“The Days Of Wine And Roses Are Over”
The Contra Costa Times reports from California. “East Bay cities such as Berkeley, Brentwood, Clayton and Walnut Creek experienced a nearly 25 percent drop in median home prices from February of last year. Walnut Creek’s median home sales price dropped to $519,000, according to DataQuick, making it lower than the median home price for Martinez, Brentwood and Pinole.”
“‘There were two condo conversions going on in Walnut Creek,’ said John Karevoll, a DataQuick analyst. ‘It looks like those tugged the home median price down.’”
“In tiny Moraga and Orinda, which had about a dozen sales each and rising prices, one home can push down or pull up the price hundreds of thousands of dollars, said Micky Gill, an agent in Walnut Creek.”
“Gill admitted he has seen a drop in prices, but not a dramatic one. ‘I’d say there has been a decline, but only in the 10 percent range and not 22 percent,’ Gill said.”
“He said that decline is based on a few reasons, including housing stock, but also on the older population of Walnut Creek. ‘They want to sell without making improvements,’ he said. ‘Their equity is huge … and sometimes they don’t want to make more than $500,000 (to avoid capital gains taxation.)’”
“(Broker) Lila Owens and her mother, Varnell Owens, an agent in Oakland, said that some of the big price changes could be based on last year’s overbidding and inflated appraisals, which is now at an end.”
“‘With some of the properties we have sold, buyers slightly overbid on properties and that drove up values in the neighborhood,’ Varnell Owens said.”
The Orange County Register. “The end came as no surprise, but it was still a shock for laid-off workers at New Century Financial Corp. when the Irvine-based subprime lender filed for bankruptcy protection Monday.”
“‘This is like the Titanic sinking,’ said Erica Olsen of La Palma, a unit manager at New Century’s retail lending arm. ‘We never thought New Century was going to sink and it is.’”
“She was among the 3,200 New Century workers – 500 in Orange County – who lost their jobs Monday. New Century still employs about 1,000 workers in Orange County.”
“About two dozen colleagues gathered at an El Torito restaurant for what they dubbed ‘the last supper,’ a farewell lunch with beers and margaritas, tears, hugs and a little gallows humor.”
“Many of the laid-off employees had experience losing jobs in the mortgage industry, which seems to go through a crisis every 10 or 15 years. At El Torito, they joked about future employment opportunities. Contestant on ‘Deal or No Deal.’ Pole dancer. Singing bus driver, said a woman who burst into a rendition of Gloria Gaynor’s ‘I Will Survive.’”
The North County Times. “The imploding sector of the housing market that was built on risky loans has become a major drag on the economy, but it is not, for now, at least, expected to push San Diego and Riverside counties into recession, according to the new UCLA Anderson Forecast.”
“‘Although we believe that our no recession-soft landing thesis for the economy remains intact, we are becomingly increasingly nervous about the economic outlook as the period of below-trend growth grinds on,’ the report states.”
“In many cases, loans were issued with no money down and carried adustable interest rates. Such loans exploded in popularity toward the end of the housing boom, which ground to a halt last year after a final hurrah in 2005.”
“‘The only thing keeping the party going in 2005, when affordablility was at an all-time low, was the fact that you were making loans to people who couldn’t afford a home anymore,’ Ratcliff said.”
“But now many who bought homes are receiving default notices. Counties throughout California have seen significant spikes in such notices. Between the fourth quarter of 2005 and the last three months of 2006, defaults soared 180 percent in Riverside County, the report shows. San Diego County, meanwhile, saw defaults surge 160 percent.”
“But Robert Campbell, an independent San Diego economist who closely tracks the real estate market, said, ‘I think they are dramaticaly underestimating the risk.’”
“Campbell said people aren’t going to make up their payments because they couldn’t afford their homes in the first place. ‘What’s it going to take for these people to hang onto these mortgages? Income, and lots of it,’ he said.”
“Robert Brown, chairman of the Department of Economics at Cal State San Marcos who tracks North County home prices and sale trends, said it isn’t just families on adjustable and interest-only loans that are having trouble making ends meet.”
“‘People are stretched, even if you just have a conventional loan,’ he said.”
The Recordnet. “‘We still expect to see substantial job losses in construction, and we’ve already seen more job losses in financial activities than we expected,’ Ratcliff wrote.”
“Ratcliff highlighted the subprime lending crunch, saying: ‘The days of wine and roses for the mortgage market are over. Only one year ago mortgages were available to practically any borrower who had a pulse.’”
“Brokers had loans for borrowers with no income and no assets and even NINJA loans for those with no income, no job or assets. Those days are over.”
“Lenders specializing in financing borrowers with marginal credit are closing shop; more than 25 subprime brokerages have closed their doors in the past few months, Ratcliff noted. Other lenders are tightening credit standards.”
“That could put the U.S. housing market into an extended downturn, the forecaster said. ‘In terms of duration it will look like the protracted decline that took place in Southern California from 1989-1996,’ he wrote.”
‘O.C. home sales run at 15-year low’
‘Between July 2005 and July 2006, upward of 40,000 more people moved out of San Diego County than moved in. Since 2000, the county has had a net loss of more than 100,000 residents. For those of us still here, that’s good news.’
NINJA loans… gotta love that term.
I picture the FB going about about his daily life none the wiser that there is a silent assassin with a sword at his neck following him everywhere.
Hey Ben,
I’ll let you in on a little secret…the folks in San Die-go did not move 30 miles north to the O.C….unless they moved in with the “folks” maybe the “folks” are being pressured to move to the “retirement home” with lawn bowling” … I apologize, I’m dripping like acid today…might have something to do with completing my taxes.
One of the comments to the story in that link:
“The problem with these figures is that they don’t count the number of illegals that have come into San Diego county. We may have lost 100,000 residents but we have probably gainged 300,000 illegals which is why the schools, streets, etc are still overcrowded. Get tough on controlling the border, then we will see a legitimate drop in people.”
To all the Chicken Littles. Sell out and move, that is if you even own a home here. There are lots of nice places for you to live other than Southern California. Don’t let the door hit you!”
Here’s another classic from one of the comments on that NC times story.
I would agree with that.
“…net loss of more than 100,000 residents.”
Some of these 100,000 neg outmigrants must have been homeowners, right? And how many new homes were built since 2000? Must have been on the 10,000+ range, easily (there are well over 1000 homes of 2000 and later vintage in 92127). This sounds like a recipe for a real estate crash to me. What is propping up the prices of San Diego homes, other than air?
Controlling the border is about as possible as winning the war on drugs. As long as the illegals have family in the US and job prospects they will keep coming, get deported, come right back.
On NPR they interveiewed a guy that had to take time off from his work because he was deported again and would take a few weeks to get back into the US. I don’t see that changing.
What they need are more raids and fines of companies that hire illegal workers.
“What they need are…”
What the SD housing market needs is fewer liar loans to illegal workers, and with the subprime implosion, I believe this is also what we will get.
controlling the border is very easy enforce it once and you will not be challanged for a few decades… example russia shot japanese fishermen after they were repeatedly told not to go into the waters to poach fish. after that no more poaching was done… with land border it works the same enforce it once shoot 1 person coming across and the rest will think twice.
This would really help firm up friendly relationships with our neighbor to the south… (sarcasm off).
When was Mexico ever our friend?
I think President Polk should have taken the whole country when he had a chance, back in 1848.
If Mexico wants to abolish the border for purposes of exporting its surplus population, maybe we ought to abolish the border for purposes of exporting our legal and economic system. Mexico would look like Arizona within a decade.
I lived 12 years in Mexico City. A joke that I heard there (more than once) goes:
Q: What was Santa Anna’s biggest mistake?
A: He only gave half of Mexico to the US.
personally, i think the best approach is to bill the Mexican gov’t our actual cost to apprehend and return each illegal. we should also bill the Mexican gov’t for the medical cost of illegals.
“we should also bill the Mexican gov’t for the medical cost of illegals.”
Don’t forget Federal backtaxes (which is what put Al Capone in prison…).
good luck trying to collect on that
How about the more than 1 million illegals in US jails? Think Mexico would care to kick in on that?
They come here because there are EMPLOYERS who HIRE them, be it manufacturers of an array of items from sandals, hot tubs, power plant cable to homes & office buildings just for starters. Then there are restaurant owners, agriculture employers, a guy needing ‘yard’ or contruction help, mom needing ‘nanny’ or ‘housekeeper’, etc, etc. If there were no JOBS there would no reason to come (and no way to buy a home either). I think the lack of employment would be an effective ‘wall’.
look ma - no comments.
Where I grew up in Canada it was pretty customary for kids out of high school to take the low paying jobs. This was to finance college by working in the summers and evenings, or just as a stepping stone to a better career if college wasn’t your thing. Here is California it is rare to see young kids taking these jobs. Instead, parents provide their kids with cars and an allowance and pay their tuition. Net result, you need the illegals to come and do the jobs that are usually taken by the youth…
Not completely disagreeing with you, but I seem to remember a story of a 16 year old in SoCal who was turned down at a job at McDonalds because he was told he “didn’t speak Spanish”. I don’t remember if I read that in the paper or if I read it from someone on this blog…
It’s a myth about ‘kids these days’ getting everything handed to them. We had four kids and never supplied them with cars, cash or gas, let alone full tuition. They paid for college with a combination of loans, grants, scholarships, job earnings and some of our savings. We moved to So. Cal in 1998 when our youngest started college. He couldn’t get any of those ‘low’ paying jobs. In fact it seemd like none of the non-latino kids could get these jobs in spite of applying over and over again. He finally got a job at golf course (Hmmm wonder why). There is no justification for hiring illegals. These workers are open for exploitation by employers who know they won’t talk or complain about anything. Cheap labor alright. It’s interesting to note that when we moved back to the BA in 2005 we noticed that most of the jobs our older kids had in high school were now taken by mostly latino youth and young adults. I’ll get off my soapbox now and get back to work….
Climate is helping to prop up the home values in SD.
Is the weather better now than it was 7 years ago, when houses were half as expensive?
Lansner:
“This year, though, year-to-date sales ran 13.6 percent behind the historical lethargic year-starting pace. If that trend continues, 2007 would be the slowest year since 1992.”
Some facts to weigh in:
1) This year is currently on track to be a slower year than the year the OC went bankrupt (1994).
2) 1992 was during an ongoing recession in Southern California (it officially ended in 1991 for the rest of the country, but SoCal was hit harder due to defense contracts).
3) Lots more people live in the OC now than then, so a drop to 1992 sales levels is much larger as a share of the population.
Ah yes….the Robert “Bob” Citron fiasco.
One man’s bad financial stewardship lost the country several billion.
What is even funnier is OC re-elected Citron after Moorlach ran against him and warned of the future derivative debacle.
We hate bad news so much in OC, we would rather believe in the derivative fairy and have the County go BK than listen to a warning about risky behavior.
That is the essence of the OC psyche.
I remember sending my property taxes to Robert “Bob” Citron on the preprinted envelope. He was a hero until they figured out that he knew nothing about investments. Scary.
The key difference is #2. There is no massive restructuring of the workforce and permanent loss of high paying defense industry jobs.
This slow down is driven by bad credit management and a return to less risky lending standards. Rates are still relatively low and many sellers trying to cash out still have the income to pull their price inflated homes off the market.
A recession would be murder. Consumer savings rate last year was negative.
It’s good news if you can survive San Diego going bankrupt and the recently announced 35% increase in water and sewer rates. Pension problems “hidden fron the public” and no ones knows where the payments will come for the billions of debt “not” being made. Ask the corrupt city council members and you get no answers. Don’t think the future of San Diego looks that great.
Calling Enron-by-the-Sea, are you out there?
Jerry? Is this Jerry Sanders?
Let’s not be pessimistic. I mean, we just did complete the 2003 audit. What’s that? It’s 2007!? Erp.
And where are the 2003 Audit results? We should have the
Audit for 2004 by 2011 at this rate.
“Don’t think the future of San Diego looks that great.”
Maybe they can hide the liability Enron-style until the next boom? In fact, I think lots of government entities are playing this strategy, not just San Diego…
I remember reading about San Diego county’s population decline back in 2005. IIRC, the YOY population decline from 2004-2005 was the first time that had happened since the mid-70s.
The populist in me says that high housing prices are bad because they do force out people who would otherwise wish to live there. The cold, calculating libertarian in me says that this is merely phenomenon the market will work out on its own, that as prices increase, demand will decrease. The libertarian side almost always prevails in my consciousness and actions.
“U.S. consumer spending holding up better than expected, international trade improving and the anticipation of two or three interest-rate cuts by the Federal Reserve, “real GDP growth should remain positive for the balance of the year.”
Two or three interest rate cuts - I want to smoke what Ratcliff is smoking! The market is pricing in a chance of 1 rate cut in December. And WTF is “real GDP” ? Is that GDP calculated in the same manner as pre Clinton or is it calculated as now, without food, oil and with hedonic inflation?
I put the odds better than 60% that we have 2 rate increases by the end of the year. Cash is king for the rest of 2007. Keep your powder dry. Rent don’t buy.
We’re all in the “rent don’t buy” camp, but the “rising rates” camp is orthogonal to it. You are betting that Bernanke will protect the dollar without worrying about the recession. That’s an interesting view (I think GetStucco shares it?) and militates in favor of selling stocks short, and avoiding foreign currencies.
My bet is that rates go nowhere for the rest of the year.
I am also in the “deer in the headlights” camp.
I too vote for the “since we’re damned if we do and damned if we don’t, why don’t we do nothing and chat at the bar.”
Bernake can’t push a rope and he’s not willing to take the heat of tipping it over early by raising rates.
So no rate change in 2007.
Got popcorn?
Neil
Fed rates may go nowhere, but mortgage lenders will raise their rates independently. The housing market has been decoupled, and the hand of the market will push rates higher.
I agree with MBRenter.
I see little change, except banks and credit unions may offer 1/8 of a point less on CDs.
That’s called deflation and I’m clearly in that camp having been convinced by Mish Shedlock several months ago. Not sure about Getstucco though.
Deflation is my dream, being a chronic saver and hater of all debt. Inflation is probably my reality >; (
I, too, am rooting for deflation, but it might be “cutting off my nose to spite my face,” if I’m getting that saying correct. Namely that if we have deflation, I may profit in the short run since I am a saver and am 100% debt-free, but in the long run a deflationary cycle will hamper capital investment, reduce consumer spending, and make this economy a painful one where wages contract and there is little to no growth.
What they really meant to say is that, under these conditions (interest rates dropping), they expect the NOMINAL GDP to increase… as the dollar heads down the toilet.
“New Century still employs about 1,000 workers in Orange County.”
Yeah…that’s an encouraging statistic, I’m sorry this all seems like something I’ve heard before…when you endure an addict for a long period of time…you kinda become “Hip” to what’s REALLY going on.
They are dead men walking.
Simply window dressing during liquidation, which literally amounts to a software platform.
As soon as the BK trustee sets a directions the remaining 1,000 will jump from the sinking ship.
Hell, they are probably tuning up resumes right now!
Hell, they are probably tuning up resumes right now!
They probably are IT, accounting, or other support. If their resume isn’t out… they just failed the idiot test.
Good luck collecting that last paycheck…
Neil
I have several friends who were the last person out the door of a BK company after the dot-com boom. All were in IT and one now is a consultant specializing in IT management for companies going out of business!
one now is a consultant specializing in IT management for companies going out of business!
Lemonaide from lemons.
I was one of the last unlucky bastards out of Enron’s So Cal office.
I shoulda looted the laptop and PDA but that damn pesky integrity.
Sunsetbeachguy,
Naw, nothing there would have made you a better person or given you a better insight…it was..what it is…not much to do about anything…keep with the “pesky integrity”
new T-shirt:
Integrity is a Biotch!
oh…and the person that said this:
‘Their equity is huge … and sometimes they don’t want to make more than $500,000 (to avoid capital gains taxation.)’”
…is a bonified hee haw.
I have a question here for all the folks here. Now that MBS risk is obvious to the buyers of the junk CDOs, they’ll look to invest elsewhere. I can only see two asset classes that are large enough to absorb the capital: (i) stocks, and (ii) small businesses. Anyone see other classes? If not, does this mean the rich (since the middle and lower class are tapped out on mortgage obligations now) will get richer as the market rises to unprecedented heights? Or have people been intimidated by the dotcom bust? In which case, is there going to be a resurgence in small businesses all over the US in the areas where housing is cheap and infrastructure is paid for (for example, the Midwest)?
To absorb the capital? The banks bundle up debt and sell it off. The debt is bought by credit. Margin requirements have been cut recently to lower levels. We have debt backed by more debt.
Yup - they sell it for *money* that comes from investors who have *capital*.
“Now that MBS risk is obvious to the buyers of the junk CDOs, they’ll look to invest elsewhere.”
Or the foreign banks might throw in the towel, devaluate the dollar while using the dollars to buy commodities (i.e. oil).
Capital “moving” from one asset class to another is a fallacy. When 2 people agree that a stock should be sold for less than previous price, EVERYONE’S value falls. Just like housing, when 1 transaction is below “market price,” everyone’s house in the area falls in value.
Commodities are a zero sum game in theory, but if a lot of people are unable to pay up in a crash, the exchanges could go under and the winning side of the trade not paid.
Wheatie not arguing but need to understand where my thinking is deficient. Joe Smarts buys mbs securites for $10 in 2003 and sell the to Joe Notsosmart in 2006 for $20. Joe Smart goes out and buys the new bubble item for $20 and Joe Notsosmart is stuck with MBS securities now worth $10 in 2007. Did not capital flow to the new bubble item?
Google Joel Kotkin….he’s written a fair amount about this subject in American Enterprise and American Interest..focusing on some of the new small ‘boomtowns’ for high-tech in the midwest, such as Fargo.
Small in terms of absolute numbers so far, but makes a good argument for the reasons you’re talking about.
I’ve a question here for all the folks here. Now that MBS risk is obvious to the buyers of the junk CDOs, they’ll look to invest elsewhere. I can only see two asset classes that are large enough to absorb the capital: (i) stocks, and (ii) small businesses. Anyone see other classes? If not, does this mean the rich (since the middle and lower class are tapped out on mortgage obligations now) will get richer as the market rises to unprecedented heights? Or have people been intimidated by the dotcom bust? In which case, is there going to be a resurgence in small businesses all over the US in the areas where housing is cheap and infrastructure is paid for (for example, the Midwest)?
First of the all. The US credit markets depth & breadth FAR out sizes the world stock markets.
Where do you think all that money that went into real estate and stocks came from? Not thin air.
First from U.S.Treasury borrowings, mortgage financings, and Japanese govt/ bank lending .
The HOW > US govt. borrows 1 billion, the banks buy the promise and lend 12 times on that asset, creating more fixed income assets.
Also, just because 87% of the Sub-prime hasn’t defaulted, doesn’t mean the elephants are actually getting OUT. A few of the early birds like Lehmen suckered our FANNIE & FREDDIE to absorb their trash, but the game is over there, when both announced they would NOT buy any more of these for their portfolios from anyone.
I beleive Merrill & Morgan Stanely, UBS are holding a joint auction, lets see who shows up…I think they are counting on privateers from China Problem is the implode-o-meter is now @ 47.
The Fed changed it’s statement today!
Paulson said the subprime market was well contained last week (2/23)!
Bernake said today “the subprime problem is likely contained.”
Suttle doubt has crept in. WHY simple just because 17% of the loans are defaulting, another 15% are 60 days past due. ( only 30 more days to defaults surpassing 25%……….Truth is 100% of these loans are BAD, and cannot be paid under the original terms. SO!
Bear Stearns hopes to put forward a plan where the bond investor recognizes a 15% write down. The mortgages are to be re-written (for a fee of courese) at 85% of their original face values not sure of interest payments to be paid.
So the moral is Borrow $1million in Sub-prime, never make a payment, for this good credit behavior and 6 months free rent. Wall Street will enforce a mandatory 15% principal reduction, New balance $850,000 (the IRS may call this income to the borrower), and you may get 3 years more of free rent.
Don’t forget to take your appliances & fixtures with you when you leave. Amegoes!
“He said that decline is based on a few reasons, including housing stock, but also on the older population of Walnut Creek. ‘They want to sell without making improvements,’ he said. ‘Their equity is huge … and sometimes they don’t want to make more than $500,000 (to avoid capital gains taxation.)’”
This has got to be on of lamest friggin’ things I’ve heard in a long, long time. That dudes credibility is outta here!!
I can’t believe the reporter let that by. Asking less money so you don’t have to pay taxes?
Wouldn’t it be long-term capital gains, ie 20% in the top bracket?
Meaning the guy is claiming that people are lowering their number because sellers don’t want to collect 80 cents of every dollar over $500K. Huh? I’m amazed it got printed.
And that is OVER $500K. So let me get this right. I’d rather sell it for 500K than for (510K-2K=508K). Makes sense to me. Didn’t want the extra 8K. Let the buyer take that money that it was obviously worth, but I didn’t want.
Let the buyer take that money that it was obviously worth, but I didn’t want
typical anti-gummint bunker-dweller thought processes.
Yep, I don’t want to make more than 8K a year so I don’t have to pay any taxes. I’ll show the feds not to mess with me!.
Geez
Although I could imagine that at the margin, this could affect conditions of sale and price. If, say the pool needed regrouting, it might make more sense for the seller to lower the price by 10k than to spend 10k fixing it.
I had a good laugh at that one also….
The agent hears about one person who does not want to pay for a fix up or complains about taxes and this becomes the whole raison d’être for a 22% price drop.
And now we all know why we should refused any and all pay raises that are being offered by employers; because of the higher taxes! (Just following the advice of a Realtor (TM), they seem to be all-knowing.)
Got
5%10% down?That’s why my sister-in-law doesn’t like to work overtime; higher taxes.
I gave up trying to reason with her.
And now we all know why we should refused any and all pay raises that are being offered by employers; because of the higher taxes
At Circuit City this was true, get a raise and get fired.
Yeah, that left me scratching my head as well…
So these are the choices, real estate agent Micky Gill:
Get (keep) $500,000 for the sale of your house.
or
Get (keep) $500,000 PLUS the after tax proceeds of profit above $500,000 for the sale of your house.
Hmmmmm, I wonder what I’d take…
Why do reporters INSIST on interviewing and quoting real estate agents like Micky Gill (”an agent with Century 21 Housing Associates in Walnut Creek”)
“Why do reporters INSIST on interviewing and quoting real estate agents like Micky Gill (”an agent with Century 21 Housing Associates in Walnut Creek”)”
Because Suzanne researched it.
Oh someone please do a parody of the commercial of the FB guy and put it on Youtube! Please!
I loved his expression in the commercial… He knew he overpaid.
By June layoffs will make this very interesting…
Got popcorn?
Neil
It was already done, IIRC. Don’t ask me to find it on youtube.
sunset,
will you find it on youtube…pretty please?
Well, it fits well with the “I need to spend more for a house to get a bigger tax deduction.” logic. Because it’s important to spend $2k more in interest to get ~$700 back in taxes.
I had a much different reaction to that quote. It would seem that Boomers loaded with equity could easily undercut the current market and sell for a windfall. If the majority of specuvestors would be happy with 100K in profit, why wouldn’t G’pa and G’ma make their peace with a lousy 500K? That’s a 30K+ pop to the retirement funds, and seems very likely.
But if mom and pop can make an extra 100K, they’re gonna do it, unless of course they are complete idiots. So you go over your exempt limit by a 100K and get hit with what? 25% cap gains? Yeah, I’d walk away from the 75K too to avoid the 25K hit…..NOT!!! Just give the 500K instead of 575K ’cause I just hate them capitol gains. I don’t care if cap gains were 50%, these folks would take the extra 50K instead of leaving on the table. Nah, the guy that made this comment is a moron.
Agreed, no one is going to leave $ 75 K on the table and most people can’t afford to. The guy is an idiot.
I know, I know it sounds totally moronic, but I’ve had endless conversations with my father and older relatives about their spending habits. And two things these children of the depression have in common is 1) never spend all you make, no matter how much you have, and 2) avoid taxes like the plague, to the point of reducing their IRA draw to the minimum or in this case, selling at house at a paper loss. Strange but true.
Okay. But why are they doing that more now than last year this time? Why is this post-1939 behavior somehow trotted out to explain this yoy decline? Wouldn’t this same logic have been operating all along, especially in a region with such large appreciation that the 500K cap has been in play for several years?
IAT
Seller: I’m asking 500K for this house.
Buyer #1: I’ll give you 550K!
Buyer #2: That’s below market! I’ll give you 600K!
Seller: Sorry, I hate paying taxes! This house is selling for 500K and not a penny more!
Not
Yeah, the reality is, people sell their house for as much as they can get for it in the timeframe in which they have to sell it.
Retirees have lots of time, but guess what? If they can’t sell it anymore for $1,000,000 to move to their smaller house, they’ll drop the price…because they can drop the price without talking to the bank.
Thus the divergence in the resale market. Those who are hanging on to their “wish price” until foreclosure because their debt load is too high, and those who simply drop their price to meet the market. One adds to inventory, one is the new reality.
But turnoutthelights has a point. The boomers parents and older boomers who need to sell will have a lot of equity and can cut the price without going under water.
Nah, the guy is a complete moron. If you’d heard the conversation I’m sure the comment would have sounded like a fart because it came out of the guy’s ass.
Could be the “Senior” owners are actually receiving a higher price than what is documented in the contract (under the table money). Remember, Walnut Creek, Orinda, Moraga = high dollar property = potentially large down payments. Gramps saves on cap gains, and the buyer saves on prop taxes, ins, etc.
When they end up in prison, I say put them in a cell with a cash-back fraudster and let them stare at each other for a year or two and talk about their “RE dealin’ days”.
turnoutthelights: I agree! $500K, $600K you can ask any price but no one guarantees a sale! Asking less improves your chances of a sale. If you got equity. $500K gives you a quick sale and you don’t have to go out to fast food while the Realtor shows your house.
We are hearing more and more just plain stupid comments about why the prices are dropping and why houses are not selling.
Was it yesterday where the agent said that easter came early this year, so many people were heading out of town already?
Come mid-May there are going to be some doozies out there.
Yeah, VE day may discourage people from buying May 8th, if the weather is good!
Ha! He might argue that “it’s not that they don’t want money, it’s just the principal of the thing (paying taxes).”
Could you imagine this guy advertising his services: “I’ll show you how to save on taxes!”
Could you imagine this guy advertising his services: “I’ll show you how to save on taxes!”
New Century just showed half it’s employees how to do this….
New Century just showed half it’s employees how to do this….
Nitpick. 3,200/(3,200+1,000) is closer to 75%.
Bwaaa haa haa.
Oops.. did I say that out loud?
Got popcorn?
Neil
Well I’ll be….the MSM outdid themselves. I thought they could not pull out a more straight faced BS lie than the ones over the last couple of months….but I was wrong!!!
I am still waiting for that old “swamp gas” excuse to be warped and adpated to somehow explain some bad RE numbers.
It is hard to tell the MSM from the Comedy Channel anymore…except the MSM is actually funnier.
I would guess the older owners don’t want to fix up their houses and use the 500K limit as an excuss for their unwilliness in not making repairs. This is where flippers came in back in the day. Flippers will do cosmetic fixes when in fact the sewer line needs to be dug up and replaced, and it goes under the driveway. Like fixing an old car at some point its not worth it to the owner.
Knock 30%…40% of a buying population out of the box and what do you get? No problem! Do the people quoted have a clue to what’s just over the horizon? New Century is only the latest to sink, not the last. The real show starts about June 1st by my reckoning - and then the Panic of 2007 may just get real.
In a way I have to agree with you, since I continue touting the ARM-reset chart that shows $25B/mo for the first 4 months of 2007 and then a steep climb to $50-$60B/mo by year’s end. On the other hand, I note with contrition that all of us here, including me, have made predictions that sort of jumped the gun - i.e., always thinking the “crash” part was right around the corner, and then being disappointed that it didn’t develop. If a foreclosure takes a year to evolve and be cleared, I guess the worst part of the debacle could be at the end of ‘08. ?
There will be no crash, no burn. Just years of homedebtors having the life sucked out of them.
Boy, that hits home! My wife says I’m a little too quick too. But like the clock, when it finally stops…
Comment by turnoutthelights
2007-04-03 15:56:58
Boy, that hits home! My wife says I’m a little too quick too.
Perhaps you need to google “foreplay”?
Or just play it like your tag? Wink.
I’m honestly not sure what to think. One day I feel like the whole sh!thouse is going to collapse, and then I read an article about the number of foreign investors continuing to sink money into US real estate. Subprime wasn’t the only thing holding this market up. I think there are also incalculable numbers of wealthy people playing stupid with their money and buying vast amounts of property.
Couldn’t agree more, Bear. Some days I just think this is the end of the economy, but then more dopey people keep shopping, buying crap they can’t afford or in the case you mentioned, foreigners bringing their money and practically giving it away.
Bottom line is that when this line finally does unwind to the bottom it will be ugly. I also agree that based on how long things take to unwind and my consevative nature, I realize that I am not going out on a limb, but I have to say the worst will be fall of ‘08. When the foreclosures of this summer become reality at the end of the year and next year’s reset hits full swing by summer, then it will really begin to settle in. Also, you can include all those that can’t sell because no one is left and their house has been on the market for a year+. Mark my words, Septermber ‘08 will be the nightmare Liarheea hopes to avoid.
Yep, that’s my timetable too. Inventory will be staggering and desperation palapable come ~Sep ‘08. But of course timing will be different in different market segments. With the subprime implosion hitting now, condos might cliffdive first. ISTR a chart showing that maximum dollar values of loans reset late ‘07-early ‘08, but I’m curious about the distribution. I suspect that lower dollar value subprime loans probably reach max reset BEFORE jumbos on McMansions. So it’s possible that lower end property could freefall THIS Fall rather than next Fall.
“I read an article about the number of foreign investors continuing to sink money into US real estate.”
This is a factor that can potentially delay and exacerbate the eventual crash, as builders will continue to build and sell to whatever GFs are still in the game. But at the end of the day, this can only slow but not reverse the downturn, as the foreign flippers are no more end users than are Clownifornia investors who own SFRs in Phoenix. Eventually, final GF bagholders will get stuck with the carrying cost on all the empty SFRs.
IMHO that is realtor twaddle. All indications are that there are fewer foreigners coming to the US than in 2001. If you have not been out of the country lately, it is a pain in the ass to get back in. If I were a foreigner, I could find nice places to visit where I wasn’t treated like a felon.
Agree, the slide down will be comparable to the length of time during which 75-80% of ARMs will finally adjust. Credit will not loosen while foreclosures are still accelerating, the only hope for many out there is getting a new loan to replace their existing loan, which is getting and more difficult.
The cycle is vicious.
from the trench,
conforming deals are being scrutinized like never before. everyone is dottting their i’s and crossing their t’s. i have not issued any commitment letters on any of my alt-a purchase approvals; i inform the buyers, sellers, and realtors that they have loan approval, but i make no guarantees that the will actually close. alot of the realtors have the “deer in the headlights” look to them. unfortunately, i’m in a surreal hot real estate market (boulder) so the sellers still expect these things to close or else. gonna be ugly.
help a mortgage noob out. What is a “conforming deal”?
Conforming means conforming to the GSE guidelines (Fannie and Freddie). Conforming loans are ones that they will buy. They have limits for loan to value, downpayment sources, and a limit on the amount of the loan as well.
A loan that meets the requirements of the GSEs (Fannie and Freddie). If it meets their requirements, then the lender can sell the loan to the GSE. The requirements include maximum loan amount, LTV, debt ratios, minimum FICO, documentation, etc.
Conforming = Not sub prime, not Alt-A, but regular conforming lending standards. Borrowers prove income, show assets in the bank for over 90 days (no down payments rebated by seller), all verified by the underwriter.
These commitment letters came up on the HGTV buying and selling board. Posters seem to think that the no guarantee clause will only come into play if the buyer goes out and buys a bunch of big ticket items on credit before they close. The thought that their buyers financing might dry up is completely foreign.
Oh and one guy thinks that the RE market will be ok because David Leareh says so - priceless.
I posted this on another thread, but I am not sure I will get an answer.
I was wondering if someone in the trenches can answer this for me. I have a friend who is trying to buy a house (I know, I know, I tried), but he has a FICO of about 650, probably 3% down, and the broker, employed by Countrywide, who originally stated that he would make the loan has been very “difficult” to get a hold of since making that statement. Is he trying to find someone to buy the loan? I have been wondering if it is just taking that long, and if, after 1 week, the environment has changed so quickly, that it is unlikely to be done?
Any thoughts out there? Is this similar to what you are talking about boulderbo?
OC fliptrack has been doing a running analysis of CountryWide’s rate sheets the past few weeks. Credit standards — and interest rates on suicide loans — have been tightening weekly. Only people with more money than sense can go low-doc / stated now.
What does he make? Can he afford the loan? $650k he’ll need to make about $215k+/year in order to comply with normal lending standards. If he’s not making near that, I’d say he’s gonna either rent or find a much cheaper house
I don’t know how much he makes - no more than 50k - with 2 kids to support. His FICO is 650 - the house is 250k.
I think the lender is going to decide this one. I think it might be the one thing that saves him.
“That could put the U.S. housing market into an extended downturn, the forecaster said. ‘In terms of duration it will look like the protracted decline that took place in Southern California from 1989-1996,’ he wrote.”
So, it wasn’t different this time?? Like everyone else on this blog, I am just shocked.
Totally shocked!! You mean to tell me all those folks going off about “fundamentals this” and “reversion-to-mean that” we’re actually right? Unbelievable! And those irritating people with their stats about affordibilty issues, they were right too? I’m just floored!! How is this possible?
But the NAR says home sales are stabilizing and everything will be fine in just a few months, with more appreciation just around the corner. They certainly aren’t predicting any long, drawn-out declines. The all-knowing experts at the NAR couldn’t be wrong, could they?
Hey, this confirms my 2013 “bottom call”.
Now if they can just admit to the “average” 33% haircut that I am predicting for Seattle (20 to 50 depending on degree of bubbliciousness) I will be vindicated.
BTW….CA, AZ, and FL will “average” 50 percent haircuts with a range of 40 to 70 based on degree of bubbliciousness.
This is all based on 1997 prices being the last year of “reality” (I have seen the graph posted here before…wish I had the link) and a rate of 3% per year appreciation.
My guess is 3.5 - 4% inflation, since that’s been understated for years, but otherwise, yeah, what he said. That means about 40-50% higher than 1997, instead of 100-200% higher. Ouch. That’s gonna hurt in the morning.
AladInsane,
“we are becomingly increasingly nervous ” according to the new UCLA Anderson Forecast.
See what YOU started…Fola-rah-DA…What would UCLA’s record have been if Lew Alcindor or Bill Walton had gone “Pro” their sophomore years?
Florida played a Great game…congrats to the Gators!
sfJack…Cal needs a new mascot…the UCLA bears are gone in Cali-forn-ya
The North County Times. “The imploding sector of the housing market that was built on risky loans has become a major drag on the economy, but it is not, for now, at least, expected to push San Diego and Riverside counties into recession, according to the new UCLA Anderson Forecast.”
“‘Although we believe that our no recession-soft landing thesis for the economy remains intact, we are becomingly increasingly nervous about the economic outlook as the period of below-trend growth grinds on,’ the report states.”
“About two dozen colleagues gathered at an El Torito restaurant for what they dubbed ‘the last supper’”
Ah yes, how sweet, and it brings back memories of the dot.bomb layoffs. Only we called them ‘Pink Slip’ parties.
They were the best and worst of times.
I got a nice laugh out of their future employment opportunities. What those clowns don’t realize is that many of their “jokes” will become their realities. ANYONE could get a job peddling sub-prime loans during this bubble.
“…they joked about future employment opportunities. Contestant on ‘Deal or No Deal.’ Pole dancer. Singing bus driver,…”
I had 3 absolutely Sh!t jobs after the company I worked for went BK to get the 4th job back at par inflation adjusted wages and 5 years.
That is the future for these NCEN workers.
“East Bay cities such as Berkeley, Brentwood, Clayton and Walnut Creek experienced a nearly 25 percent drop in median home prices from February of last year.”
Can we now call this a crash or are we still in minor correction mode?
First time I’ve seen any admission of this kind about an area that isn’t in the previously-industrial midwest or insurance-ravaged FL.
Don’t know anything about Brentwood or Clayton but I’m very sceptical that actual house prices have dropped anything like 25% in Berkeley and Walnut Creek, much though I would like that to be the case!
Maybe 5 to 10% max. Inner Bay Area holding up surprising well still.
The median was skewed by some specific condo developments.
The answer is probably somewhere in the middle, as the flawed median is that way. But notice they get a big down number and immediately break out the excuses. So as not to startle the herd?
Does seem hard to believe that the median has dropped that far.
I don’t have sources but seem to remember comments being made by professionals that prices would have to drop over 20% for the downturn to be considered a “crash.”
No, no. I remember they said the median would have to fall 20%, foreclosures would have to rise significantly, a major lender would have to file for bankruptcy and lending standards would have to tighten.
Then, you could call it a crash…..
No, no. I remember they said the median would have to fall 20%, foreclosures would have to rise significantly, a major lender would have to file for bankruptcy and lending standards would have to tighten.
Then, you could call it a crash…..
ROTFL.
At least they thought ahead and told us what would happen…
Got popcorn?
Neil
Statistics are particularly confusing at inflection points and trend changes. The median price number is probably correct, but none of the individual components fell by that amount. There is something skewing the numbers and explaination are appropriate. Excuses are not.
That median sales price number could be correct if lower-end houses are selling but the pricier ones are not. As Backstage says, it doesn’t necessarily mean that any of the individual components fell by that amount.
Kind of the inverse of what we’re seeing in OC. The OC Register reports the DQ numbers, showing that YOY prices of existing homes, condos, and new homes are all down, but the overall median was flat. Just one of the weird things that happens when using median figures.
Data Quick’s zip numbers are more accurate the greater the number of sales. I never look at a zip median if the number of sales is not over 40.
Although Berkeley is just across the Bay I’m not tracking it so take this comment for what it’s worth. I would be stunned if that 25% yr over yr price drop held for apples to apples homes. There must be a product mix issue.
I’ve been following the East Bay market for a while — especially Berkeley and Oakland — and not terribly scientifically, but looking through listings on a pretty regular basis. Properties are certainly staying on the market a lot longer and the listing prices generally seem to be about 5-10% down. I don’t know what the properties are actually selling for when they do sell.
“…listing prices generally seem to be about 5-10% down.”
Same for the Peninsula. Zillow is a good source for actual prices sold.
I watch Berkeley closely and I agree with your 5-10% price decrease guess. I’d say more like 10% YOY on comparable houses. And this is just for asking prices, so perhaps to get these things sold there is some serious price-slashing going on.
As for new condo developments pulling down the median, there are no substantial new condo developments in Berkeley that I know of. (Across the border in Oakland, by contrast, there are new condos everywhere you look.)
“…minor correction mode?”
More like major rationalization / denial mode:
“‘It looks like those tugged the home median price down.”
“… one home can push down or pull up the price hundreds of thousands of dollars…”
“… drop in prices, but not a dramatic one…”
“They want to sell without making improvements,…”
“… could be based on last year’s overbidding and inflated appraisals…”
The Contra Costa Times reports from California. “East Bay cities such as Berkeley, Brentwood, Clayton and Walnut Creek experienced a nearly 25 percent drop in median home prices from February of last year. Walnut Creek’s median home sales price dropped to $519,000, according to DataQuick, making it lower than the median home price for Martinez, Brentwood and Pinole.”
Wow, this doesn’t include the 314-unit condominium complex in Concord that’s expected to be completed by summer/fall 2007. I wonder how long it’s going to take for the builder/developers to realize that $400k is too much for a 1 bedroom condo in Concord.
I actually work near the condo complex and it doesn’t look they will finish it until mid 2008. I really don’t think they will be able to sell out all the units at current prices. Prices way too high for an average city.
“People are stretched, even if you just have a conventional loan”
Truer words were never spoken. In a credit bubble, the only survivors are the ones who saw it coming and planned ahead.
“New Century workers…joked about future employment opportunities…Pole dancer.”
Hey, they stole that idea from this blog!
Or was it newly minted realtors…I forget.
It will be both. And it will be a more legitimate profession than they had before.
And they will provide better service and a better bang for the dollars.
Well the “new” Maytag repairman was a former real estate trilobite…one job gone…next…
ummm… do you mean troglodyte as in ancient sea creature, or troglodyte, as in primitive, classless human being?
Sorry, but even though work’s long over, the English teacher in me kicked in hard when I read that.
Love your posts and your handle, though.
Hwy 50 rules, especially in early summer.
durrrr… that should be “TRILOBITE as in ancient sea creature”
“Robert Brown, chairman of the Department of Economics at Cal State San Marcos who tracks North County home prices and sale trends, said it isn’t just families on adjustable and interest-only loans that are having trouble making ends meet.”
“‘People are stretched, even if you just have a conventional loan,’ he said.”
People are such idiots.
A confession: I bought a 2BR/2BA condo in 2003, in the North County San Diego, about 2 miles from the Coast. Paid $220k, put 20% down, got an 30 year fixed mortgage for 5.25%. My PITI - about $1400.00, before the tax write off. I have a renter who pays $550.00.
I plan on staying in the area long term until they cart me away to put me in the ground. I’ve got a government job and my job is relatively secure. For other reasons, other than as an investment, buying a condo made sense for me.
What I don’t understand are the people, like one of my neighbors who bought the same unit last year, but for $350K. She didn’t even try to negotiate it down, because I know what the asking price was. Somehow, mysteriously, a new replacement BMW sedan showed up in her parking space.
I don’t even want to know how she swung that one.
Really?
*Our* old Walnut Creek house - 1948 build, barely over 1000 feet - shows up on zillow now as a 2100 sq foot house - and looking at the satellite pic, I’d say there’s been quite a few more bumpouts in the neighborhood.
It also quadrupled in price over the last 8 years - ouch. (Bought at the top of the ’90s bubble, then a relocation a few years before things started to pick up again.)
It does amuse me, though, to think of this agent trying to rationalize falling medians - at the same time, increasingly, he’ll be letting buyers in on his “secret” — that they can get this “vintage beauty” for less than what the previous occupant borrowed to redo the kitchen, add the turrets and dig the moat.
Hmm, turrets and moat…no drawbridge? How about a portcullis?
“But Robert Campbell, an independent San Diego economist ”
At least one of our own is now being quoted…way to go, Robert!
Robert is for sure one of the good guys…never on a high horse. Admits past mistakes, has learned from them. I have seen many of his SD board posts…much wisdom there from actual experience.
New Century still employs about 1,000 workers in Orange County.”
Johnnie “ICEMAN” Farzio (collections),
Frankie “the merciful” Vinzetta (new loans),
Suzette “Fingers” Gerosia (accounting),
Mario “the puppet” Marini (consultations)
Those 1,000 will soon be sleeping with the fishes.
Vinnie “The Cleaner” Larossa (repo man)
Has this been posted yet? Apologies if so:
US Home prices adjusted for inflation plotted as a roller coaster
youtube video btw.
That’s awesome. My stomach really turned at the end when the coaster ran out of track!
This is a great link! Gotta watch the video.
Wow, how come everything is go green…was this modeled after Ireland? I need to hear the screams after the year 2006…
I think I’m losing some of my hearing…very sensitive about sound these days… ;-(
“‘Although we believe that our no recession-soft landing thesis for the economy remains intact, we are becomingly increasingly nervous about the economic outlook as the period of below-trend growth grinds on,’ the report states.”
The stages of economic forecasting:
1) “No worries. It will be a soft landing.”
2) “Despite a few problems, there will be a soft landing.”
3) “Although a soft landing is still likely, there are some things which could change that into a not-so-soft landing.”
4) “The likelihood of a soft landing is looking doubtful due to unforeseen circumstances.”
5) “No one could have predicted _______. The soft landing that was anticipated has become a harder-than-soft, but softer-than-hard landing.”
6) “We’re screwed.”
“In tiny Moraga and Orinda, which had about a dozen sales each and rising prices, one home can push down or pull up the price hundreds of thousands of dollars, said Micky Gill, an agent in Walnut Creek.”
Actually, the median is fairly resistant to having a single high price or low price ‘outlier’ sell, which is one of the reasons medians are used instead of means. A number I would like to see is an estimate of the total money flow (average sale*number of sales). Since 6% of that would be roughly the money going to all realtors, this would be a good ‘realtor starvation index’. Ditto for the lenders, etc. For the people on this blog, the median is a lousy measure, as it is too affected by changes in the mix of house types that are selling (as noted by many here)- a nicer one would be percentage drop in homes that sold in 2005 and also sold this year (a crude ‘Schiller’ index)
Actually, the median is fairly resistant to having a single high price or low price ‘outlier’ sell, which is one of the reasons medians are used instead of means.
Nitpick: Not if only 3 or 4 homes are selling.
Got popcorn?
Neil
These guys can rationalize all they want, but one thing is abundantly clear: The East Bay housing market is toast. And BTW, I am guessing a 10% drop in Orinda or Moraga might in many cases translate into $100K+ after the recent bubble price blowout?
“‘There were two condo conversions going on in Walnut Creek,’ said John Karevoll, a DataQuick analyst. ‘It looks like those tugged the home median price down.’”
“In tiny Moraga and Orinda, which had about a dozen sales each and rising prices, one home can push down or pull up the price hundreds of thousands of dollars, said Micky Gill, an agent in Walnut Creek.”
“Gill admitted he has seen a drop in prices, but not a dramatic one. ‘I’d say there has been a decline, but only in the 10 percent range and not 22 percent,’ Gill said.”
“I am guessing a 10% drop in Orinda or Moraga might in many cases translate into $100K+ ” Yes, I know of a $125k (~13%) discount in that area. No credit problem - the seller was moving to a new job.
BTW, I should mention that the buyer who got the $125k discount listened to my advice. He started looking a couple of years ago, but I urged him to wait for prices to drop. A few people will listen…
And no, this buyer is not highly leveraged, Groundhogday. There are many owners in these upper-middle class areas whose mortgage balances are small or nonexistent. We’re not too concerned about prices, since we don’t need to sell.
And remember, these are highly leveraged investments, so a drop of $100k wipes out all of the equity most owners had to begin with… assuming they have any skin in the game at all.
Good point, and one that I am guessing makes it quite unlikely that 100 percent LTV loans will be made to the next buyers of these homes…
‘”Because we don’t see any second source of weakness in the California economy and in the San Diego economy, we’re predicting a sluggish economy, but no recession,” said UCLA economist Ryan Ratcliff in a telephone interview Monday.’
Just walk outside the doors of your ivory tower and have a look around; you might really be shocked, shocked at what you see!
Second source of weakness: Real-estate-dependent jobs markets.
Third source of weakness: Household adjustment to the loss of a third income (unless negative numbers count) due to deceleration of real estate appreciation to negative levels breaking the home-equity-ATM machine.
Fourth source of weakness: Home-equity-gain-dependent retail sector.
Fifth source of weakness: “Alternative” (backloaded / high risk) alt-A and prime mortgages which only pencilled out when “real estate only went up.”
Sixth source of weakness: Real estate investments further inland going sour contributing another source of negative income.
I am sure there are a few more sources of weakness that I am forgetting to mention, but you get the idea…
And (perhaps part of #6, above): second/retirement homes in the boonies going underwater.
“second/retirement homes”
I tend to not distinguish investment/second/retirement homes, on closer inspections, the purchases in each case pretty much only make sense in a world where “real estate always goes up.”
Excellent points, GS. I was in an ivory tower in the early 90s, so I missed most of the RE bust. Only had one friend who sold at a loss, and that was only 10%.
But some of your comments, and those of others on this blog, seem to tar all homeowners with the same brush. There seems to be an implicit assumption that we’re all overleveraged, either through cash-out refis or neg-am purchase loans.
My second home - yes, it is a home, not an investment - is paid off. I could take a 60% haircut on my primary residence and still have some equity. I’m holding lots of cash, too. But I’m driving a 12 yr old car, and I don’t have granite countertops.
So before assuming that everyone in an (admittedly) overpriced area is an FB, drive around and see for yourself. Are there lots of new Hummers and/or Beemers in the driveways? Many for-sale signs? If not, maybe the residents really can afford to live there.
“There seems to be an implicit assumption that we’re all overleveraged, either through cash-out refis or neg-am purchase loans.”
You are putting words in my mouth here, as I don’t believe that all homeowners are overleveraged — just that there is a larger critical mass than in previous busts of recent subprime buyers, flippers and cashout finance junkies who gambled that RE would always go up have clearly lost their bets. It matters little how prudent or financially secure the rest of the owner pool may be, as these marginally qualified owners will not be able to wait out the bust and will drive down prices when they fold.
I agree with almost everything you said just now.
But are you assuming that there are enough marginally qualified buyers in every community to drive prices down?
In CA older neighborhoods that are prop 13 protected should be more stable that new tracts across the street.
Will prices go down everywhere ? I think they will. I also think old timers won’t care if they make 400K profit instead of 600K. New buyers I think they will.
Two things to remember about markets whether it’s stocks or houses
1.) Volume always precedes price…always.
2.) Prices are set at the margins.
Only a handful of marginal buyers are needed to reset the comps. How well do you know the true financial condition of every single homeowner in your neighborhood? Probably not well enough.
In CA older neighborhoods that are prop 13 protected should be more stable that new tracts across the street.
You think that if the market price in the tract across the street goes down 25% yours won’t too?
Dream on.
If most in the area are landlocked, with little infill available. I agree that Prop. 13 guarantess a certain amount of stability -
“But are you assuming that there are enough marginally qualified buyers in every community to drive prices down?”
I think that many, many people with reasonable/good credit scores that were well qualified at one price as recently as late 2006 will only be as well qualified at a much lower price going forward (with tighter credit standards).
You can’t talk about how qualified someone is to borrow money in a vacuum. Almost anyone is “well qualified” to borrow $1 in any credit environment. I think the most important thing to consider is that the pool of “well qualified” buyers for a $1,000,000 house shrinks with every bit of credit tightening. Decrease in possible buyers for what people thought were $1,000,000 houses in 2005=decrease in values for those same houses in 2006. It’s supply and demand at work.
And then consider the vicious cycle overlaying that credit tightening–decreasing home prices=greater defaults as ARMs adjust, which tightens credit more, further reducing the pool of “well qualified” buyers at every price.
This will be what drives the prices down over time in the best neighborhoods. I personally think the declines will take a long time.
It seems that as smug the free and clear homeowners think us bears are, so they are. SF Bay, good for you that you can afford a 60% haircut. There are a couple of million that can’t in this country. Good for you that you have a 2nd home, a bundle of cash, and a 12-year old car. There are millions more in this country that don’t or can’t afford to. Not that GS needs my help, but I have to add that you sound as smug as the very bears on this board, like GS, that you have an issue with.
Like I said, just wait until fall ‘08. This thing will get ugly. I posted yesterday that I saw about 40 open house signs in my neck of the woods. Way more than any I have ever seen in one weekend in such a concentrated area in the last 12 years. This bust has only gotten started. Also, please don’t tell me all these people can afford the loss, either. The only reductions have been in condos. Homes are either at wishing prices or these people are truly unable to sell for less since they bought at too high a price.
Enjoy your catbird seat because there are many more than you think that are in trouble or heading for trouble in the next year and a half.
The thing is, you don’t matter. There aren’t enough of you to make a difference. You were smart enough to not play the game of “real estate always goes up.” Congratulations. You can still profit from this madness.
If you really want to do well, sell now, at a price that will throw all of your (former) neighbors under the bus, a price at which you will, by your own admission, make plenty of money, rent for acouple of years, and then buy your own house back in a couple of years, pocketing the difference. You’ll likely never again see the price you could get even now.
Of course, if you don’t think that your neighborhood will experience significant declines in the next couple of years, stay where you are. If your house isn’t an investment to you, then it isn’t. Live in it and be happy. But then you have to acknowledge that you don’t matter in terms of property values, because you’re not selling your house.
How many of your neighbors could withstand a 60% drop in the value of their home? What about on the next block over?
–Shannon
Actually, I do matter, because I’m restricting supply. And so are my neighbors. And it doesn’t matter to us whether there’s any demand - but there is. So what happens to prices when demand exceeds supply?
You go get an option arm with neg am at a 1% teaser rate with a NINA loan, which is exactly how this mess got out of hand to begin with. What you don’t understand is that even if your neighbors are okay on the mortgage they may have 10s of Ks in CC debt or a HELOC. Just because everything looks fine doesn’t mean it is. Look at the numbers in this country, personal debt is waaaaaay out of control and that is without the mortgage debt taken on in the last 5 years. Don’t be shocked if a few people on your block sell and throw the rest of you under the bus in the next 18 months.
Actually, I do matter, because I’m restricting supply. And so are my neighbors. And it doesn’t matter to us whether there’s any demand - but there is. So what happens to prices when demand exceeds supply?
You can choose not to sell, but doing so won’t prevent the market value of your house from dropping, just as it rose along with everyone else’s over the past ten years. The market value is set by those houses that DO sell.
To believe that your house and neighborhood will somehow hold onto 2x or 3x gains of the past decade while the rest of the Bay Area craters is nonsense. If your house is worth twice the average Bay Area house today, then so shall it be in 5-10 years when that average has dropped 40-50%.
Actually, I do matter, because I’m restricting supply. And so are my neighbors. And it doesn’t matter to us whether there’s any demand - but there is. So what happens to prices when demand exceeds supply?
The point is, your nabe may be desirable and wonderful, but why would people want to overpay in your nabe WHEN (not if) prices significantly collapse next door? Demand for your desirable piece of the woods is determined in part by supply of better (much, much cheaper) housing elsewhere.
A lot of housing consumption was driven by speculative demand exacerbated by easy credit. Credit is tightening, overall demand falling -> prices will follow. As you said, it’s supply and demand. Demand is falling.
SF Bay could you afford to buy your home now ? With 10% to 20% down and on your income pay the mortgage. taxes, etc. ? Could your neighbors ?
SF Bay: I guess it depends on your definition of FB. But you must admit that, strictly from a financial standpoint, you will do best to sell at the top and buy at the bottom, as many on this blog have chosen to do. That’s why houseowners like you and me are driving old sedans and enjoying Corian instead of granite. We are solvent FBs who can afford our mortgages.
I am sure there are a few more sources of weakness that I am forgetting to mention
immigrant H1B / green carders putting the hurt on tech wages for non-defense jobs.
In my complex last week I saw a neighbor’s wife and mother/MIL (?) each carrying up so O’Reilly books. w t f . . .
Seventh source of weakness: Falling rents (due to thousands of empty thus rentable houses) sucking away one’s desire to own a home.
Eight source of weakness: Global tightening of credit making borrowed money more expensive.
Ninth source of weakness: Internet (and blogs) make it very difficult for real estate spinmeisters to contradict instantaneous critical review in the form of hard evidence backed by logic.
Dont forget electric bills which has quintuppled in 7 years. I used to pay $100 / MO now 500+ each month.
“Ratcliff highlighted the subprime lending crunch, saying: ‘The days of wine and roses for the mortgage market are over. ”
You mean the days of “fraud and hoses” are over…..
Today on CNBC they attributed the good day on the Dow to some sort of surprise increase in sales of existing homes — does anyone know anything about this?
NAR reported a 0.7% increase for February (MOM from January 07) in their Pending Home Sales Index. YOY was down about 8%. These are pending, not closed, sales.
Sorry to comment to my own comment. The story (or at least NAR report) is the first link in today’s thread titled “We May Be Seeing Subprime ‘Fallout’: NAR”
I’m going to be very curious to see the conversion rate of pendings to closed…
It will take another 10 days before the data starts to get posted, but I’m very curious to see March *closings* YOY. It doesn’t take a rocket scientist to see that more people are going to try and wiggle out of contracts in 2007 than in 2006… or 2005.
Got popcorn?
Neil
On the other hand, a lot of markets are showing real signs of life. I think what is happening is a shakeout in the truly bubble areas. But outside of the frothy geography, demand seems to be catching up to supply.
Net, net - real estate is local.
You sound hopefully worried, Palisades. Did you just buy an expensive Palisades estate?
Doesn’t sound very impressive to me
.7 MoM, I mean
Yeah, it’s the classic “higher than expected” reading on pending home sales, 0.002% higher than the “downwardly revised” numbers from January.
NAR puts the “Lie” in “Liars”. That said, here’s a link to it anyway:
http://tinyurl.com/2au6qa (news.yahoo.com)
As you read it, keep the trick in mind, and it won’t fool you.
by the way my 0.002% figure was meant to be an under-exaggeration, not a real figure. (I.e. I was emphasizing its smallness.)
One of my dad’s favorite sayings was, “You can’t shine sh#t.” But the NAR tries to.
“That could put the U.S. housing market into an extended downturn”
Goldman isn’t golden:
April 3 (Bloomberg) — Goldman Sachs Group Inc.’s flagship hedge fund … lost 5.7 percent in February, hurt by wrong-way bets on stocks, global bonds and currencies including the Japanese yen.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8PI19Ra9_.g&refer=home
Fascinating that this hedge fund is a ‘fade’ fund and is positioning itself for the Dollar collapse. When they are right, the profit is enormous as all the rats try to get out at the same time.
Wow, my friend in Mtn. View, CA, just got turned down for a HELOC. She’s been taking money out of her place for a couple of years now. I guess the party is over - she says she is going to be forced to sell.
she says she is going to be forced to sell.
Translation: keys go on the roof as she walks.
Got popcorn?
Neil
Tell this story to SF Bay, who whistles past the graveyard every day because everyone on his block owns free and clear with 2 homes and drives old Dodge Dusters. Puh-lease! This housing bubble is part of a much-larger credit, or as I like to call it, debt-bubble and when it finally unravels there is going to be a massive shake out. Not to be to over the top, but this is going to be like the Titanic going down. People, don’t get me wrong, but a lot of consumers are going to be financially sunk for many years because or too much debt, or as the more edumacated say, highly leveraged. Even for those of us or you who escape unscathed, we will most likely end up knowing someone who does not.
I agree. There is not only a massive debt bubble but also a huge oversupply of new housing in some areas. Most likely, we will all know someone who does not escape unscathed.
wow, how tragic! Maybe the LA times should do a front page story on her! Hanky, anyone?
Geez
Sounds like she’s already sold it to the bank.
“Ratcliff said the trend calls to mind two other periods of troubling surges —- the early 1980s and the recession of the 1990s. During the recession, most defaults ended in foreclosure. But in the 1980s, he said, most families found ways to make payments current. Ratcliff is forecasting a repeat of the latter scenario.”
I predict a new scenario (at least compared to the two he mentions) where a record abandonment of lending standards leads to unexpectedly large price declines and a real-estate-led recession (unlike the defense-led recession of the early 1990s or the Fed-led recession of the early 1980s). I believe Bernanke stands pat in part to avoid catching the blame for crashing the economy as the Fed has done so often in the past, but nonetheless there are simply too many households who will be crushed under a weight of mortgage payments which only made sense when prices were going up by double digit amounts year-in, year-out.
I predict a new scenario (at least compared to the two he mentions) where a record abandonment of lending standards leads to unexpectedly large price declines and a real-estate-led recession (unlike the defense-led recession of the early 1990s or the Fed-led recession of the early 1980s). I believe Bernanke stands pat in part to avoid catching the blame for crashing the economy as the Fed has done so often in the past, but nonetheless there are simply too many households who will be crushed under a weight of mortgage payments which only made sense when prices were going up by double digit amounts year-in, year-out.
Exactly. Add to this those who’s mortgage resets and simply cannot hold on…
In both of the previous recessions families had YEARS of savings. Heck, the average laid off engineer circa 1990 had something like 3 years of expenses in savings.
Let’s do this year’s timescale.
Warren act (60 days of pay post layoff excl. BK).
credit cards (what, delay another 45 days?).
Money from Mom and Dad: Add another 15 days.
Whole family kicked out? Priceless.
In other words, I predict the big downturn to start in August, no earlier.
Got popcorn?
Neil
“In both of the previous recessions families had YEARS of savings. Heck, the average laid off engineer circa 1990 had something like 3 years of expenses in savings.”
The highly successful War on Savers of recent years has done much to wipe out the typical U.S. household’s resilience to face hard times. I guess it will be up to the government to bail out the FBs, as proposed by frontrunners in the blue state party. But I am not sure where they will find enough deep pockets from which to extract the bailout funds, given the aforementioned problem with a lack of U.S. HH savings, after twenty-three unbroken months of a negative national savings rate.
Income investors have fared poorly. Equity investors, on the other hand, have fared well thank you very much.
There is a winner and a loser on every trade. Focusing only on the losers tells only half the story.
Brad, it’s only six years since equity investors were royally screwed! Don’t get smug about the last couple of years. It hurts when the stock market falls. Stay diversified.
Of course some of would say:
Income investors = investors.
Equity investors = speculators.
And since human nature hasn’t changed, speculation is ALL about getting out just before the crowd.
Your prediction makes sense, GetStucco. The real-estate-led recession will follow the real-estate-dependent economy of the past six years.
It seems to me that wishing prices in OC are barely moving these days. Thanks to our realtor unilaterally pushing up the price range on the houses on our MLS search to $1.3MM I’ve had the pleasure of seeing the North Tustin market starting to get flooded with homes asking in the $900k-$1.2MM range. I can’t wait to see where these prices are sitting in Q3/Q4. Look out below!
“It’s the end of an era.”
“We’re saying good-bye to people every day,” said one broker with 25 years on the floor of the exchange. Like many others interviewed for this story, he chose to remain anonymous for fear of trouble with the exchange or his employer. “I don’t think you can look three months ahead and feel secure.”
“We’ve really had to shrink the size of our operation,” says Robert Pelligrino, who owns a business on the floor of the New York Mercantile Exchange (NYMEX) in Battery Park City. NYMEX incorporated electronic trading into the daily business of the exchange about a year ago.
While overall trading volume has increased, fewer trades are coming through the floor brokers. The result has been that, like at the NYSE, the population on the floor is dropping fast. Pelligrino’s company has dwindled to a quarter of its original size. “I had brokers with me for 10 years that I had to let go,” he says. “It’s the end of an era.”
http://www.tribecatrib.com/news/newsapr07/NYSE.htm
Gentlemen, the Fat Lady is singing!.
volume is up, but the trading is done electronically now. Like when telephone switchboard operators went the way of the buggy whip. The Fat Lady Singing would indicate a direction that stock market prices are going which is irrelevant to this article.
That’s true, Brad. Electronic trading makes sense. The middle-men traders were just that.
Still, interesting to see the “next bubble” debate evolving here.
With my amazing powers of prescience, I predict…that there will be a thestockmarketbubbleblog.com, and multiplying sister sites, soon. Unless it just all crashes tomorrow, of course.
RE market really bad in Palm Springs, friend built huge 5000 SF+ house in best part of Palm Desert, with pool and everything, listed it for 1.5M, turned down an offer for 1.1M, now reduced it to 1M and cant sell it, says the market is totally depressed.
Cheers
I listened to your radio segment. Good job Ben. We were thinking housing crash when housing crash wasn’t kewl.
Kudos to you sweetie. You have found your niche.
Attention Lereah:
U want to make more commissions for your slick organization then talk house prices down 35%.
The next wild and crazy bubble “Commodities” It’s no bubble yet. Fundamentals are driving commodities. Wait til the pie in the sky dreamers drive it to unseen levels.
I thought housing was irrational in 2003 look what happened. It went to super duper insane. Watch.
The next wild and crazy bubble “Commodities” It’s no bubble yet. Fundamentals are driving commodities. Wait til the pie in the sky dreamers drive it to unseen levels.
I thought housing was irrational in 2003 look what happened. It went to super duper insane. Watch.
The economy - from the eyes of a CPA
Here’s what’s really going on behind closed doors in affluent America
By Herb Greenberg, MarketWatch
Last Update: 11:34 AM ET Apr 4, 2007
SAN DIEGO (MarketWatch) — Nobody knows what’s really happening to American households better than a CPA at tax time. I heard from one, who started his email like this:
“I am a CPA, CFP who specializes in individual income taxes for affluent Americans. I am shocked by the bad and deteriorating financial condition of many of my clients.”
I suspected that this CPA, who will remain nameless for obvious reasons, was referring mostly to high interest expenses as home equity balances rise. I was only partially right. In a follow-up, he wrote:
“The underlying cause that is apparent to me is years of unrestrained/uncontrolled spending beyond one’s means. This is now catching up with many.
“It is not so much slower income growth or the jump in interest expense.
The problem has progressed through the following stages:
“First: The careless tapping of home equity.
“Second: Extensive use of credit cards while paying the minimum (if lucky); getting killed on interest and the monthly late payment fees.
“Third: To pay bills now due, many are tapping their 401(k)s and or IRAs, taking premature withdrawals (not periodic). The big problem here has been that many have only 20% tax withheld when the burden is closer to 50%, with the U.S. Tax, a 10% penalty and the state tax.
“Two of my clients had to sell their homes last spring to cover their 2005 liabilities; some BIG numbers. These clients had adjusted gross incomes in excess of $200,000. At least they were lucky because the housing market was firmer a year ago!
“Another individual I know (though not a tax client) refinanced to an ARM to lower her monthly payments. Her payments jumped in December by about 20%, which she can’t handle. I recently learned that this person opted not to have her real estate taxes paid monthly via escrow. The reason: She couldn’t afford the monthly payment when she refinanced.
“WHAT are these people thinking?? They never come for advice before they get themselves in a hole!
“I am afraid that what I have been seeing is just the tip of the iceberg.”
He’s not alone in that thought. If you’re a CPA who has similar stories to tell, and has noticed a change over the years, I’d like to hear from you. Post your comments on my blog http://blogs.marketwatch.com/greenberg/2007/04/americans_livin.html or, if you prefer, email me at hgreenberg@marketwatch.com.
“He said that decline is based on a few reasons, including housing stock, but also on the older population of Walnut Creek. ‘They want to sell without making improvements,’ he said. ‘Their equity is huge … and sometimes they don’t want to make more than $500,000 (to avoid capital gains taxation.)’”
This is the most ridiculous statement I have ever heard regarding the avoidance of taxes.
It’s like saying that the people went to their boss to ask for a pay cut because they didn’t want to get into the higher tax bracket. It’s a tax on the MARGINAL income, numbskulls, not ALL of the income.
Damn.
I’m one of those people who sold the house. Didn’t have to… except for the fact that we moved across the country in October 2005. It took us 11 months to sell our house built in 2001. Our first asking price was $840,000 as our realtor assured us that as the last house in the neighborhood went for $815,000 without a basement, ours should command a little more as our basement was fully finished. In July 2006, we accepted the only offer we had in 11 months at $599,000. Luckily, we still made money and have parked it in the bank for the time being. Today, houses of the same size in our old neighborhood of Potomac Falls, VA which is next to Sterling,VA, are selling between $550K and $580K. We would have only lost money profit be holding on to the house, and not to mention, more money in interest, insurance and tax.
If your in the market to sell… better to take the best offer early than wait it out. This market has turned rotten. Time to sell is now.