your someone who is selling your home and are reading this blog (closet reader), the advice is this: find your lowest competive listing, undercut that price by 10% - 15%, and pray. By august that 10% - 15% reduction is going to look pretty damn good.
Trying to convey that to B-I-L in Pittsburgh. Not very willing to take the hit.
Avoiding the hit now and opting for the full on body slam later. Good thinking!
Is it a real hit? Or just a reduction in the profit he was expecting?
(to me taking a hit means bringing money to the closing table.)
Is it a real hit? Or just a reduction in the profit he was expecting?
(to me taking a hit means bringing money to the closing table.)
Yes, it will be a real hit. He put a ~20% down pmt and quite a bit of money & sweat into improving it (he enjoys doing that stuff - good for him). He may have to bring a check in the single-digit K’s to the closing. His street has 3 other houses - his and another asking 175K, one asking 185 K (has 1 extra BR) and one FSBO at 165K. Houses are all comparable other than the one extra BR in one. Purchase price was ~150K about 4 yrs ago.
He is moving out of state by July.
Hope tags closed.
italics off
..one more try closing tags
“So, if your someone who is selling your home and are reading this blog (closet reader), the advice is this: find your lowest competive listing, undercut that price by 10% - 15%, and pray. By august that 10% - 15% reduction is going to look pretty damn good.”
“Trying to convey that to B-I-L in Pittsburgh. Not very willing to take the hit.”
Another fine example of the herd mentality. These people don’t think outside the box. It’s what makes them ordinary. Only the atypical sellers will make out well in this market environment. Most others will ride their sh!tbox all the way to the bottom.
I feel very lucky. We sold last year, and our agent was stunned that we wanted to sell below 2005 prices. We just wanted to make sure it sold, and were amazed when it sold over the asking price. I thought it was worth much less than we got.
Excellent advice but not many are willing to accept it. Suspension of disbelief on the way up and on the way down. They are probably saying, “nah it can’t drop any further.” Then it gaps down some more. Only to be followed with, “we’re in it for the long haul.” Then it gaps down some more. By then they are underwater and it is too late to bail.
Hope springs eternal in the human breast;
Man never Is, but always To be blest:
The soul, uneasy and confin’d from home,
Rests and expatiates in a life to come
Alexander Pope
Unfortunately, this behavior is no different than what millions of people decided to do in 2000-2001. Rather than accept a 20% loss in paper assets (stocks), they decided to wait until they lost 50-70% in paper until selling out. The thought process?
“If only my investments would get back to where I bought them, I’d sell immediately!”
What a great way to lose a lot of money. Good luck, folks.
“Rather than accept a 20% loss in paper assets (stocks), they decided to wait until they lost 50-70% in paper until selling out. The thought process?”
The thought process was based on accounting, which turned out to be fraud.
RMS-
I respectfully disagree. Fraud may have affected 5 percent of all stock investors. Most individuals lost big money because they didn’t have a clue what they were doing or what they were buying. And they gave no thought to what might be coming down the pike 2-3 years later. It was all about NOW - as with all manias.
And so it goes.
Sweet. I got 20 gigantic bags O’popcorn!
There is a very local bounce going on in my neck of the woods. I live near Hanscom AFB in Mass. Everything that has come on the market since the beginning of the year has sold. Everything else is just sitting. Most of the inventory in my neighborhood has been smaller “starter” homes in the $450 range. Of course, just because a house has a sold sign up it doesn’t mean it’s a done deal until you actually see the new people moving in.
The Hanscom AFB area (Lexington, Bedford, Concord etc) is also quite a prime residential location for the high-tech workers in the Rte.128 corridor. Any good properties there will sell a lot faster than your typical Boston metro area $hitbox.
Is the Rte.2/3/128/93 commute logjam still as heinous as it was 3-4 years ago?
I wasn’t here 3-4 years ago, but it seems worse than when we last lived here in the late 90’s. I try to avoid those roads during rush hour, which seems to last until 10 am and start back up around 3:30. Fortunately I have that option, many do not.
Quite frankly, other than the schools, this area doesn’t have a lot going for it, IMO, although it’s easy to feel glum in New England when winter just won’t seem to leave.
smaller “starter” homes in the $450 range
smaller, “starter” homes @ $450K!!!!!!!!!
LMFAO…another quarter million exodus from New England coming right up!
I know! Someone more clever than me could probably tell you just what homes like that are good for “starting.” Meanwhile, my rent on one of these places is just under $2000/month. I rest pretty easy knowing that my monthly expenses are limited to that $2K, and I didn’t have to pay for any of the things that have broken (furnace, washer) since we’ve been here. I’m also pretty darn psyched to be debt-free and saving money every month. Our next house will probably only have a 15-year note.
Here’s the DC Metro Area bounce… inventory via Zip Realty:
1/17 - There are 45,595 homes for sale in Washington D.C. Area
3/23 - There are 49,218 homes for sale in Washington D.C. Area
3/26 - There are 51,218 homes for sale in Washington D.C. Area
Finally we cracked 50k! woohoo!
geeah,
I said this before, maybe you missed it but those #’s are for the DC/Balto area combined.
Robert Cote called last Spring the “Silent Spring.” I’ve heard him refer to this one as the “Spring Sting”.
I’ve been seeing a lot of contracts in Northern VA. But Ben just posted that 75% of agents in the D.C. area are having trouble getting their clients’ financing. I think a number of these contracts will fall through. I also have this feeling that for the year, this is the market. It will likely halt again after April.
But……. Regionally, sales rose 25% in the West after a 26% drop in January.
SALES ROSE IN THE WEST! When will these CA idiots learn!!
I think a lot of that is builder incentives.
$100k off sounds great in theory - but it’s still way over priced.
They’ll regreat it almost as much as the original buyers once another $100k comes off to move the units.
It’s just absolutely dead in my neck of the woods (Sac.) Inventory is surging and I haven’t seen a single pending sign in about a month and a half and I drive quite a bit. Must be somewhere other than the Central Valley.
Here in coastal north county San Diego, sales have picked up in a way I haven’t seen since 2004 (a very busy time for us). Not sure what’s gotten into the market, but the bounce is on in our neck of the woods.
I had hoped to see a lot of BOMs, but that’s not been the case, so far, at least not with the listings I’ve been watching. We will see…
Where is that damn Spring bounce!…….it’s got to be hiding somewhere.
Are the inventory #’s in the story above new home inventory #’s or total market inventory. If that is the inventory for new homes only, this market could be in for a real beatin’
The tide is going out and we are now seeing those who left their bikinis and swimming shorts on the beach, in all their naked glory.
“The tide is going out and we are now seeing those who left their bikinis and swimming shorts on the beach, in all their naked glory.”
And the water appears to be pretty Cold.
“Inventories of unsold homes rose 1.5% to 546,000, representing an 8.1-month supply, the largest inventory in relation to sales since January 1991. The inventory is up 27% in the past 12 months. Inventories are probably understated, because they don’t include homes thrown back on the market due to buyer cancellations.”
8.1 month supply and it’s not even officially Spring yet. Didn’t you just dig how a month and half ago the “experts” were calling the seasonal reduction in inventory a trend? Oh, we’ve got a trend alright.
‘Sales in January were revised lower to show a 15.8% drop to an 882,000 annual rate, compared with the 937,000 reported previously. Reported sales for December and November were also revised lower.’
Apparently the trend has been lower sales for months. And these numbers still don’t include cancellations.
Any guesses as to how much the cancelled inventory would increase our number of 8.1 months outstanding?
My guess would be 2X at a minimum.
Talked to a title person…when I asked about cancellations, she rolled her eyes, and said, “just about everyone I’m dealing with is falling thru”.
Whoa.
Does that mean anyone attempting to buy now represents the last detritus of non-qualifying types trying to get that home before the credit dries up?
I hear the sound of breaking pricing floors .
Can you dig more? Who are those who are actually going through?
I’d love to know how many of those falling through are NOT subprime, but simply borrowers getting stung (or is that saved?) by tougher underwriting criteria.
This is why one is foolish for following the mainstream media. The lower revisions only show up in limited publications, and even then it’s buried towards the end of the article.
I especially liked the part about the economists predicting a rise in sales. WTF are they putting in their kool-aid? As one mentioned above, we are looking at a wicked storm now that inventory continues to grow while credit is drying up. I hope Neil has his own popcorn vending machine.
The economists are trying the old Roosevelt trick he used in March 1933: when the world is collapsing, all you have left to use are lies.
Roosevelt told the nation via his first fireside chat that the bank holiday he imposed was to restore confidence in the financial system.
He knew the books would be the same before and after the bank closed; it was up to the people to choose panic over faith. And he had only soothing words to use to convince people to choose one over the other. So he lied through his teeth–and it worked. Well, it stopped the panic…
Today in 2007, what these tools don’t realize is that they are not FDR–and there are more communication choices than radio or newspaper. Unlike 1933, the truth is getting out despite their b.s. “confidence” statements to the MSM.
Sheesh. An “expert economist” and an “overeducated fraud” look a lot alike to me…
I guess it depends on who employs the “expert economist”…
Well, now that subprime is going under, they can simply blame the lack of spring bounce on some lending issues unrelated to real estate … Notice that in many publications, the language of “strong fundamentals” has been modified – the fundamentals are no longer viewed as strong because of the weakness in subprime. It’s a good game of semantics.
> now that subprime is going under, they can simply blame the lack of spring bounce on some lending issues unrelated to real estate
True, but why is subprime going under? Because of a stop of price appreciation to bail out troubled borrowers. This is the essence of real estate today - no more appreciation.
Yes. The Ponzi scheme has ground to a halt. What we’ve been saying for at least two years is all that it would take for this scheme to implode is for appreciation to simply stop. Appreciation has stopped - now comes the implode.
“Now comes the implode.”
Or, perhaps, the stealth policy response to reflate the bubble. But hopefully our national economic leaders are aware that we already have massive overbuilding, lending fraud and rampant speculation. Respiking the punchbowl would only bring more of the same, but it must be very politically tempting to respike and pass the trash to your successors (like AG did to BB…).
“There were more than 19,144 properties in some stage of foreclosure in February in the Sunshine State, up 63.5 percent from January and nearly double the number a year earlier.”
This is a quote from the last article. Up 63% in one month? Wow. I’m thinking the quick evaporation of subprime and alt-a lending options (and evaporation of suicide loans in general regardless of debtor quality) is leading to the skyrocketing foreclosure rate as people have no more financial options to stave off foreclosure.
It’s quite simple: bubble prices + tight lending standards= not enough buyers; not enough buyers + accelerating inventory coming online = lower prices to attract the rare buyers. This is where price gets adjusted substantially because the demand is low and the supply is exceptionally high.
“‘People who bought homes in the 1980s and 1990s started refinancing their equity out in the 2000s, so we can’t assume that foreclosures will only affect people who bought their homes in the last couple of years…And a lot of adjustable-rate mortgages were taken out by prime borrowers, so we can’t assume that the more qualified borrowers will be immune to losing their homes.’”
Ultimate bear scenario. The 1980s bi-coastal bubble and bust only hurt those who bought from, say, mid-1985 to 1989. All the HELOCing is going to take down many more people.
The question is whether the prime borrowers will go into foreclosure, or will just have their standard of living fall substantially for a decade or so. Will they walk?
WT, you beat me to it. I believe right now that is the billion dollar question. Someone who bought a house in the 80’s and started cashing the equity around 2000 would be a boomer. If the bubble starts taking down this kind of people with it, drop everything and head for the exits.
And just wait until Social Security and Medicare costs really kick in. It’s increasingly apparent that a good portion of the older boomers (1938-1954) will have to subsist on the public dole once they retire. The gravy train that demographics brought them is just about over.
Why yes, the baby boom generation - in attitude, behavior - started way before 1946 for all practical purposes.
Eudeman, if there was one thing I thought was more or less certain, was the fact that these people were homeowners with considerable equity,no matter what price range their houses were in. It just made sense, considering they have been paying mortgages for a long time. Now even that comes into question. This is getting uglier than even I thought it ever would.
You are entirely wrong. I’m an early boomer (1947) and retired last year. Many of my friends are retired and enjoy a comfortable lifesytyle and are not “dole” dependent. Many of us worked for 40 years and never took a f—ng dime from the government. We also had many other virtues, not the least of which was respect for our elders. Apparently you skipped that class.
Everyone takes from the government when they get older. The amount you pay into Medicare doesn’t begin to cover the medical benefits the elderly enjoy, especially now that we have so much high tech care. And the days of collecting Social Security for two years before dying are over - the average lifespan is now eighty, and many people collect social security for twenty plus years. If we lose Medicare and Social Security, then even comfortable seniors will end up in poverty.
My thought is that those who heloced up to 80% ltv won’t walk but will be in for a case of shock when they either go to sell, refi or re-heloc and realize they have no or NEGATIVE, equity.
They’ll then begin to save, reducing their spending and the impact on the economy will be significant in that manner.
I get the feeling that, up till now at least, most people don’t perceive the value of their property declining. After all, the papers all indicate very, very modest declines in median prices.
When they realize that their net worth has grossly diminished, vanished or gone negative, that’s when general consumption will show an impact.
Can’t see how this is avoidable even if the declines in value continue to be soft pedaled in the media. People react strongly to anecodotes, to personal experiences. Its going to get harder and harder for everyone NOT to come across a pretty scarry real estate story. As much as those positive experiences drove prices up, negative stories will (eventually) damage the perception of RE, severely, as the fear of loss is far more important to people than the pleasure of gain.
Is there a chart that shows medium house value, medium income, and medium mortgage (owed) over decades?
Check out Piggington’s Bubble Primer. And that’s median for future reference.
Sometimes web sites, forums and blogs can create a mob mentality. For a brief moment over the past nine months or so (since I’ve been visiting this site), I wondered “what if this could be the case here?”
Groups of people can talk themselves into a frenzy and the Internet has a tendency to do that. We gravitate towards sites that reinforce our opinions and eschew sites that oppose our views.
I personally felt that the fundamentals in no way justified the home prices and no amount of immigrants, retirees, or increased wage earners could ever narrow this price disparity. And that’s not even taking into consideration the future of the dollar, (hyper)inflation, the debt/equity markets, consumer spending….
“Groups of people can talk themselves into a frenzy and the Internet has a tendency to do that.”
You are right about that. This is exactly why the Wall Street cargo cult has completely missed the picture.
While I agree with your observation, people here were calling the current happenings well before anyone else. It’s actually quite scary, how dead-on they have been. I’ve been reading here for almost two years now, and it was a blessing when I found this site because like you, I saw a total lack of fundamentals in the market and no large media source was even discussing it. I read more traditional sources as well; Wall St. Journal, local paper and news broadcasts, etc., but it is pretty obvious they are often little more than puff pieces designed to keep people in the mindset that they know what is going on. Meanwhile, back at the ranch we find that the lenders, Wall St, and the NAR were raiding the chicken coop. This is going to be a significant financial a$$ pounding*. *with nod to auger-inn.
The thing that sets most on this blog apart fom the rest is opinions are argued with facts, statistics, fundamentals, historical trends, ect. No rah-rah hype here, just the facts.
Good point. I like the respectable tone of *most* comments here.
And, there are people here in “the trenches”….they see the reality that no amount of NAR nonsense can squelch.
And there are people who are plain smart and articulate. Bless you.
I agree! My great common sense told me where this market was headed back in 04 but, I have learned so much more about the stats, facts, etc….here on this blog! Yes, I am addicted to it.
“blogs can create a mob mentality”
Yes, however, you can’t argue too much with the accuracy of some of our predictions…predictions that were in some instances laughed at by the so-called ‘experts’. Not the least of which was a *national* housing/credit bubble.
Huge difference between a blog like this and a real estate blog or the Wall Street crap0la. Here, you have to defend anything you write with your life. It doesn’t matter who you are. Look at the last thread for yesterday. Even a longtime poster like Imploder can come under serious fire. Manraygun took a shot at me.
I’ve seen Stucco get called out before and he is probably the blog’s most frequent poster. There is definitely not a mob mentality on this blog. There is a “no tolerance for B.S.” mentality on this blog. That is why the information here is so valuable. It goes through twelve strainers, and ninety-six filters, before it makes it into the bottle.
and a Brita pitcher or two
“Here, you have to defend anything you write with your life”
Good point!
“Even a longtime poster like Imploder can come under serious fire.”
I don’t interpret people not agreeing with me as me coming under “serious fire”. I interpret it as someone having an opinion different than mine.
If everyone agreed with my point of view, I wouldn’t waste my time reading their comments, since I’d already know what the were going to write…
See! My point exactly. Even the semantics of my post came into question. It should have read, “even a longtime poster like Imploder can come under gentle scrutiny”. Geez.
I agree with imploder. I come to this site because there is a high quality discussion, multitude of facts, logic and critical thinking.
I THINK my conclusions about the economic implications of this housing debacle are correct. However, I’d love to be proved (or simply turnout to be) wrong. When this site simply becomes mostly a bunch of whining, bitching or gloating….I’ll move along. But for now, I still get a nugget or two (or more) of meaningful info or insight most every visit (if not an occaisional great laugh).
At some point that’ll certainly change but I’m grateful to have found this outlet for the exchange of ideas going back over the last year if for no other reason than that I found at least a few people who also saw RE going insane and that it wasn’t NECESSARILY me that was going insane.
Thanks to Ben and to all that thoughtfully contribute who’ve helped me retain my sanity (in this regard at least).
My point is I don’t feel under scrutiny, or under fire, etc. just because people don’t agree with my posts. Their personal life histories and experiences have lead them to different opinions and views.
Intelligent debate leads to the best conclusions and the best decisions.
Frankly, there isn’t enough such debate in the world today. I love the disagreements on this blog. I feel better informed because of them.
NYCityBoy, in the LA Times article where they interviewed Ben the other day, he mentioned how the posters could disagree to no end on political or other issues, but they could mostly agree on housing. That’s the magic of free speech when it’s balanced by critical thinking and education .
Sorry, but, i missed that article, can anyone post the link here? or direct me to it? thanks so much!!
Here it is:
http://www.latimes.com/business/la-fi-bloggers24mar24,1,3705713.story
We’re getting close to the tipping point here. The new home sales numbers are terrible and are likely grossly overstated given that cancellations are at record levels as well.
Tightening lending standards, fewer qualified buyers, record foreclosures, HELOCed FBs getting more “motivated” to sell by the day…it’s been a few years since I was in my economics class, but skyrocketing supply + forced sales + plummetting demand = ruh-roh Shaggy.
The “perfect storm” approaches…hunker down, this one will make Katrina look like a morning drizzle.
I only wish it would hurry up… I spent most of my weekend listening to the happy talk about Friday’s upwards “surprise”.
At some point you have to just keep your mouth shut and, as you say, hunker down.
RE: Friday’s upward surprise. The NAR loves to play and what they always do is revise last months’ numbers down before the new release, and then come out with a pleasant surprise for the current month (MOM figures BTW, not the important YOY which were down anyway.) Next, they revise Feb numbers down when nobody is looking, and come in with a pleasant upside surprise for March (MOM still.) Wash, rinse, and repeat again and again. Sad that people would fall for this obvious ploy, but this should come as no surprise to any of the readers here.
In the end it makes no difference, though, and is counter-productive. In fact, I’d be willing to lay money on the NAR getting disbanded at some point because of all of this monkey-business.
“it’s been a few years since I was in my economics class, but skyrocketing supply + forced sales + plummetting demand = ruh-roh Shaggy.”
Makes perfect sense to me. 2 + 2 = 4, right? But wait and see what happens. By the end of the day the “experts” will have found a way to make 2 + 2 = 5, turning this peice of sh*t report into a chocolate souffle.
If housing tanks the economy (through reduced consumer spending), look for articles explaining that the shaky economy is what finally brought housing down. That’s the way the ‘experts’ think it’s supposed to happen, so that’s the way the media will report it.
Tipping point here in glamorous California is still a ways away. People here are not really scared at all, as we’re only slighty readjusting downward a bit, and things will pick up again in the spring (or summer, or fall, or winter, or next spring). The hurt only comes when more and more are *forced* to sell through foreclosure, job loss, etc., and/or when the economy starts to tank due to decreased consumer spending.
I’m not so sure about that. We’re only in the very early stages of the “ARM reset” shock, and SoCal is already showing cracks in the market. This will take a few years to shake out, but the roller coaster has hit its crest and is creaking downward already. You can’t keep a pyramid scheme going without a new foundation of FBs.
We’re in the 2nd round of a 15-round championship bout. By the time it’s all over, SoCal will look like Jake LaMotta after the Robinson fight in Raging Bull.
That’s what I think is going to happen. Prices are falling so slowly, if at all in many places. I think that sellers are waiting for spring/summer. Hopefully, then reality will set in.
I’ve been thinking lately that all this talk about the impact from declining jobs & spending maybe over-stated. But only because the evidence seems to be indicating that many FB’s aren’t going to be able to afford their mortgages- even IF they keep their jobs. The jobs don’t matter, the FB’s are F’d either way.
The leaders of this community are both publically and privately extremely optimistic that housing is just fine. They say “we had a little bump in the road over the winter, but that’s over and all is fine. We weathered the ‘housing correction’.” Many want to believe all is well, so they spread the word about town ALL IS WELL. I have no idea what it’s going to take to make Northern Californians believe all is not well in the housing market. They are still in a buying and selling frenzy up here in the 95501 area.
Isoldearly,
I see what you see in Eureka. Inventory has gone up a little in the past couple of weeks, but is still 30% below what it was in August.
Everyone still believes RE is a great investment. People have come to expect that the Boomers from LA will keep the party going; so far, they’re right, but anybody motivated to sell is seeing prices off by a good 10% from the highs. Still, I am amazed at the number of people looking for homes–still, despite all the MSM of the bust. Apparently, it IS different in coastal Northern California.
BTW, I’m not sure I’d want to buy here even if prices dropped by 40%…I’m getting sick and tired of the endless gloom…it is far cloudier here than in Portland or Seattle. It hardly ever reaches 60 degrees and I find it hard to believe that this place is destined to be the next retirement destination.
I’m in SCAL and agree 100% with arroyogrande,
Many sellers have not yet reached their psychological or financial tipping points and are still feeling pretty smug. There are a few “motivated” ARM-reset FBs, but it is far from a deluge –YET. For agents, brokers, etc., it’s a far different story. They are already seeing sales volume –and commissions– drop off a cliff, and are feeling the pain right now.
If you’re in CA, best to keep your powder dry and stay patient. Our “correction’s” just getting warmed up. Loooong way to the bottom.
Yep; I’m in West LA and subscribe to Redfin to check changes in listings, which mostly consist of slight reductions but I’ve seen a price increase, incredibly. In my neighborhood near Brentwood/Westwood, I’ve been seeing slight reductions like 650k down to 615k on 2 br/2ba townhouses of about 1200 sq ft. That’s still about double what these units were going for 5 years ago.
“Tipping point here in glamorous California is still a ways away.”
I disagree. You left out the impact of the credit spigot being shut off. imo, that’s what’s going to really get this thing going.
I call your disagree and raise you a disagree. People will hold on, feeding the alligator, as long as they have (possibly false) hope that the ‘real’ selling season is just around the corner.
I agree (to the disagreement about the disagreement). As I’ve said before, there will be a spectrum of how people deal with lack of sales at their wishing prices.
A small percentage will bite the bullet, drop their price, and be out, with a profit if they bought long enough ago. These are the smart, realistic sellers.
The rest will have psychologically spent the “equity” in their home already. They will hold onto the dream of riches, or simply dream of not needing to ask the bank for a short sale. Some will fold almost immediately and be foreclosed since they can’t refinance (as they need to in order to survive). Others will hold on for months or years until their ARM adjusts and the credit tightening crunches them. The rest will hold on indefinitely….and claim victory when they sell for a small nominal profit in 2015, or is that 16? 17?!?!?
In any event, I don’t underestimate how many people would rather feed the alligator than admit defeat by selling for a loss.
I call your disagree and raise you a disagree. People will hold on, feeding the alligator, as long as they have (possibly false) hope that the ‘real’ selling season is just around the corner.
Fair enough, but the people that hold on, feeding the alligator, are by definition NOT the ones who are setting the current market price. If the only parties selling are builders, banks with foreclosures to dump, and those end users with the weakest hands, then market prices are going to drop regardless of what the stubborn alligator-feeders do.
“The number of completed but unsold homes rose to 179,000 from 177,000, up 43% from a year earlier.”
Add to this all the “never lived in” alligators eating the flippers or “in the bag” at Countrywide & other lenders, plus ongoing cancellations, and the inventory picture looks MUCH uglier. This is going to end badly.
The REIC has been saying for 3-4 years now that they would not overbuild this time. What a crock. What is a builder who is not building?
Dead or de-listed. Rock, meet hard place.
If you look at those numbers, 179,000 unsold new units / 848,000 sales is only a 2 1/2 month supply. What this means is that builders are pricing their stuff properly and are getting if off their hands. Probably selling it to some clueless flippers who think they’re getting a steal with a 10 or 20% discount when a proper discount would be 50% (in good areas) to 100% (in exurban areas that are 1 1/2 hours from the nearest decent job).
Your looking at the numbers wrong. That’s 179,000 completed and unsold for the month. The inventory is 546,000. At 848,000 sales annually (and believe me, they adjusted those numbers in the most optimistic way) that’s an 8 month supply.
Throw in the 40% cancellation rate and we probably have a 10 - 12 mo supply.
Yeah, but that 179k number is only completed houses sitting vacant. That means next month another batch of completed inventory is filling in the pipeline. If I was a builder I would want that completed inventory number to be nearly zero, with a certain percentage of my pipeline houses already sold, and maybe just a few model homes for showing to potential buyers.
“Sales of new one-family houses in February 2007 were at a seasonally adjusted annual rate of 848,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 18.3 percent (±12.2%) below the February 2006 estimate of 1,038,000.”
Will that get shaved by another 15% or more when order cancellations are factored into revisions? And how fast are homes under construction currently piling onto the inventory pyre?
“The number of completed but unsold homes rose to 179,000 from 177,000, up 43% from a year earlier.”
I am guessing at least 1000 of these 179,000 completed but unsold homes are in my zip code (92127). Does anyone know whether such information is publicly available?
I also wonder where the new home numbers come from, who reports the numbers for them to add up. There are several hundred unsold new homes in our area and over 150,000 approved to build, but we have no national builders. Even the two largest approved subdivision builders are private Las Vegas companies. Most of the builders are small local spec type builders. How would these builders be counted? Our area of northwest Arizona is not counted in any other statistics even in Arizona.
Is there any data on how much in HELOCs was taken out by the 1980s and 1990s buyers? I owned from 1994-2006, and it never occurred to me to borrow extra money against the house (I regarded it as a “paper” gain until the day I sold).
Also, is there any way to discover how many people with “good” credit chose to leverage with ARMs? I worry that a lot of high-income people may have bought 2nd homes as vacation homes/investments, figuring they couldn’t lose.
Look around your neighborhood. Count the number of brand new Hummer H2s, wave runners, kitchen remodels, houses full of new furniture, and vacations to Tahiti. Divide by the total number of houses in the area.
There you go.
Now that you mention it, I’ve been amazed at the number of “adult toys” packed into the garages of local houses for sale.
One open house we went to, it looked like some adolescent teenagers had gone on a buying spree; one bedroom was full of top-end electric guitars, all brand-new. Pool table, Ski boat, new 4X4. The kitchen hadn’t had an update in 15 years though, still cheap cabinets and bargain applicances. Looked like 2-3 young construction workers thought they’d go in together on a flip, but never got around to doing any work.
“Look around your neighborhood. Count the number of brand new Hummer H2s, wave runners, kitchen remodels, houses full of new furniture, and vacations to Tahiti. Divide by the total number of houses in the area.”
Several years ago I was astounded at the sudden appearance of substantially increased wealth in my area. I saw all these people with flashy new cars. The number of people I knew who took expensive vacations skyrocketed. All kinds of folks upgraded into more expensive homes, or lavishly remodeled their existing home. And electronic toys - well, to sum up, *everyone* left me in the dust.
And this beat the heck out of me. I was starting to feel left behind. I assumed everyone except myself was getting substantial pay raises - after all, it was the only way to explain this sudden influx of dollars. Then I started listening to people talking about “liberating their home equity” and with a dawning sense of horror realized these idiots were livin’ large on borrowed money.
I know people who re-fied to invest money in the stock market, in real estate, to pay for college for their kids, or who blew it on junk for themselves and/or their kids. I know people who re-fied, paid off their credit card debt, and inside a year maxxed out their cc debt and re-fied again. Repeated annually.
I don’t think any of us have any sympathy for any of these people who are gonna be facing foreclosure. If there’s any serious movement for a bailout, I hope it ends up being structured in a way that triages assistance. Those who blew their equity on living the high life shouldn’t qualify at all.
I wondered about this too, although I thought more people had wealthy parents or trust funds, since I know a few people who bought that way. I even had a shrink tell me that my income certainly must be sufficient, since everyone else was able to do so.
My shrink told me that RE was unlikely to go down because D.C. was “different”. I was in for a med check but almost felt like arguing with him, astonished that such educated guy could not see the systemic problems our economy faces.
I have to disagree with one point. A HELOC for college tuition can be a smart move. My parents helped me slightly in college by taking out a few thousand (not in the tens of thousands or anything like that) on their house. It was an investment in the future and I think it paid itself back many times over.
There should be a distinction between a loan against a house for unexpected medical expensive, college tuition, etc. and a loan to buy a new toy or car. (My parents have never bought a new car in their life. Actually, they bought one and it was a lemon - never made that mistake again.)
The War on Savers does extend to college tuition. When I got into school (a very good private school), and my parents tried to get some student aid from the school (or was that the gov.?), we were turned down. This was NOT because my parents had too much income, but that they had too much home equity. They were EXPECTED to borrow against their house in order put me through school–which thankfully, they did.
I considered that HELOC a sacrifice they made for me, not recklessness.
Does anyone have a sense to what degree (if any) the subprime implosion affected the February new home sales?
Not much. The sub-prime implosion hit right at the end of February and the quarterly earnings. That means that February sales weren’t really affected, only some of the smaller sub-prime lenders had gone bust before the big announcements from NEW and NFI. The March numbers will be affected, though only partially, as the existing home sales numbers lag the actual sales by a bit. Look for the real damage in the April numbers (which will be going up against especially strong comparables from last year–it’s going to be ugly.)
But don’t worry, the damage is “contained” to the housing market. It won’t spread.
Yeah, right ! This from people that didn’t even see it coming in the first place !
Tweedle –
Not only is the damage “contained” to the housing market; it is “contained” to the subprime lending sector, which is a negligible share of overall home lending activity
Yeah, I know ! Everything is contained. Goldilocks rules. The greatest story never told. Higher, higher, higher.
Yeah right. We are about to get a big injection of realism !
what makes people think that lending standards were any better in alt-a and prime? how many people there are in loans they can’t(ever?) afford. their loan is a lotto ticket that they could actually end up oweing money on.
1. credit is starting to get tighter so some can’t buy
2. homes are going into foreclosure
3. at the same time #1 and #2 are happening, inventory is being added from people who wanted to sell last year before this mess. remember realtors last year saying wait till spring to relist?
4. the subprime story no doubt has changed the psychology
all this adds up to the mortgage mess spreading as less credit, more houses and negative psychology sends prices spiraling down and catching the next level of homeowners. it’s a giant negative-feedback housing loop.
“what makes people think that lending standards were any better in alt-a and prime?”
I don’t. It will soon be common knowledge that loans were freely offered to let households buy homes they could not afford, regardless of their credit history. This is a complete no-brainer; I expect Wall Street analysts to figure this out by September.
“This is a complete no-brainer; I expect Wall Street analysts to figure this out by September.”
ha ha. I noticed that dig at wall street. it’ll take them that long to figure out what we knew 2 years ago.
the question is, after reading your prior post, will larry kudlow keep believing in the greatest story never told? even when he reads how florida is leading the nation in foreclosures.
Kudlow will have a million excuses for why this is happening, but none of them will be remotely close to what we all here agree on. That guy is not only in love with himself, but he is in love with the almighty dollar and American capitalism. Everything is coming up roses and the Dow will hit 15000 by 2008. I can’t even stand to listen to that bonehead talk. By the way what is with his style of dress? He seems a little too buttoned down.
I used to watch Cramer’s show occasionally as well as Kudlow’s. Not for information but for entertainment mostly. Now just the sound of their voices is such a turn off to me I cannot watch even for a minute.
“This is a complete no-brainer”
Dont you mean the biggest no-brainer in the history of mankind
LOL!
My co-worker who used a piggyback, told us last week that he just refi’d both through his broker and 5th/3rd. He’s been in his home for a year. The conversation was the refi bubble in a nutshell:
(1) 5th/3rd didn’t send him a march bill [they forgot] which sparked conversation. They also had different terms than he claims he agreed to.
(2) He talked about how savvy his Piggy back loan was, as he could take those tax savings to pay it off quicker and “avoid PMI”. Of course instead of doing that, he just extended his primary and secondary loans (what happened to paying off that piggyback?)
(3) He thinks the broker did it for free.
(4) He pulled out 12k in equity, which he claims went to pay off principal– but he still has a “fixed” Heloc for the 10% piggy back.
He actually used Lenox’s catch phrase– it was a “no brainer” for everyone involved. Everyone made money!!
*
Sigh, relatively smart person getting flipped over like a turtle– thinks the broker was helping him out… for free!
He wouldn’t go into the details on the loan– claims that the piggyback is a fixed 7.8% (also said 7.9%). Didn’t mention the primary rate.
Soeey to hear about your coworker. He said everyone made money. Yeah, except him. Does he not realize that those loans actually have to be repaid or did he forget that? Did he also forget the interest charged on those loans as well as the costs to generate them? Sorry to say, but he is a fool. He is one of the biggest no-brainers in the history of humankind!
OCDan, last week I got one of those “you won the lottery” e-mails that came with a “number” with which I could “claim” a gazillion dollars, bla, bla, bla. I got curious, so I checked a couple of anti fraud websites and one of them quoted a Russian saying that I adopted for the treasury of wisdom I intend to hammer into my kids’ heads over time (since, alas, there is no way to put “wisdom extract” in the morning cereal)
Here it goes: The only place where cheese is free is in a mousetrap.
John Law,
I qualified for an Alt-A loan after i sold my home in ‘05. Looking back, that’s what scared me away from buying another home and moving to the sideline. The amount of money i was being qualified for was way out of line with my income. I had alot of cash and a great credit score, but this did not mean that my salary could carry a 1.5 million dollar house.
I think the subprime implosion is the tip of the iceberg.
jmf
“‘The rise in foreclosures over the past year probably only marks the beginning of the problem,’ wrote Jan Hatzius, a Goldman, Sachs & Co. economist.”
No sh*t?
The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions, as happened in January, are common. The standard error of 17.4% is so high, in fact, that the government cannot be sure in most months whether sales rose or fell.
Remember a few months ago when all the bears were trumpeting a minuscule increase in sales as evidence of the rebound in housing? Now we find out that the margin for error in these statistics is off the chart. Hmmm.
Remember a few months ago when all the
bearswere trumpeting a minuscule increase in sales as evidence of the rebound in housing?Did you mean bulls?
In my area word on the street was that prices and sales would increase in the Spring(’07), so the “savvy” homebuyer bought on the Winter ‘06 dip. Consequently we had more sales activity than is usual for the winter season.
Sorry, Freudian typo.
It certainly looks bad for the housing market, but what will it do to the rest of the economy?
Well consider the following…
- Roughly 70% of the economy is driven by consumer spending
- The GDP has consistently outperformed wages over the past decade, meaning the economic growth is primarily attributable to credit expansion. (The US saving rate is approximately -.75%.)
- A big source of credit was through home equity extraction due to increased home prices
- Decreased home prices means decreased home equity cash withdrawals. This means no new Escalades, plasma screen televisions, dining out, lawn care service, vacations, …. Not to mention those relying upon the purported 7% home price increase for perpetuity. Pity.
B-hamster, now you’ve done it! You got me all fired up with your response. You vets know my feelings about this. You have just summed up this sorry-a$$ economy for everyone and this is why it is only a matter of time before this world-wide grand ponzi scheme called the American economy finally collapses like Sauron’s tower (Orthanc) at the end of the third LOTR movie. This whole mess is disgusting. If you consider that 70% of the economy is consumer driven and the savings rate is negative. What does that say? Basically, the economy is consumer debt driven. When all this credit dries up, look out!
All depends on where you are. China and the Euro nations are going to continue their growth - raw materials are going to explode. China has stopped exporting corn and will need to import. China is the 2nd largest corn grower after the US. It is difficult to describe the growth in China. Imagine a lot of corn fields in central Iowa and the US says they wish to build a city there for 5 million people. Three years later there is a city. That is China today. In the US there would still be discussions on every aspect of building a single housing project.
If the US goes into a recession, China and Euroland won’t be immune, leading to lower growth and probably to lower prices of raw material (in Yuan and Euro). But relatively to the US, China and Euroland will gain.
Uh, you mean Sauron’s tower Barad-dur. Saruman’s tower was Orthanc (which did *not* collapse). God, I hate myself for knowing the difference.
Don’t feel too bad. TLOTR is one of the top books of the 20th century.
Heck, it could be worse - you could be a trekkie.
Paul
recession probably with the brunt hitting realtors and anyone else associated with housing like the 2001 recession hit IT harderst of all
i don’t buy all the world is over stories because in the 1990’s something like $3 trillion was lost by US banks on telecom, tech, emerging markets and other bad loans. in the 1980’s it was S&L and junk bonds. 1970’s was inflation. every decade has a crisis and there is a housing bubble every 15 years
foreclosures aren’t that high yet, only around 2003 levels. the scare is that subprime loans and other risky loans were made without the risk being priced in and now money is going to be lost. we still have a long way to go to get to the early 1990’s foreclosure levels, but the big problem was mispricing of risk.
subprime has been around since the 1990’s and was never a problem at 15% default levels because the risk was properly priced in.
> foreclosures aren’t that high yet, only around 2003 levels
… but notices of default (NOD) are in some bubble areas. I recommend a look at piggington’s website; it’s scary.
It will hit realtors twice as hard. Because realtors were in a position to see the inventory first during the boom, many bought the homes themselves with the idea to flip them. I would think many many floppers today are realtors. So they have ugly expenses and zero cash flow.
Realtors will get smoked. Heck, we know of 1 realtor that has 5 homes, and 3 were bought in the last 3 years. They are trying to unload 1 now but nothing is selling.
They are totally screwed and don’t even know it.
I have a co-worker who proudly informed me that not only had she just closed on her second house, but that she’s about to receive her Realtor’s license. And this was last month!
Is it wrong that I just didn’t have the heart to go over the horrific list of mis-steps she had taken? She seemed so happy, and I knew that wasn’t going to last very long…
she just closed on her second house, but that she’s about to receive her Realtor’s license. And this was last month!
Realtwhores are numbest people on the planet.
Yea she should have waited until she had her license and could have gotten paid to buy the house.
maybe those realtors did know it….maybe that’s why they “suggested” people not list or delist their properties until this spring………takes time for “insiders” to bail out, no?
But dba, the difference between now and 1970-1990s is we hadn’t earned our debtor nation status badge at that point in time.
dba, whisting past the graveyard I see. Don’t know to go over all the reasons why this collapse is only a metter of time. Just read all the comments to your post.
Its going to KILL the economy dead. Nobody seems to understand that yet. The house ATM is now closed. And it never was an ATM, it was a loan ! Now the loan needs to be paid back. So it won’t just be that the ATM is closed, its that the house is a reverse ATM !
Luckily we have a strong manufacturing base. Oh, wait…
there was no house ATM in the 1990’s and people loved that decade
There *was* a stock ATM, or so some people thought.
stick ATM didn’t come until after 1997
I think there was another bubble then! My memory is a little weak here does anybody remember what it was?
Emerging markets were pretty hot until December 1994 when the Mexican crisis hit. Poplularly known as the Tequila Crisis.
Like Horton’s CEO said, “2007 is gonna suck!”
Gotta love the optimisim of realtors…
“Anyway, the market isn’t necessarily slowing down; it’s returning to normal. The market was hot and it needed more agents to handle the work. Now that the market is returning to normal, the noobies and fly-by-night real estate agents are no longer needed. Hence, they’re the only ones really feeling the slow down.
Doesn’t matter though, because things are going to heat up this summer anyways. The word on the street (Wall Street) is that interest rates are going lower, and that’s great news for the folks with variable ARMS. Lower ARM rates also means lower payments for first time homebuyers. The Chicago market has a great supply of inventory, low rates and lots of young couples. Things are looking pretty good for the next few months.”
http://yochicago.com/today/quote-of-the-day/quote-of-the-day-sales-slump-a-reality-check-for-some-agents_4453/#postcomment
“Residential builders have piled on incentives, including free vacations and new cars, to sell homes and reduce inventories. Such incentives are not subtracted from the sales price reported to the government.”
Pretty soon they are going to include 5 years living expenses into the friggin home price. It’s so ridiculous.
It #*$&%^ me off that those incentives aren’t included in the comps. Its an effort to deceive homebuyers. I wonder how long it will be that banks catch onto this and stop the practice. Banks sure are dumb lately. They are worried about financing 95% LTV, but yet they will finance 100% of house, car and trip without blinking. In the end it turns out to be 120% of the house ! That will be the next thing the industry clues into !
Yeah, my question is, with all of the “blame game” starting full force lately, where are the builders going to find a foolish enough appraiser to give them the appraisal they need to complete this inflated equity value loan?
where are the builders going to find a foolish enough appraiser to give them the appraisal they need to complete this inflated equity value loan?
Never underestimate the ability of today’s appraisal profession to supply a stone cold number hitter.
The state’s in their infinite wisdom licensed thousands of incompetants who are now starving to death after spending hundreds of dollars for fees and mandated education.
A certain segment will do anythng to survive.
The situation will only be solved by the passing of a law which makes it a federal felony for a lender or representative thereof to coerce or exert adverse influence on an appraiser to come up with a predetermined value.
USPAP already states this-but the hacks ignore it, and just laugh all the way to the bank.
Pretty soon those builders will become car-salesmen offering free new homes as incentives. It might be a good idea for GM since they’ll be acquiring a tidy number of foreclosures in the next year. Do a tie-in like “Buy a Suburban, we’ll throw in a suburban house!”
“Sales in January were revised lower to show a 15.8% drop to an 882,000 annual rate, compared with the 937,000 reported previously. Reported sales for December and November were also revised lower.”
Why am I not surprised.
Isn’t anyone else incensed by the ongoing flagrant data, headline, and public manipulation?
I used to be, but the mainstream media jumped the shark years ago. Today they are so far beyond my threshold of caring, located somewhere between Incompetencetown and Irrelevantville, that they can’t evoke any kind of emotion or response from me any more. The MSM is the communications equivalent of empty calories: they talk and they write in super-sized quantities, and fill our minds with… nothing.
My inner Snidely Whiplash is almost happy when the MSM continues to write their fluff pieces about real estate and money because it just means that I will better-informed than 95% of the population, and that will be to my financial advantage (and to that of most of the people reading this blog).
LOL! However, sad but true. Many of us here will be a in a better position, esp. if we want to buy.
“My inner Snidely Whiplash is almost happy when the MSM continues to write their fluff pieces about real estate and money because it just means that I will better-informed than 95% of the population, and that will be to my financial advantage (and to that of most of the people reading this blog).”
*******
Take out the blog part of that statement, and I’ve had the same feeling for at least a decade. Probably longer, since I stopped paying much serious attention to the network evening newscasts in the early 1990’s, if not earlier.
The financial MSM only got “worse” (better?) at the end of the dotcom era, especially in San Francisco.
“Mark Ernst, CEO of H&R Block Inc., has said repeatedly the company will announce whether it has reached a deal to sell Option One Mortgage Corp. by the end of March. But it may have to lower its $1.3 billion asking price on the unit, which deals in risky subprime mortgages, if it wants to cut a deal by then.”
The secret to selling something in a downturn is the willingness to lower your list price to what the market will bear. The same principle applies to owners of subprime subsidiaries who cannot find a buyer as applies to homeowners who cannot sell their homes at last year’s market price.
“There are likely to be more provisions in the future, and you would think an astute buyer would know that,’ said Donn Vickrey, co-founder of equity research firm Gradient Analytics”
At a mere $1.3B, for a nuclear waste dump. That’s hysterical.
“Honey, I’m going to the store to buy OptionOne. I should be back before dinner.”
“Honey, do you have change for a twenty? I’m going off to buy OptionOne.”
Who wants to sell to an “astute buyer”?
I’m looking for a dope, frankly.
Then HRB would need to look no further than the same mirror their OptionOne unit used to verify that their prospective borrowering clients had the capacity to fog. Talk about suckers. I wonder how many heads will roll…
“Mark Ernst, CEO of H&R Block Inc., has said repeatedly the company will announce whether it has reached a deal to sell Option One Mortgage Corp. by the end of March.”
My hunch is that Wall Street is very worried about the implications of the subprime sector. I don’t mean on main street home prices, but on the CDO’s and other derivative products. I wonder if they will be forced to buy these firms just to avoid a substantial collapse of the financial markets. Does anyone have any insight into this?
I think you’re right but look for a goodly haircut on any such issues before that happens. Certainly the buyout rumor is one arrow in the quiver institutional investors and their media minions have to fend off the downward attacks on these companys’ stock prices.
Correct me if I am wrong, but doesn’t H&R do taxes. What were they thinking (oops they weren’t) when they got into this subprime mess? And what does it say about the industry is they want out now?
Taxes are very lumpy earnings (you essentially earn your year in Feb-April). Management wanted a more steady cash flow business. They bought Option One in 1998, so perhaps management can be excused for not forseeing the housing bubble back then.
I believe they started doing “get your tax refund now” loans first and, successful at hosing the mathematically challenged, they saw subprime mortgage as a “natural” extension of their new found lending “expertise”.
Anyone who’s spent any time in the corporate world can see how this kind of thing unfolds. Something is successful, something appears to be akin to the successful endeavor, so (naturally) the new venture will work. Sometimes it does (for a while) but the lack of understanding of some of the key (regretibly not obvious) realities of the new business often come back to haunt the “geniuses” who employ this logic.
Most people don’t respect the nagging little details that often make all the difference in the long term success of a business. They usually pay a price for this void in their business knowledge.
LIErah call your office” is he in FL?
The median U.S. home price was $212,800 in February, 1.3 percent less than a year ago and down 7.6 percent from a record in July.”
That trend is roughly 1% down a month. How can you spin that?
This is great news. But, as an LA lifer who is surrounded by 99% 1920s and 1950s houses, I would like to ask: where are all these new homes that aren’t being sold? Are we talking Las Vegas, AZ, FL? Here in CA, the only new homes I see are along the 10 east toward Palm Desert, and in some in Camarillo or Canyon country, basically in areas that would give you a nice 1.5 hour commute to your job in LA. I can’t think of a single area of CA that is overbuilt with new homes where people would actually want to live, as their first choice with price not being a consideration. I really hope this bubble doesn’t pan out so that older, more desirable areas are not affected, but that’s how it’s looking at this point.
Come down to Orange county. Plenty of new tracts in Irvine that aren’t selling. It doesn’t take a genius to figure out why. Buy a 2/2 condo here and you get stuck with over $1200 a month mello roos and HOA before you even touch the mortgage.
With the “Great Park” and Ladera Ranch 2, we are going to add over 20k new homes here in the next few years. Strange that they keep building here. People are leaving, not coming.
I never could understand why anyone would subject themselves to that, you have some neighborhood HOA nazis telling you what you can and can’t do with your property, plus you have to pay over $1000 a month for the privilege? And a 20 minute drive to the nearest supermarket? Orange County could have been such a nice place to live, were it not for all the central command-like land use planning going on there.
Don’t get me started on the HOAs. They are a main reason I may never buy in OC even homes go down by 50%. The more I think about the entire cesspool of Southern Cal, the more I want to leave for the country. Northwest South Carolina looked very nice. And no I am no locust. I have been here 22 years and just when you think it can’t get worse it does. Overpopulated, overpoluted, over regulated. Guess it is just time to move on. And unlike most equity locusts, I am not looking to buy or build some grand Faux Chateau or Garage Majal. I am absolutely stunned by what 100 grand will buy in Spartanburg South Carolina. 3 bd 2 bath is all my family needs. Now if I can just get that job to take care of health insurance, utilities, and groceries, I’d be gone in a heartbeat.
Have neighboor that parks his 38′ RV on his front lawn and you’ll learn to appreciate HOA’s.
Where I come from we have something called “municipal government” that prohibits things like that. And it has professional employees to enforce bylaws, not neighborhood busybodies on power trips.
Mello-Roos “In the U.S., a form of financing that can be used by cities, counties and special districts (such as school districts) to finance major improvements and services within the particular district. Special taxes and bonds used for Mello-Roos financing can only be issued by counties or districts in which two-thirds of the voters in the area have voted in favor of becoming a Mello-Roos district.”
I had to look that one up.
Mellow ruse: Strategy by developers and homebuilders to transfer infrastructure fees to future residents. The developer buys a piece of property and “votes” to create a Mello Roos district.
“If there are fewer than 12 voters, then a vote is held among landowners, with each acre of land or portion of an acre counting as one vote.”
http://www.ceres.ca.gov/planning/financing/chap2.html
Look up “Proposition 13.” It’s aptly named.
It is amazing, but apparently there have been PLENTY of people willing to set themselves up for a 1.5-2 hours commute. Think about how Santa Clarita has exploded in size in the last 10 years, not to mention Acton, Palmdale/Lancaster, Perris - all those places which I would have former regarded as refuges for societal drop-outs and retirees who forgot to save anything. Instead, they became the last “affordable” place for L.A. workers to buy (leverage into) a house. 500K for a stucco box in the desert.
Paralegalville.
Places like LA that didn’t get construction bubbles got price bubbles. Places that didn’t get price bubbles got construction bubbles. To see a construction bubble, head for the Inland Empire or Downtown LA.
I live in LA’s Westside. You would think the area is built out, but look again. In Westwood, Cheviot Hills, Rancho Park, Brentwood and Santa Monica, every single house that has gone up in the past few years is an oversized McMansion. They simply tore down the old bungalow and put a monster on top of a tiny lot. Check out the corner of Olympic and Overland. Big McMonster has been sitting empty and for sale (recently for lease) for months. No, we don’t have the ugly tracts of cookie cutters, we just have a couple of eyesores in every block. And they are mostly empty or inhabited by future foreclosed on FB’s. Rant off.
Woot, another WLA person. This Saturday evening the WLA bubble bloggers are heading over to the San Francisco Saloon (good as place as any to celebrate bubbleness) to hang out and talk bubble. Welcome to come! Announcement with time and address coming Friday.
Hope you guys have fun!
We need to get a San Diego group together already!
Cassiopeia, I know exactly which house you are talking about (it’s on my morning commute route). My headlights hit that thing square in its gaping may about 6:30 a.m. every morning–yet another reason not to buy. Have you noticed it went from For Sale to “For Lease” in the past few weeks? I would like to congratulate the GF who thought someone would want to buy an overstuffed McMansion on such a busy street.
Errr, gaping MAW. I don’t know what a gaping may is.
Oh, Central Valley Guy, you won’t believe what I found on Zillow. I was ready to write another rant and then I thought maybe I’d check, so here’s the deal. Are you sitting down?
2203 Overland, 90064
The thing SOLD on 1/23/04 for over $2.3MILLION (???!!!)
But that’s not the worst part. Previous sales data show the original house (1,108 sq ft) was bought on 3/22/04 for $646,000.
So tell me, why is it for lease? Can someone find more data on this?
Well the people who bought in 2004 DID tear down the previous home and put this up in its place (hence the ginormous jump in value between 2004 and 2007 sales). Still utterly ridiculous but at least it explains the hubris. I am SURE it’s for lease because they are way deep in the hole and are looking for the ummm, inevitable spring market recovery to put it back on the market at their sweet dreams price.
“live in LA’s Westside. You would think the area is built out, but look again. In Westwood, Cheviot Hills, Rancho Park, Brentwood and Santa Monica, every single house that has gone up in the past few years is an oversized McMansion”
Same thing up in the hollywood hills. One can drive up thru those narrow canyons where million$ homes are literally stacked like pancakes along twisting ascending roads, yet one sees new MCmansion construction being squeezed onto any available hillside plot. Amazing how hollywood hills homes are squeezed and built into nearly vertical lush canyons.
Compared with the megamillion$ estates of the rich and famous in such lush canyon recesses as Brentwood,Bel Aire estates, Trousdale, and Mt Olympus, the rest of the westside is somewhat piddling.
YES! I know exactly which one you are talking about! Every time I headed to Centuty City or “up in that area”
I was suprised when I made a trip back to LA in February that it was for Rent, is that damn thing STILL for rent?
If you want to see another good example of a monstrocity take a look at this place over on Lucerene down from Sepulveda Blvd.
According to foreclosure.com it’s in foreclosure, they couldn’t sell it as a 2600 squarefoot home, so they tore it down to a single wall (stud?) and rebuilt this monstor on it. And the houses next to it look like crap.
The zillow rating for it is 1.3M amd it’s entry:
http://www.zillow.com/HomeDetails.htm?zprop=20437312
The ‘east’ view shows the progress of the construction of this monstrocity.
Who would want to pay 1.3 million to have gang bangers walk behind your house on the path along the LA ‘river’ !?!?
(I used to live in the ‘Villa Isabella’ apartment complex next to the McDs before moving to Tokyo and I used to go jogging behind that neighborhood and used to see the ‘progress’ of that house and even went in during an open house. )
You really need to get out of LA once in a while, if not leave altogether.
LOL. I resemble that remark!
If I do leave, it ain’t gonna be to freaking Newhall or Porter Ranch…
Do me a favor and drive through the Santa Clarita Valley (Valencia, Newhall, etc., all part of LA County). Remember what it all looked like 5 years ago? Get out of the Westside every so often.
Or go to Playa Del Rey and count how many housing units are going up).
Or go to, like, The Valley and look how much they’ve put up in the Porter Ranch area.
Sure, not a lot of huge developments going up in Venice, but can all of your neighbors actually afford to buy in Venice at these prices?
That’s exactly my point. Porter Ranch, Santa Clarita, Valencia, Newhall…that’s where all the new development is. Was. Playa Vista is the only decent area you mentioned, and those are not SFHs. I have passed those areas, usually when driving out to vacations or something I had to do in Bako, and it’s not pretty, I sure would hate to be a renter in LA waiting 7 years for the bubble to crack to pick up a house only to find deals out there. And yes, I am a westside snob, if that’s what you are trying to insinuate. One hundred degree + summers and 2 hour drives on a daily basis don’t agree with me. If I couldn’t afford to live here, I would leave So. Cal.
Well, here’s another thought… in Pasadena, which after 130 years, one might have thought was completely built-out, discovered that they could continue development by tearing down small businesses, lodge buildings and old SFHs and putting up condo high-rises with retail on the ground floor and parking underground.
I can’t imagine this is an isolated trend.
How are those things selling?
This is the in-town (not downtown) Seattle trend–knock down a single family house and put up sets of 3-story tall townhomes; the two in the back of the lot are entirely hemmed in by the front ones and have no view. Ground level is nothing but garage doors, front doors and concrete in the canyon made by the townhouses. iN in-town neighborhoods these 2BR + den townhomes are going in the 450K range.
Are you sure you don’t live in Valley Village/Sherman Oaks/Studio City, because that’s all they’re building there.
I guess that’s why stucco boxes are worth half a million, they’re not making them anymore and your alternative in the big cities are stucco boxes that are attached to someone else’s stucco box.
“in Pasadena, which after 130 years, one might have thought was completely built-out, discovered that they could continue development by tearing down small businesses, lodge buildings and old SFHs”
In Glendale just off the dwtn district there was a new 11-unit stuccoed condo complex built where once was two SFH lots. Seen quite a bit of this in glendale and in other densly-built urban areas.
Developers all over LA are busily cramming multi-units onto any available open lots or razed Sfamily plots. I believe they call this infill development. In carson, a 4-acre parcel is being graded for townhomes.
The westside/midwilshire/dwtn population will soon have a choice of cool multi-units available, from fortress box dwtn mid-hi-rises to art deco sliverwood stuccos to playa vista transformer-like condos units(whoever designed those units must have been a former computer-chip engineer).
OK, I get you. I would recomend you do this: Get some data on historic housing prices in The Westside from 1980 or so to the present. Take a look at what happened to prices during the late 80s/early 90s drop. I haven’t looked at the data myself, so I don’t know how The Westside fared…but if you see a drop during that time period, then don’t give up hope for now. Structurally, now is so much worse because the high prices are now built on the house of cards called easy credit. Again, I’ll ask, could you or your neighbors afford to buy the place you currently live in at today’s prices? Or maybe we are thinking that the super-rich are buying up property because they want to live to cool people like your neighbors?
With that reasoning, we are in for a fall, because very few westside people I know could afford their current houses, at these prices. On the other hand, it isn’t people like me (or my friends) who are moving in here. All the newcomers are these weird, yoga-obsessed, BMW driving yuppies. They are a different breed, and I’m not sure what their finances are, although they sure look like they have more money than I do.
That reasoning is sound only if a lot of current owners need to sell. If I know I couldn’t afford my own house at today’s price, but I enjoy living in it, and I didn’t over-leverage, why would I sell? If most of my neighbors feel the same way, then (a) inventory will be extremely low, so (b) only a few (presumably qualified) buyers will be needed to keep the prices up. This is the situation where I live; the zero to two SFHs which are listed at any given time sell within a week or two, at or near asking price. Yes, prices may be down from the peak by as much as 10%, but they’re still around $1M.
LA- All the BMWs, etc. are on credit. It took me a while to realize that people just don’t have as much money as they like to pretend. I work in a highly paid industry, and all the new employees feel a need to buy the requisite BMW. I have asked before who all these people are who can afford these homes. People say, “oh, its Hollywod money.” BS. Nearly everyone borrowed beyond their means. They cannot afford it. This cannot end well.
SF Bay- As for the second argument, it cannot fly- prices change at the margins. Why did it drop 30% in West LA (and even in the Bay Area) in the last bubble? Someone always has to sell and will lower prices. If your argument were true, prices also would never have gone up at such a ridiculous rate. There is nothing magic (or affordable) about $1M for a POS house.
OK, I get you. I would recomend you do this: Get some data on historic housing prices in The Westside from 1980 or so to the present. Take a look at what happened to prices during the late 80s/early 90s drop. I haven’t looked at the data myself, so I don’t know how The Westside fared…but if you see a drop during that time period, then don’t give up hope for now. Structurally, now is so much worse because the high prices are now built on the house of cards called easy credit. Again, I’ll ask, could you or your neighbors afford to buy the place you currently live in at today’s prices? Or maybe we are thinking that the super-rich are buying up property because they want to live next to cool people like your neighbors?
“Playa Vista is the only decent area you mentioned, and those are not SFHs.”
Playa Vista is a nice area, but those condos remind me of Soviet stacked concrete box construction. They may be nice on the inside (?) but they’re ugly when viewed from the street.
True that. But you get to walk to such cool places as Home Depot and the US post office.
Seriously though, at least you get decent air and weather, which looks pretty good to someone moving out from Santa Clarita or Burbank…
Not to mention that these things are built on a natural methane gas reserve’. Notice all the little warning signs around?
It is the only residential community in the US built on one. The other place that they built on a methane gas reserve was in Texas, and there they built warehouses and there was an accident eventually and kaboom!
“the only new homes I see are along the 10 east toward Palm Desert, and in some in Camarillo or Canyon country,”
The largest number of new SFH tracts are in the IE in such places as Moreno valley, corona, norco,rancho cucamonga,banning, beaument,menifee,Perris,Hemet, San jacinto, Temecula,Lake elsinore,ect. Back in 2006 I went to a site in Banning which was grading and building a 1000-unit tract development. Just last week I was in Moreno valley and went north up Pigeon Pass road off the 60/215 fwy about 3 miles and there was this spankin new planned community(Sunnymead Ranch)built around an artificially created lake up in the rocky hills.(ZIP 92557) All 2-story brown stuccoed,spanish-tiled cookie-cutter 3000 sq ft Mcmansions, typical of hundreds/thousands of other new IE tracts. Problem is Moreno valley is a tough 2-3 hr commmute to LA/OC and the 215/60/91 fwys in this area are extremely nasty gridlocked bottlenecks.
Victorville/apple valley/Hesperia/Coachella Valley(Palms Springs area) also went nuts with overbuilding of SFH Mcstuccos, vast seas of brown-toned MCstucco. These areas will see bargain prices down to less than 200,000 by end of 2007, but even at that who would want them even at $100,000. 100% heat 8 months of the year, choking smog, section 8 riffraff, 3-4 hr commutes,no beach,no trees(large parts of IE are barren treeless steppe),monotonous strip malls,ad nauseum.
“Because of a jump in defaults, the lender recorded loan-loss provisions of $111.1 million, a nearly 750 percent increase from $13.1 million a year ago.”
What were they cooking? Who were they trying to fool? LMAO.
Found this on I-tulip:
Let’s all send this to our respective senators/reps:
“Dear Congress-critter,
There is absolutely no excuse for this. This is the most predictable “financial crisis” in history.
If you pay one red cent of my hard earned money to bail out anyone who was sold a mortgage they could not afford before you’ve extracted every red cent made by the lenders and banks who created this crisis–which iTulip.com has been warning you about since 2002 and dozens of web sites since then–I am going to do everything in my power to see to it that you don’t serve out your term of office.
Signed,
Hard Working Taxpayer”
Any “Bail Out” will be for the lenders.
Love that!
Seriously, we all need to send letters, e-mails, faxes, make phone calls, etc. — and we need to keep it up — until these politicians get the message: NO BAILOUT!!!
“Sales are reported when a contract is signed, not at the closing of the sale”
——————————————————————————-
Isn’t this great!? What an incentive for the builders to juice the numbers….and then they also get to book the revenue via “mark-to-market” accounting rules. Legal fraud at its best.
Excuse me, but in my business, the deal isn’t done until the contract is signed and the money changes hands. Call that the closing of the sale, if you will, but that’s how things work at the Arizona Slim Ranch.
In some businesses, the deal isn’t done until the check has cleared, or the funds have arrived from Visa, MC, or PayPal, and even THEN that’s not FINAL final, because they can ‘reverse’ the payments if they want to.
Ah the Ebenezer Scrooge policy. I don not ship until the money is in my account. A man after my own heart, at least on that accounting principle. This BS that the stats count when a contract is signed is BS. You have nothing until one side gets the keys and the other gets the check. Until then all you may have is something called escrow!
“Ah the Ebenezer Scrooge policy”
You betcha!
Gold guieneas, then! Then ye deal be done.
I just wonder if a house with a cancellation that goes under contract again is counted as two sales.
According to this article in The Street today, once a cancellation is resold it is not included in new sales. However, I’m not sure how reliable this information is.
“The government tracks the sale of a new home, but once a contract is entered, the deal is considered final. That number isn’t changed if the contract is canceled, nor does it change if the contract is canceled and then resold later on.
That means if conditions are worsening in the marketplace and cancellations are high, new-home sales would be temporarily overestimated. When conditions improve and canceled sales materialize as actual sales, the data is underestimating true demand because the sale of the previously canceled contract isn’t counted”
http://www.thestreet.com/_tscfoc/newsanalysis/homebuildersconstruction/10346626.html
Stephen Roach weighs in.
http://www.morganstanley.com/views/gef/archive/2007/20070323-Fri.html
There is at least one analyst on Wall Street who is smart enough to see through the ’subprime is contained’ propaganda:
“In terms of the asset effects, the key issue is whether the credit problems will spread up the quality spectrum – reminiscent of the contagion from dot-com to broader equities some seven years ago. It’s obviously too soon to know with any certainty, but the latest results of the Fed’s Senior Loan Officer Survey on Bank Lending Practices are not exactly comforting. In early 2007, the portion of respondents that were tightening overall mortgage-lending standards rose sharply – exceeding the readings hit in the 2000-01 recession and returning to levels last seen in the 1991 recession. Moreover, this latest tally represents sentiment as of January 2007 – before the full force of the subprime carnage broke out into the open. This is a fairly clear indication, in my view, that the problem is spreading.”
And once again, the barn door begins to close well after the animals have taken to the fields…
Roach and Rosenberg seem to have a grip on reality.
Their peers on the Street? Ahhh… not so much.
Funny, isn’t it, how some Wall Street analysts survive by lucid analysis based on addressing facts on the ground (Roach) while others really only qualify as entertainers (Kramer, Kudlow, etc.)…
TheStreet.com weighs in on the new housing numbers, as well, and puts them together with other housing measures. the result is aptly pessimistic.
http://www.thestreet.com/pf/newsanalysis/investing/10346665.html
an excerpt: To be sure, I am not looking for a depression in housing or for the economy — but those who look for housing to stabilize and for an increasingly restrictive mortgage credit market to be anything other than a substantive drag on 2007-08 aggregate economic growth are just plain wrong.
It’s sometimes fun to go back and look at several of the above mistaken views and hyperbole from those who should have known better, but it is even more worrisome to look at the state of housing demand and supply today, which leads to my broader economic concerns:
The explosion in mortgage delinquencies in the second half of 2006 has only recently begun to be converted from delinquencies to foreclosures (and for-sale signs). Currently, the housing market’s foreclosures stand at a 40-year peak.
Economy.com estimates that there were about 400,000 foreclosures in 2006. With signs of continued rising delinquency rates thus far this year, 2007 foreclosures should be considerably higher than last year’s figures. I would estimate that foreclosures in 2006-07 will add nearly 1 million units (or 26.5%) to the current level of 3.75 million homes for sale. Stated simply, most are underestimating the massive supply of homes that will be dumped on the market over the next year to two years.
While record foreclosures will assuredly lead to a rapid rise in the supply of homes available to be sold in 2007 and 2008, tougher lending standards (particularly in the subprime category that is the lifeblood of first-time buyers) will squelch housing demand. Historically, creative lending (option ARMs, interest-only, negative amortization, etc.) shored up the housing markets by allowing (indeed encouraging) otherwise unqualified borrowers to participate in the roaring residential market of the last few years. (I suppose that Anthony Hsieh, CEO of Lending Tree, might now have second thoughts regarding this quote back last year: “If you own your home free and clear, people will refer to you as a fool. All that money sitting there, doing nothing.”
Remember when everyone said it was going to be a soft landing ? How long ago was that ? You don’t hear anyone saying that now. Now they say the problem will be contained. What do they mean by that ? Only some of the passengers will get a rough landing ? That’s interesting.
Wasn’t it just LAST WEEK that we were told estimated sales had gone UP in February 3% or so, and wasn’t it just a few days ago that some real estate talking head was projecting that today’s clearer numbers would be 3% higher than last month’s, and this trend would continue throughout the year? Weren’t many news outlets claiming real estate was bouncing back? There was the usual caveat that the figures could be + or - five percent or whatever, so nobody could say for certain that the bumb really was one. Well, they can now. Don’t the real estate bulls mislead people with the same hooey every single month, creating momentary euphoria before the run gets yanked out, again? If somebody has already addressed this question above, please excuse me. I’m in a rush and haven’t read all the postings.
“New Home Sales “Tumbled” In February” kinda puts the “Housing Starts rose 9.3 percent in February 2007″ celebration in perspective.
Remember, a typical year for both is 1.5 million, a great year 2 million, a bad year 1 million. We are heading for another very good year for starts and the worst year ever for sales. The builders have been undercutting the flippers, but soon the banks will be undercutting the builders.
The news is so sensationalistic that it is worthless. Everyone is so shortminded….a report comes out and whoopie housing is recovering…then we get a bad report “it will take months, if not years to work out the inventory.”
This is a common sense problem. The problem is no one has any common sense. Hey, I got a borrower with a 510 credit, 95LTV NINA…want to buy the loan?
Last week on KQED-FM was exactly that.
SF prices wont decline because because etc etc
and its different.
LOL! You bearly ever heard any mention of housing
bubble over the past 5-6 years. And the bubble in the
bay area started back in 1998-99.
Still many never saw a housing bubble here in Bay Area.
I will buy their posh homes for 50 cents on the dollar.
How is it that new home sales dropped in February, yet existing home sales increased? I’m new to this blog, and perhaps this has been covered before, but I am very suspicious of numbers that come out of the NAR regarding existing home sales. I guess I just figured new home sales would jump since builders are throwing every incentive possible at prospective buyers in order to close the deal. In addition, it seems the big builders are much more likely to take a loss and drop price to move inventory than Joe Sixpack.
I am really not a conspiracy theorist, but the NAR represents people who make a living selling houses. It seems it is their best interest to have numbers indicate the market is “bottomming out” or even on the rise again. They love to stoke the fear of getting left behind. So given the fact that the NAR is a biased source, how much faith can one put in these figures? Do they ever revise them either up or down like the Commerce Department revises new home sales?
And how does the NAR get their data? Self reporting from individual realtors? Is there any potential for bias there, due to people not wanting to drop insome sort of ranking?
If anyone has come across a discussion of this please let me know.
Thanks.
The NAR changed the method of statistical analysis in reporting sales. They said “Most areas did not get impacted by these changes”. The problem is there is no breakdown of the areas and most could be 50.1%. Most of the country is not facing the magnitude of the problems of California, Hawaii, Florida. So most of the country could seem fine. LOL
NAR’s figures are invariably high estimates, though NAR will revise those estimates down later, to make a subsequent month look better by comparison. Whatever it takes to keep the sheep buying.
There is a Sucker Born every minute….
CRISIS JUST BEGINNING?
Florida is among the states hardest hit by the crisis, which some advocates believe is in its infancy. Florida ranks second to California in the percentage of subprime loans, or loans granted to people with poor credit histories, many of whom are finding they can’t make their payments.
By some estimates, up to 30 percent of loans in Miami, a metropolitan area with large poor and immigrant populations, are subprime.
The non-profit National Consumer Law Center said no one tracks the number of people trapped by mortgage scams but it agrees with the views of lawyers and consumer agencies that loan scams, which routinely target the poor and minorities, have proliferated with rising property values.
Jeffrey Hearne, a lawyer with Legal Services of Greater Miami, said his office saw few cases until two years ago but now has two dozen and sees one or two new ones each week.
“We are having to turn them away,” he said.
Cunningham said she was panicked about her finances when a sweet-talking lender knocked on her door. He promised to refinance her house and relieve her of mortgage payments for a year to allow her to catch her breath.
Cunningham said the scam artists used race and religion to lure her — “affinity marketing” tactics that experts say are typical.
“They sent a black guy. I’m black,” Cunningham said. “He said he was a Christian. I’m a Christian.”
The result: Cunningham says her mortgage, an $89,000 loan at 8.5 percent when she bought the home in 2000, is now a $234,000 loan at 11 percent. Monthly payments have gone from $1,038 to $2,275. And her name is no longer on the title.
“How do you think I’m going to pay $2,275 if I fell behind at $1,038?” she said. “I’m afraid I don’t even own my home anymore. I’ll be homeless.”
An anecdote:
A friend of mine (not in the RE business, nor a financial discipline) has been talking about potentially buying a house over the past couple of months (that it may be a good time to buy). I’ve taken more of a backseat with these discussions lately, so I gave him my current standard line. “If you love the house, and you are very confident that you can afford a fixed rate mortgage, and you feel that you can comfortably live in the house for at least 10 years, AND won’t be disappointed if the value of the house drops substantially in the near term, go for it–you’re making the decision to buy as a place to live, not an investment.” Of course, I always throw in that I’m not even looking at buying right now, even though I would like to own eventually.
Anyway, fast forward a couple of months from this earlier discussion. Today he said to me–”I’ve figured out this housing thing…”, I thought to myself “Uh-Oh”. He then said–”Buyers should simply refuse to pay these high prices. We don’t need to pay these prices. They’re friggin’ ridiculous.”
Bingo.
Importantly, again, this is coming from a fairly mainstream guy. He’s certainly no dummy, but he’s not a real estate professional or banker either, and I’m guessing he has an above average credit score (so he could get a loan if necessary). He came to this conclusion on his own.
Of course, once he made this statement, I couldn’t resist piling on a bit–that buyers generally never NEED to buy, but that frequently sellers NEED to sell, and that I thought he was dead-on right with his assessment (buyers unite).
Psychology is still shifting toward the negative throughout the population–it’s going to get a lot worse before it gets better.
Good for you!
Yes, all it would take to get pricing back to affordable levels is for buyers to realize that BUYERS SET THE PRICE!!!
It’s also why Prop 13, and similar tax laws, make good sense. Taxes should not be based on what speculators do to a market. They should be based on purchase price with a cap. Just like we rant against adjustable rates (when you can’t afford them), we shouldn’t have unpredictable property taxes.
That way, there are fewer distortions at the govt level — they can budget better, as the drop-off in revenue should be more benign than areas with taxes that move wildly up and down with no limits.
you’re making the decision to buy as a place to live, not an investment.
A place to live is an investment. An investment is an asset that returns income. The income from an owner-occupied house is the value of the accommodation, just as the income from an apple tree is the value of the apples.
People should be evaluating housing as an investment - looking at the yield based on rental of comparable property, and buying only if it’s favorable.
The problem is that among the general population “investment” has taken on the bogus meaning “something with guaranteed capital gains”. There’s no such thing.
I just did some market calculations for SLO County based on data from RealtyTrac.
March 1st: 368 loans in some form of foreclosure …
March 26th: 560 loans in some form of foreclosure!
That’s a 52% increase in just over 3 weeks. Keep in mind the entire sales for the county in February were just over 200.
I smell burnt stucco.
Ha ha. So much for the sell-off today. I guess repo activity was going like mad, because there’s no way markets should finish sideways on today’s awful housing data. When this pig does go down–and it will–take cover.
Once foreign investors get spooked you can say goodbye to the MBS volume and that will be another huge problem. China and several other countries have been supporting the U.S.’s voracious appetite for debt.
The dollar is going to have to stay in the basement. If it get’s very strong, via rate increases, that is going to create another huge problem. The FED has only once course of action… recession. A long deep recession. Look at gold.
“The result: Cunningham says her mortgage, an $89,000 loan at 8.5 percent when she bought the home in 2000, is now a $234,000 loan at 11 percent. Monthly payments have gone from $1,038 to $2,275. And her name is no longer on the title.
“How do you think I’m going to pay $2,275 if I fell behind at $1,038?” she said. “I’m afraid I don’t even own my home anymore. I’ll be homeless.” ”
Why don’t you put some of that $145,000 refinanced money back towards your monthly house payments? Oh, I forgot, you pissed it all away on bull$hit. They should’ve warned you about the downsides and pitfalls of pissing away $145,000 on bull$hit. Those unconscionable bastards…
“‘People who bought homes in the 1980s and 1990s started refinancing their equity out in the 2000s, so we can’t assume that foreclosures will only affect people who bought their homes in the last couple of years,’ said Schahrzad Berkland, who publishes the California Housing Forecast in San Diego.
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Just want to congratulate another former HBB poster (not sure if she still lurks). Schahrzad Berkland used to post here as “Powayseller”.