In Saturated Housing Market, ‘It’s All About The Price’
The Detroit Free Press has a report on home prices in a glutted market. “As the temperature warms, the grass greens and the trees bud, colorful for sale signs announcing the availability of housing in metro Detroit neighborhoods will pop up with new life as well. But in some communities, those new signs will be competing with the for sale signs that cropped up last spring, or in some cases the spring before.”
“The existing housing market in southeast Michigan is saturated, and that glut of homes at the start of this spring housing season could indicate that houses will sit unsold longer than ever.”
“In Oakland, Macomb and Wayne counties, there were 37,393 homes on the market as of March 1, compared with 11,078 at the same time in 2001, a 238% increase. Housing sales are suffering everywhere, from Shelby Township, where 554 homes sold last year while 1,779 were listed, to Detroit, where 22,350 houses were listed and 6,814 sold.”
“Realtors acknowledge that homes do eventually sell, though the time can vary greatly. ‘Unfortunately, a year or two on the market is not a big deal anymore because of the large number of properties available,’ said Jane Denning, a broker in Grosse Ile.”
“‘It’s a mystery to us why we haven’t been able to sell the house, even though the economy is suffering,’ said retiree Nancy Cunningham, a West Bloomfield resident with a 4,263-square-foot home on Pine Lake that has been on the market for 2 1/2 years. ‘We’ve done just about everything we could in an effort to sell it.’”
“Cunningham and her husband, Tom, started with putting the West Bloomfield house they’ve lived in for 25 years up for sale. Meanwhile, they snagged a 3,600-square-foot house near Palm Springs on a golf course with mountains in the distance. But this winter, someone else is enjoying the sunny view. The Cunninghams had to rent out the house to offset some of the burden of two mortgages. If they don’t manage to sell here by the end of the summer, they may end up selling there.”
“‘We never thought it would take so long to sell this house,’ said Tom Cunningham. ‘We were never going to buy until we sold this one, but homes are appreciating so quickly out there. The longer we waited, the less we were going to get.’”
“Another snag: Sellers who can’t fathom pricing homes at what the market will bear, especially when hearing of double-digit appreciation rates across much of the country. Gordon McCann, an associate broker in Plymouth, said many sellers have determined a dollar amount they need to make from the sale of their home to get into another one comfortably. Often, that amount is more than the house is worth in this area, he said.”
“‘You can price a house at what the market wants and it can move in 30 days, or you can price it at what the seller wants and it will sit for nine months,’ McCann said. Added Keith Weber, an agent in Royal Oak: ‘In this market it’s not location, location, location as much as it is price, price, price.’”
“It’s most frustrating to watch, said David Kaner, a mortgage loan officer who owns a two-bedroom condominium in Walled Lake that won’t sell, even though it’s priced at $132,000. He and his wife, have had the condo on the market for seven months. They’ve already moved into a newly built house in Commerce Township and are carrying two mortgages.”
“‘Most of our savings is being used up on a monthly basis. We’re not going out to expensive dinners. I’m working longer hours trying to keep the income levels up,’ Kaner said. ‘It’s mostly been mentally tough..when you see a significant portion of your income going out for a second mortgage, it’s frustrating.’”
Not to pick on folks in a tough economy, but buying two homes is speculating, these days. Plus, the couple that has lived there for 25 years could surely have some room to lower prices. Coming to a saturated market near you!
Exactly. Why do all these people buy something else before they sell the current place, especially in a sinkhole like Michigan. I fail to get the reasoning.
What? there is place that less desirable than North Texas?
Actually I grew up there (St. Clair County, MI), and yeah.. some areas near Detroit city are pretty blah. More importantly, anyone who’se lived there should be incredibly sensitive to the local economy (auto and related manufacturing) and the peril it is in.
Fear. They’re afraid if they don’t snap the new place up, someone else will.
Sounds like another classic case of greed to me. Unless they have an exorbitant amount in HELOC debt, they could lower the price to actually SELL the place. Like anyone, I’m sure they want to make as much over what they owe as they can, but at the cost of having 2 mortgages for an extended period of time….I’d have to think twice…three times at least….on that plan. They are retirees…fixed income, right?….why would they want to dip into money that could use in retirement for a crap shoot situation?
Here’s another question: 2 people in a 3600 sq ft home? Why? It’s less room than the house they are trying to sell, so granted, they are downsizing. But even smaller would be enough for a retired couple. Palm Springs…oooh, HIGH AC bills in the summer. Not fun at all.
Yep. My guess…..They may not have done “all that they can” to sell the house. ALL that they can would be pricing it to sell.
BayQT~
Just for fun look up Palm Spings and Palm Desert on Zip Realty. There are over 2200 houses for sale to date per Zip. I clicked on one listing and in comments it says seller has 3 other houses for sale and is very motivated. Can you say POP!
Wow! Why don’t they just say “seller has 3 other houses for sale and is looking for a *greater fool*? That would be a more truthful statement.
BayQT~
A tale of Palm Springs in the summer…
Last summer, we stayed at a really nice resort in nearby Rancho Mirage (it was job related). At nine in the evening, my wife decides to take a dip in the pool. Now mind you, it’s 9 o’clock at night, and the temperature had to be in the high 90’s F at least. So a dip in the pool sounds REALLY nice.
She jumps in, pops up, and looks at me with big “OH MY GOD” eyes. The water is very warm, almost hot! We find the pool thermometer and look at it.
90 degrees F.
The pool wasn’t heated during the summer…
Guess I’m the lone ranger on this one, but I always liked my Florida pool at 88-90 degrees. It’s the reason I didn’t install a screen.
Yep. Welcome to the desert Southwest in the summer.
Even back in the 70s, people I knew in Phoenix had a pump and spray nozzle built into their pool. It would shoot up a fountain that then dropped back into the pool. Some of the water would evaporate to cool the rest. You’d lose an inch or two off the top of the pool on running it overnight. But it worked.
I’d like to suggest they pray for provide a qualified buyer.
Surely their prayers will solve their financial burden.
that loan officer dude must be crapping bricks by now. his biz is falling off a cliff and is working longer hours. longer hours doing what…baking muffins? no property sales=no loans! sorry, game over, man!
See, this is the problem. The “professionals”; in this case a mortgage loan officer, is too stupid to even manage his own affairs let alone advise borrowers on the best loan product for them.
good point. this guy is seeing red and can’t think straight. I only hope he doesn’t own a gun!
Naw…Probably more like seeing green. I don’t know the area but they say that “even though it is priced at $132K”, it’s not moving. Perhaps the price isnt’ low enough?? Any lower would probably mean that they will just break even….maybe. Any lower may mean that they will have to go into their pockets….deeper…..to make up the difference. What they should have done was to keep their azzes in the house until it was sold and THEN purchase another. As another posted mentioned, it really escapes me WHY people put themselves in such predicaments.
BayQT~
Brings up a good point. You assume that people with two homes are just speculators but I bet there are a lot of families who honestly just wanted to move but now can’t sell their first house. Soon they’ll have to sell en-masse along with the speculators and red trim paint will run in the streets.
In other news. The city of San Diego is having some issues with their own real estate. They own a lot and if the city goes BK as many suspect it’s not going to help the inventory numbers.
Oh and the top two most popular stories on WSJ online right now are on the bubble. I imagine there are a few more panicked MBS holders today which I’m guessing means risk premiums are going to head north as well as interest rates.
I have to wonder with projected defaults of 1 in 8 for some types of loans, what sort of risk premiums would be needed on new loans to cover from the mistakes made on the prior loans.
Or another way: will risk primiums on loan products swing to the other side of the pendilum?
I have been wondering this myself. Its only natural.
Right now the risk premium is missing because the forclosure rate has been so low. This gives an appearance of very little risk for a higher yield (interest rate). Once there is a little does of reality there will be a knee jerk reaction in the risk premium. Thats just how it works.
I really think we are going to see a massive intereste rate spike on all mortgage types in a very short preriod of time.
People don’t understand how small that risk premium has to be. A 1 in 8 foreclosure rate is 12.5% . The typical loss on a foreclosure is around 30%. So call the bad ones 50%. You’d need just over 6% over the life of the mortgage. If the mortgages that don’t go bad last for 5 years on average (and even the ones that do go bad pay off for a year or 2 first) you’d need less than 150 basis points per year to cover that risk.
mort_fin I used to work in wholesale mortgage (early 90’s) and wa thinking in that ball park.
150 basis points, aka a 1.5% permium to the interest rate, is *a lot*. Going from 7% to - > 8.5% for a loan would whack what? another 20% or so off of affordability? As if we’re not looking at enough of a possible free-fall.
This is what I call great diversification: The city known as “The Place Where People Buy Houses to Make Money,” and where a very high proportion of recent new jobs are in RE uses real estate in its own back yard as its investment of choice. No wonder the Mayor is trying to spread the word about our housing shortage!
Sorry to repeat a previous post, but these two SD Union Tribune articles fit in very well on a thread about the saturated market:
“Third wave: For some, 2 homes are not enough”
http://tinyurl.com/pmk6v
“Pending home sales on a slide”
http://tinyurl.com/sx6pd
Wow! 2nd and 3rd homes and they are trying to live in all 3?? The owners says, (paraphrasing) “Ha ha ha…one house has 5 mustards and the other has none. Gee, it’s hard to keep up sometimes. ” And 2 of the houses are within 5 miles of each other? A real non-smart use of good money to me.
So wasteful….and some people don’t have 1 home to live in.
BayQT~
I only want the one with the Grey Poupon. Screw the houses with the Heilmans, French’s, or heaven forbid Heintz.
Sorry, I fogot the Coleman’s hot English.
The mantra I’m hearing from Realtors is that “people are still buying”. Inventory may be way up, and sales down, “but people are buying”.
Yea well people were still buying Cisco stock in 2002 as well.
if people were not buying at all there would be no prices. Now THAT would be a real problem for realtors.
Several of my coworkers have fallen into that trap. They bought bigger homes to upgrade before they sold their first homes and are now stuck in two mortgages. Now they have to rent out their first homes. Even with their first homes bought 5 to 10 years ago, the rents only barely cover mortgage and other upkeep costs.
Now they have to watch
1. price falling with the first homes they have to get rid of
2. lost opportunities with better investment they could have had with the money locked in the first homes.
just some clever thinking from the Netherlands: when home prices keep going up, realtors tell their customers that it is prudent to first buy the new (more expensive) home and after that worry about selling the old one.
RE always goes up, having two homes must be better than one and even if one home is really enough the old one will appreciate while you are shopping for the new one. And if you wait a year with selling the old one, it may even pay for the much better new home! No way you can loose with this advise
I know quite some examples from local people that fell into this trap. Even in an appreciating market it can be quite dangerous, especially if the market is ‘local’ and people find out that you really need to get rid of at least one home.
Also:
3. They may have to have their new rental compete with neighbors in the same situation (driving rental income down and/or vacancies up)
“Realtors acknowledge that homes do eventually sell, though the time can vary greatly. ‘Unfortunately, a year or two on the market is not a big deal anymore because of the large number of properties available,’ said Jane Denning, a broker in Grosse Ile.”
Wouldn’t it be cheaper to just lower the price until the market price is discovered, rather than riding the roller coaster all the way down to the bottom of the hill?
“‘Most of our savings is being used up on a monthly basis. We’re not going out to expensive dinners. I’m working longer hours trying to keep the income levels up,’ Kaner said. ‘It’s mostly been mentally tough..when you see a significant portion of your income going out for a second mortgage, it’s frustrating.’”
Wouldn’t it be cheaper to … (ditto from my previous coumment).
That was my advice to my bro. Told him to just eat 50k right now if you have to - way better than being chained to a 508k mortgage for the next 15 years (at, what, 30k a year in interest alone?). Yeah, and I’m tossing my rent money away every month. Having dinner together tonight. Will I bring it up again? HELL no.
By the way, Mr. Stucco, he won’t be riding the coaster - he’ll be tumblin’ down after it!
So, a year or 2 on market is ‘no big deal’ anymore, like Jane was saying that 6 months ago when they were all denying that the inventory was creating a problem. Give me a break!@
in my area in NL, even 5 years on the market is no big deal anymore. Why worry, RE always goes up (even if there are no buyers).
Things Ben and other bloggers on this board predicted last year have become reality. We can’t thank Ben enough for saving us from following the crowd to jump off the cliff.
It’s only a question of time when the new class of slaves will call it off. Money is only useful when you can enjoy it. What will they do with the money when they finally pay off the mortgages and sell the homes? Medical expenses? They will be too old to enjoy it. Mental toughness to stick to the worst decision of the life time will only result in endless regret.
“‘It’s a mystery to us why we haven’t been able to sell the house, even though the economy is suffering,’ said retiree Nancy Cunningham, a West Bloomfield resident with a 4,263-square-foot home on Pine Lake that has been on the market for 2 1/2 years. ‘We’ve done just about everything we could in an effort to sell it.’”…..
Except lower the price.
Actually, I can solve the mystery of why the 4,000 sq. foot house on Pine Lake isn’t selling. There are probably 30 plus homes on Pine Lake for sale. Each one ( even the lowest priced ones ) costs at least $ 899,000 according to a recent real estate magazine I picked up in a West Bloomfield restaurant (my husband & I can afford to eat out — we have 1 mortgage and it is minimally $ 1041 per month, including tax escrow — we add onto it each month ), and some, including the old Fisher mansion, are for sale for $ 3,999,999. Some of these homes have 8 bedrooms, 7-8 bathrooms, etc., and are on 2-3 acres of prime lake frontage in the most expensive city in the state. Not too many buyers with $ 2-3 million to invest in Michigan right now. The smart ones aren’t taking that kind of chance with their millions anyway. They’re waiting for the prices to come down. This retiree is playing the innocent, but she should understand plenty. These people are WEALTHY. No working class person is going to buy onto that lake. What a joke. By the way, the bill for our dinner came to $ 22 including tip. Two white-meat barbeque chicken dinners, please. We can enjoy ourselves at least, because we are not house poor.
It’s Monday and I know I’m a little late to this discussion. I was away for the weekend. This post caught my interest. I think the phenomenom of folks holding firm in their asking prices is worthy of a separate discussion. My opinion is that the Spring will be a standoff but that things will break loose in the Fall. But after reading about this couple, and seeing that 30 homes are all for sale with no price drops, makes me wonder. Given the low savings rate, people have alot at stake on believing that their houses are worth what they think they are worth. I’m wondering if we’re not going to see a slow, wrenching 5 year gradual decline as folks only very gradually, and begrudgingly give in to market forces. I guess this is more of a high end comment. The low end will erode more quickly I suspect as foreclosures cause repricing. But high end folks are not going to care when a $300k home is repriced at $175.
Any real estate agent in this housing market that suggests that their client buy before the old house on market has sold ,( and closed escrow ), should be shot ….tortured …..hung ……
Better yet, force them to buy someone’s home at the asking price with an interest only mortgage. Prolong their agony.
tell that to the Dutch central bank - they encourage special mortgages at around 1% rate (that’s 1.5% below the ECB rate) to make it easier to own two homes for a few years.
I’ve been wondering about sellers’ expectations in the current market. It’s interesting that, in many cities, inventories are near historic highs at the beginning of a downturn (hopefully, it’s going down). The last time we saw inventory numbers like this was near the end of the last downturn. And yet, many, many people don’t seem to get it.
I wonder if the internet actually makes prices **even stickier** on the way down. During the last cycle, people relied on Realtors to guide them with respect to pricing. The Realtors were aware of the market and would suggest a price based on comps and current market conditions. Ultimately, Realtors want a sale, not a marketing albatross, and will move things along. These days, sellers think they “know it all” because they can check online to see what their neighbors sold for, and check list prices in the area. Sellers think, “if they got that, then that is what my house is worth (who cares about what the market says).” They think that buyers can’t hold out for long, and will buy their overpriced POS. Doesn’t help that they see their neighbors get above asking price even after the house has been sitting on the mkt for 6+ months (this has actually happened in my area, many times!!).
I know that many sellers can’t really hang on for that long, but I think this will prolong things.
BTW, sent this to Ben last night…what do you guys think?
http://www.nopaymentsfor12months.com/
This may take A LOT longer than it should, IMHO.
I saw that, thanks!
“I wonder if the internet actually makes prices **even stickier** on the way down.”
You clearly have this mixed up. The internet has helped to spread word of the bubble, which is why the buyers have suddenly disappeared from the scene. This can only serve to grease the skids of future price declines.
But maybe I misunderstood your argument? Why would news of the absence of buyers provide encouragement to sellers, especially when so many of them are speculators who ulitmately need to unload those investments?
Because prior to the internet, people relied on Realtors to get their pricing and market information. People have been conditioned to think their home equity is permanent; therefore, it cannot be lost via declining prices. When they find out their neighbor’s house sold for $400,000, it is imprinted in their minds that they now have $400,000 - mortgage amt = equity. Oh, and add “expected annual appreciation” to know what you will “be worth” next year…
They are not as worried about the inventory because, as long as all the sellers hold out (I know they can’t forever), their “permanent equity” is intact. Hate to think you’re worth $300,000 one day and find out it’s only $120,000 the next. They won’t go down that easily. Remember, “you don’t lose anything until you sell.” Since buyers were willing to pay $XXX last year, and interest rates are at historic lows, buyers can still afford current prices, according to today’s sellers.
I hope that makes sense.
If someone isn’t willing to sell their house at the “market rate,” then it won’t matter if they learn of the market rate through a realtor or through the Internet. I think that the Internet provides more and quicker information on recent selling price. Once a few motivated sellers price appropriately, the market value has dropped, and sellers will know that.
I think that right now, if the Internet contained historic changes in LISTINGS, then sellers might finally get a kick in the ass and reallize that they need to lower the price.
Another scary thought…
The reason for low lending standards, exotic loans and low interest rates (they all go together) is because a lot of money is chasing too few borrowers. Where is this money coming from? It seems it’s coming from foreign central banks, pension funds, hedge funds and individual investors (and our own Fed?). I’m beginning to wonder if interest rates will indeed remain low for the following reason:
-As the world’s population ages, especially in the most wealthy nations (US, Japan, Germany, etc.) more people are moving their money into fixed-income assets (more conservative asset allocation as one nears retirement). The safest investments are Treasuries, and MBSs (because it’s backed by collateral, and is traditionally considered very conservative). As the Boomer population bulge moves through the economy, it’s been known to cause distortions. Perhaps, as the age demographic changes, “risky” investments like the stock market will fall as we get new bubbles in fixed-income investments (already happening, as evidenced by the bond and housing bubbles). I have to wonder about this because the bubble has been obvious to anyone who cares to do a little research, yet money continues to pour in, with ever-riskier loans to less and less qualified borrowers.
I hate to say this, because I am a bonafide, doom-and-gloom housing bear, but since people buy the mortgage, not the house, we might actually be looking at a more protracted cycle.
I guess my point is the “savings glut” is really retirement money from the industrialized nations’ aging populations.
An example of the continuing craziness in the morgage market:
http://www.nopaymentsfor12months.com/
I’d characterize the money coming in from Asia as being more in the nature of the “vendor financing” loans made by Nortel and Lucent in the recent telecoms bubble. Just as the managements of Nortel and Lucent lent out other people’s money to boost their sales and make themselves look good, so do the “managements” of the Asian nations; they have overbuilt their export manufacturing sectors such that the only way to keep their factories running is to discount their citizens’ wages by exchange-rate manipulation to however much it takes to keep us buying. The more they ride that tiger, the harder it is to get off.
I don’t watch much tv, but noted yesterday how “rock financial” guy was trying to sell me a zero-down, no-docs, bad credit okay, no-W2s, no-taxforms, no employee-verification, etc. loan. I’ve never seen one before like that….he seemed really desperate to sell some loans! And it was exceedingly clear that you could be basically unemployed, broke, and maybe even on parole as well to buy the house of your dreams! woohoo!
CA Renter,
Although I applaud your original thinking, I can’t support either hypothesis.
First, the Internet will surely speed the crash. Never before have people had ready access to comp information without engaging a realtor. Remember how everyone watched their fortunes disappear in real-time when the dot-com bubble burst? This time it’ll be homeowners watching their single biggest lifetime investment morph from “retirement fund” to “debtor’s prison”. Zillow will collect record “eyeballs” as the train wreck unfolds. The psychological ramifications alone will be devastating, and will only exacerbate the stampede out of RE.
Second, the demographic sea change is scaring Wall Street not because of any shift in preferred investments. Instead, they know that funds will start flowing “out” instead of “in”. Doesn’t help that traditional pensions are pretty much disappearing, too.
Keep thinking — we always need to challenge our assumptions.
TJ,
Thank you. Yes, I hope you’re right. I do tend to think along the same lines as you; however, I’m starting to question my own logic because, even with all the bad news, things don’t really seem to be changing. Here in San Diego (and most of So Cal), our inventory absolutely ballooned in fall, 2004. Sales slowed dramatically, and many people, even Realtors, were calling the end of the bubble. All of a sudden, things shifted again and LA and OC are up double-digits while San Diego has definitely “plateaued” for ALMOST TWO YEARS!!! I just don’t get it, so I’m trying to come up with different scenarios which would cause things to be “different this time.”
Take care!
Management guru,Peter Drucker, about a year ago in Forbes or Fortune, said that there was a global savings glut and there never before had been so much money chasing so few (relatively) assets.
The people that lived in the house for 25 yrs should have the thing nearly paid off (assuming a 30 yr mortgage and a much lower than current marketing price for original selling). But, they probably used it as an ATM to upgrade, buy Palm Springs, and whatever other bovine fecal matter things. After 2 yrs, you would think someone would get the idea that the price was too high. And this will be news to a lot of people, just because they “NEED” a certain price to do whatever, doesn’t mean a greater FOOL is going to come along and pay that. And, Palm Springs will probably take a big wallop by the time they sell the Detroit house. A rollercoaster ride down with 2 mortgages, right at retirement. A problem many consumption based dumb baby boomers will be doing.
As for the mortgage guy, pretty soon he may not have money to eat period, rather than foregoing expensive dinner. BAD NEWS for Weight Watchers, and Jenny Craig, et al.
Retirees, who have lived in expensive location like that for 25 years? I don’t think they’re boomers, I’d put their age at 65+.
I would sure be looking for some “GOTCHA” in that 12 months of no payment deal.
“Imagine what you could do with the money” - how about pay down the mortgage to get on the way to becoming debt free? Or are we trying to “liberate our equity” to spend on Disney trips?
Amazing, isn’t it?
The no-payment loan makes mathematical sense in an upmarket, as long as RE appreciation is larger that the interest rate in your loan’s first year. What is toxic for hopeful buyers are industry predictions that house appreciation is “cooling” to 5-7%, which makes the loans sound like a break-even deal.
I dunno. The whole business is just so crazy, its hard to imagine a salespitch beyond “imagine what you could do with that money.”
it must indeed be “mentally tough” to be so bloody “mentally challenged” as these sellers clearly are!
I saw an article carried here in Ann Arbor from the AP or somesuch, about how some psychologist proposes that maybe we need an official diagnostic category for people with extreme biases…the kinds of ’sick’ prejudices that make them clearly ‘irrational’ in their reasoning and that stops them from living ‘normally’ in the world. If they end up creating one for folks who stay inside because they’re afraid of “those people”, then they should consider one for folks who can’t believe they’re carrying two mortgages,especially when one of them is on a house they bought 25 years ago for likely 1/8 of what they’re trying to sell it for now, and seem to be delusional about the market they face. What should the ’syndrome’ be called?! Cause it’s clearly more than just ‘greed’ at work here…
Location doesn’t matter so much here because as I’ve said is even coming to be true slowly with Ann Arbor, there’s not much “there” here. Don’t matter which exit you’re off of, the roads all suck, some stretchs are slightly worse than others, but it’s not like any one of them gets you closer to a beach or a mountain, and since there are starbucks in all the krogers what starts to matter most is how many lattes you can actually afford per week to put in your drinkholder without going further into debt. especially if ford is threatening to cut your job, or your wife’s, or the people who pay the boss at your shop or business.
yeah, hold out another year or so…that makes sense!?
sell at palm beach where presumably you actually want to live, and just retire here in MI on the profits, because profits are our lord and master…
my my what a bizarre world…
at least this article really shows the strangeness well…
cheers!
At OFHEO they track sales prices on home sales that qualify for Fannie Mae and Freddie Mac funding. This allows them to maintain a Housing Price Index for each Metropolitan Statistical Area (MSA). The methodology is explained here. And from a list box here you can get the index stats for Ann Arbor back to 1979, and see that since then the only time Ann Arbor home prices declined by any significant amount was in 1982, when there was a 10% pullback after the runaway inflation of the ’70s. And if you look at other MSAs, you won’t find many that have ever gone down much in the last 25 years, and will see that even where there have been pullbacks, they’ve been negligible compared to immediately previous booms (e.g., Boston). So people extrapolating from past experience aren’t being complete bozos — they’re just not fully aware of how historically unprecedented the current situation is, in terms of looseness of lending, speculation and overbuilding in real estate, and in the macroeconomic impact of massive Asian funding of our trade deficit. Keep in mind that those of us on this blog are anticipating a real estate market implosion that has no modern historical precedent.
(Note that the OFHEO index changes are released quarterly, but are vs. the same quarter of the previous year, so a value of +10% doesn’t mean +10% from the previous quarter.)
agreed, I may be overstating…but it’s sorta serious folly to sit with your house on the market all that time, and even think about selling the house you’re actually currently living in and wanting to stay in presumably, because you are adhering so stickily to a notion that in the past 20 years or so, we’ve never had a pullback to speak of, so why would we now…it’s like trying to drive where you presume the road would be, but suddenly it’s changed course from where you expected it to be and so now you’re driving in the rutted ditch instead of on the pavement, because how could the road have done that?
I’d guess they’d actually sell their house if they lowered the asking price by 10-20% instead of nothing, still walk away with a good bunch,and stop “worrying”. But they’re afraid they’d feel the fool for not squeezing every last dime out, and that’s where I think their ‘pathology’ is. Even if you look at the OFHEO stats, there are periods with smaller appreciation and higher. I think I’ve seen a number of charts showing that all the markets in this area are currently overvalued by like 20% or more given the ‘historical average rate’ of appreciation over the period tracked by OFHEO, so even if they just adjust for that, they’d lower their price and sell their house and move on to golf fulltime.
why wouldn’t they ‘accept’ the idea that if the economy is faltering then their house isn’t a desirable commodity, at least at their price?
that also seems rather bozo-ish. I must say I wonder what the realtors do about this…I really believed that they must be encouraging people to sit and wait because it’s in their interest to *not* let all those price reductions happen, but when inventory just goes up and up from houses sitting for 3 years, there’s gotta be a breaking point, even for their “interest”!
cheers!
STATS LIE!!!!!
It’s apples and oranges. In a booming market the properties that make up the median or average sale are much different than a down market.
In a booming market any POS will sell for too much money, in a down market only the really nice properties will sell.
The stats lie because they compare a POS selling for to much to a cream puff selling for too little.
You would be very suprised to find the sales prices of the same piece of RE sold in a hot then dead market.
In the mid 90’s I sold a nice home for $89,000 to some clients, I was shocked to find that it sold in 89′ for $170,000.
I looked over tax records for homes that sold in 89′ and then mid 90’s that were in the same area and were similiar size and the drop was consistantly around 50%. This was an apples to apples compare. I’m sure that if you figured the median and mean the numbers would look much better, because in 89′ anything would sell in 95′ only the nice stuff sold, everything else just sat.
You are so right.
It came to me in a flash! The real reason that the inventory in UT is not exploding. There are more ‘Jack’ Mormons than thought and they don’t want to pay the 10% to the bishop plus the 5-6% to the broker when they sell.
“‘It’s a mystery to us why we haven’t been able to sell the house, even though the economy is suffering,’ said retiree Nancy Cunningham, a West Bloomfield resident with a 4,263-square-foot home on Pine Lake that has been on the market for 2 1/2 years. ‘We’ve done just about everything we could in an effort to sell it.’”
Is this lady mentally retarded? It’s blindingly obvious that the one thing they HAVEN’T done to sell the house is to BRING DOWN THE PRICE to what the local market is willing and able to bear.
there are sooo many of these big ol’ “executive” houses round here, and soo many built in the last 8 years that even 4 years ago realtors were telling me that you can’t sell ‘em. People don’t have to make it past the foyer if the specific slate in the entryway isn’t their prefered color (or nowadays maybe even the photos on the internet), so the market for 25 year old versions might be very very tight. Even on lakes. But the article title is giving them a very big hint on what might change their fortunes…and it’s a very simple economic principle too, as simple as looking at charts of home appreciation rates, supply and demand affecting price. We need waaay more stories on that, so that people start “pulling back” from the fantasy that real estate is exempt …
cheers!
But, its West Bloomfield MI, Houses should be worth 50% more with that address than other addresses in MI, LOL.
If this lady really thinks its a mystery, then she should use this as the pricing sturcture:
Market price = paid for in 1981 x 3% Apprection per year. (approx 2.1 times the price paid in 1981 + any capital improvements at cost net depreciation @ MACRS 27.5 years)
I’m sure someone will buy it at that reasonable price point.
Another thing this homeowner can do is fire her realtor. Hire an attorney, who will work for fractions of a realtor fee, and reduce the sale amount by this difference.
This thread illustrates the stickiness of getting all those SnowBelt babyboomers down to FL, AZ and Palm Springs, even the rich ones. When we purchased our last house, it was from a retired couple who had just bought a condo in FL and were itching to move south. This was in the decline of the last Northeast US bubble of the 80’s-90’s. Prices declined slowly then, Perhaps because the primary mortgage of some of these folks was not so large as to force them into a quick sale.
In my old town in CT (where we sold last year), the listings have grown to a 150:1 ratio of town residents to home listings. The lower this ratio goes, the more unstable prices should be (100:1 seems to be a recognized tipping point on the blogs) There havent been signs of rampant RE speculation in my old town in CT, but prices nearly doubled in the past few years. Was it the empty-nest pre-retiree demographic waiting to recover from their stock losses in 2000-1 by working a few more years? There were many representatives of this demo on my old street (few kids for my kids to play with). All holding on to houses too large for them. Maybe this demographic has decided en masse to move now that RE values have crested. A 150:1 population/listing ratio is mighty low — Orange County CA’s ratio is twice as high!
Im just trying to figure out why stable Northeast housing markets went bubble in the last 5 years without all the flippers and “lifestyle’ hype that is reported in the main bubble areas. If the sellers are retirees with equity, the prices may not come down quickly in this micro-environment.
“Im just trying to figure out why stable Northeast housing markets went bubble in the last 5 years without all the flippers and “lifestyle’ hype that is reported in the main bubble areas.”
this is an interesting question. while there may have been more flipping going on in places like Las Vegas and Phoenix, there was also way more new construction. A far smaller amount of flipping in the Northeast may have had an equivalent impact given the comparative lack of supply.
I also think the declining quality of public schools is an issue that has contributed to this frenzy, though it hasn’t received a lot of attention. There’s an interesting recent book by Elizabeth Warren who is a bankruptcy professor at Harvard Law School which suggests that one of the main reasons families have become so overextended with debt in recent years is due to their striving to get into decent school districts.
The Northeast also has an older population relative to other regions of the country such as the West and South. I would not be surprised if the constricted supply of homes for sale during the past 5 yrs was in part due to heavy losses among older homeowners in the stock market who were forced to delay retirement.
You know a statement like this might worry some people:
“An awful lot of people are skittish about the stock market, but real estate, that’s viewed in the general public as a sure thing,” Francese said.
speaking of “all about the price”, perusing my local (ann arbor mi) RE pages today, and I’ve noticed a *lot* of listings that have been on the market forever (like at least 6 to 9 months) and are now at least somewhat reduced in price (like between 5 and 10%) and aren’t being advertised as such. I don’t recall them expiring and coming up as new listings, and very very few prices are being advertised as reduced…
true for anyone else?
cheers…
‘In this market it’s not location, location, location as much as it is price, price, price.’
Exactly. Somewhere between zero and the current listing price, ANY house will sell. The faster that sellers lower the price so that the house moves, the better off they will be.
And RE agents will be better off too,since the commission on a house that didn’t sell is exactly ZERO.
I suspect that quietly, soon, RE agents will start too really push for price reductions. After all, it’s in their best interest.
One of the things that hasn’t been addressed to any great measure is ‘what difference is that extra $50,000 to $100,000 to a boomer’. I’m a year older than the top of that bulge but if I thought that extra little bit would carry me through my ‘golden years’ then I’d have already sealed my fate to canned dog food. Many retiring (not realistically since they will *maybe* become Walmart greeters if lucky) just haven’t thought through the ammortization and now at the penultimate are grasping for straws… they ‘feel’ that maxing their house will somehow off set their predicament — yeah, lot of stickiness downwards that potentially might make their situation worse — serious risk that is far from equivalent to 20 year olds that still might recover.
Very good analysis
Speaking of Detroit area, I was looking at condos / house open houses in Novi/Wixom area two weeks ago to feel out the local market. There were a few other home lookers at the 10 places I went to. However, I think most were just tire-kickers like ourselves. We tried our best to act like we were really in the market for a home. (Which technically I am just not at these inflated prices) Realtors were very nervous. One I thought was actually going to cry. Another realtor assured me that the market will pick back up in spring, but sounded as if she was hesitant. I think realtors are finally realizing (and almost admitting) that the market will slow significantly.
I think this might be the house on Realtor.com The sq foot matches exactly. No wonder they can’t sell though all I see is a tree with snow. Where is my $899,000 to buy this snow mound.
http://www.realtor.com/FindHome/HomeListing.asp?snum=14&frm=bymap&pgnum=2&mls=xmls&js=on&fid=so&vtsort=&ss_aywr=&poe=realtor&areaid=79315&ct=West+Bloomfield&st=MI&zp=&primaryZp=&nearbyZp=&mnprice=800000&mxprice=1000000&mnbed=0&mnbath=0&typ=1&mnsqft=4000&exft=iaoh50&exft=0&exft=0&exft=0&lid=Enter+MLS+ID&sid=064B1429BD2BC&snumxlid=1047997725&lnksrc=00002
The ‘estimated’ monthly payment has aged. It’s now about $4500 a month. Getting harder to sell has they wait.
Many detroit (suburbs) neighborhoods have not seen price increases in 5 years. Our current neighborhood is still selling homes at Pulte pricing from 2001. We currently have 12 homes in our subdivision for sale (200 total). All of them are asking 307k-410k. (2500-3200 sq. ft.). They all have been on the market for at least a couple of months to 18 months. You are lucky to have one showing in a two month period. One home sold around Christmas at $50k below asking price ($307k). It had been on the market for over a year. A week later the one across the street sold for $392k. Go figure. They were both beautiful inside.
As a side note, West Bloomfield has one of the best public schools in the United States (I believe #3?). The property taxes are EXTREMELY high.
Detroit News had an article a few months back stating that the only homes that have seen any appreciation in a while are the ones under $150k in older neighborhoods.
From reading the top of this blog, I would have have thought these greedy floppers were trying to get $900K for any kind of $hitbox in Detroit. The heating bill for that McMansion would equal the overpriced mortgage payment.
Many homes in the Detroit area are beautiful and real deals compared to some of the junk for sale for more money in the rest of the country. As I have posted before, if you are financially secure ( a big if, for many ), and have a secure job, Michigan is actually going to be a decent place to whether the upcoming downturn because a lot of the negative pricing (drop) is already built into the housing pricing. For the people living on a shoestring between their paychecks and financial disaster, and for those who will be losing their jobs in the automotive downturn, it will be a nightmare (think Texas in the oil bust times ). Same state, 2 worlds.
….Four years ago we were looking at homes in the Phoenix area and thought they were well priced considering that they were built on tiny plots of dirt and were made from stucco on a piece on concrete slab. We thought we would sacrafice our large lot and all brick basement home for a smaller morgage. Now Phoenix homes are outragously priced for what you get. Your money will go twice as far in most Michigan neighborhoods and you will gain some of the best schools in the country.
You do have to keep in mind that the weather does stink and the roads are always in need of repair (because of the weather).