A Temporary Distortion In Comparing Prices
Some housing bubble news from Wall Street, Washington and beyond. “The outlook for home prices this year, already expected to post the first drop on record, got worse Wednesday as an industry group cut its forecasts for sales and prices for 2007. The National Association of Realtors said it now sees the median price of existing homes sold falling 1.3 percent this year.”
“That’s almost twice the 0.7 percent drop forecast just two months ago, and is worse than the 1.0 percent drop in prices it estimated in May.”
“‘We continue to experience a temporary distortion in comparing median existing-home prices,’ said Lawrence Yun, NAR senior economist. ‘Because the sales volume has shifted from many high-cost areas to moderately priced markets, we’re not getting a true apples-to-apples comparison.’”
“‘Buyers today need to have a traditional view that housing as a long-term investment is an added benefit to their shelter expense. If so, that investment generally will build a nice nest egg over time, especially if they use a traditional mortgage instrument that reduces debt,’ Yun said.”
The Associated Press. “(The NAR) said Wednesday it expects sales of existing homes to drop 4.6 percent this year to 6.2 million Two months ago, the group had predicted a 2.2 percent decline for the year.”
“Sales of new homes are forecast to drop 18.2 percent to 860,000 compared with an earlier estimate of a 14.2 percent decline.”
From Reuters. “Subprime mortgage guidance opposed by some of the nation’s biggest lenders will be ‘largely intact’ when completed by a group of regulators later this month, Federal Deposit Insurance Corp. Chairman Sheila Bair said on Wednesday.”
“The guidance ‘is simple common sense,’ she said.”
“Countrywide executives have said that some 60 percent of borrowers given adjustable-rate loans made last year wouldn’t have qualified under the ‘fully indexed’ rate. About half the subprime customers with adjustable-rate loans were able to refinance into a prime loan before payments on the original mortgage rose, they said.”
“But lenders have failed to prove to regulators that those borrowers wouldn’t be better served with a fixed-rate loan. ‘Why do you need this payment shock feature to get people into homes? I really don’t understand that,’ Bair said.”
From Fitch Ratings. “In the context of recent adverse developments in the U.S. mortgage market, Fitch Ratings released a special report that examines recent trends in the domestic business of the U.S. mortgage insurance companies, and the results show delinquencies are on the rise at these firms.”
“According to the report, ‘Across the Board, Delinquencies Are Up - An Analysis of U.S. Private Mortgage Insurance Exposure,’ market concerns have been broadly centered on 2006 vintage originations, but to some degree concerns extend to originations of the preceding years as well.”
From Bloomberg. “Francisco Paramés, the best-performing fund manager in Spain for the past five years, predicts that a real estate crash in his homeland will spread, dragging down companies throughout the country. Lending by banks and other credit institutions has almost tripled in Spain since 2000.”
“‘Credit has increased by 25 percent a year for six years,’ Paramés said. ‘That’s never happened anywhere else in the world, even China.’”
“Javier Usua and Ruth Graneda never got out of the car when they visited Sanchinarro and Las Tablas, two of Madrid’s biggest new suburban developments. The concrete-block buildings and empty streets were all they needed to see.”
“‘We came to look at apartments but found ghost towns,’ said Usua. ‘You’d need to drive miles for a loaf of bread or cigarettes and my girlfriend found it creepy and unsafe so we turned around and left.’”
“The abandoned developments are evidence of a housing glut that will lead to Spain’s first decline in home prices since at least 1992, when the Housing Ministry started keeping records. Spanish builders constructed 750,000 houses and apartments last year, more than France and Germany combined, while annual demand runs about 60 percent of that, according to the Finance Ministry.”
“‘The real killer of the housing market is the immense oversupply,’ said Gonzalo Bernardos, a professor of economics at the University of Barcelona. ‘Prices are already unofficially falling.’”
“‘We live in a country where everybody understands that appraisals are poetry,’ said Jesus Encinar, CEO of a property Web site that tracks existing home prices in Madrid, Barcelona and Valencia. ‘Bankers have said to me, ‘Why do you care if the appraisal is fake? It will be true in the future.’”
“‘The problem here is that people have this unshakeable conviction that prices simply cannot fall,’ Encinar said.”
The Advertiser from Australia. “Leading mortgage insurers are feeling the pinch from rising home loan defaults, after insurance claims from banks and other lenders soared by more than 500 per cent during last year.”
“The two big mortgage insurers were hit by sharp rises in claims from home lenders according to 2006 accounts filed with the Australian Securities and Investments Commission.”
The Edmonton Sun from Canada. “Edmonton’s real estate war is getting intense as a tidal wave of Edmontonians decided to unload their properties last month, clearly taking advantage of soaring house prices which saw the average single family dwelling jump from $282,208 a year ago to $426,028 last month.”
“You also have to be asking if this is the storm before the lull after the MLS residential inventory shot up by 42% at the end of May to a fearsome 4,485 units on the books.”
“Realtors Association president Carolyn Pratt said she is ‘upbeat’ about the rising prices and short selling cycles. Pratt predictably urged sellers to ‘consult a realtor before venturing into the market” where the average single family dwelling price is jumping by over $400 a day.’”
“So why have all these folks suddenly decided to cash out? And do they know something that Pratt doesn’t?”
The Winnipeg Sun from Canada. “In the suburbs or by the docks, the Manitoba real estate market is sizzling. In May, Winnipeg’s housing market smashed sales and dollar volume records to chart its best month ever, while the province’s average waterfront cottage price hit almost double that of the average home.”
“‘It’s the number one month ever. I think it’s great because every time there’s a house sold in Winnipeg, there is a great spinoff for so many different people and there is wonderful job creation activity,’ said Wes Schollenberg, Winnipeg Realtors Association president.”
“Schollenberg admits skyrocketing prices can make home-buying difficult. ‘The buyers have to be really patient and it can be very frustrating,’ Schollenberg said.”
The Star Phoenix from Canada. “Curtis Olson recently purchased and renovated a two-storey home close to the Saskatoon Farmers’ Market. Olson put the house on the market himself last Friday. By Monday, it had sold for the asking price of $164,000. The buyer? An Albertan who didn’t even bother to come and see it. In fact, half of the calls he received were from Alberta.”
“Olson’s experience isn’t unique. Investors from Alberta and British Columbia are buying up properties in Pleasant Hill, Riversdale, King George and Holiday Park in increasing numbers, without even seeing them.”
“Out of 540 properties listed in the area since January, 480 sold at an average price of $121,000, not bad for last year’s lowest-selling area, which had an average price of $86,000.”
“‘We’re seeing a number of investors from Alberta and British Columbia coming in and buying two or three properties at one time,’ said Harry Janzen, executive officer of Saskatoon Region Association of Realtors. ‘Some are even buying homes without coming to look at them, which tells us that there’s not a direct interest in the home, but rather the land value and location.’”
“‘Many of our out-of-province investors want big lots and don’t really care if the homes are dilapidated,’ said Realtor Susan Toledo . ‘They want to take them down and rebuild to generate revenue.’ She expects house prices to keep climbing.”
“Canadian building permits slipped 8.4 percent in April, after rising at a record pace the previous month. Permits have been volatile all year, rising 27 percent in March and posting double-digit gains or losses throughout the first quarter. Still, year-to-date permits are 15 percent ahead of where they were in the same period in 2006.”
“‘There are still no compelling signs of distress in Canada’s housing market,’ CIBC World Markets economist Warren Lovely wrote in a note to clients today.”
‘Richard Eckert, an analyst with Roth Capital Partners in Newport Beach, in a May 1 note on IndyMac Bancorp of Pasadena made a strong case against IndyMac relying more on mortgage banking and less on building its thrift business.’
‘The issue with a trading strategy, in our estimation, is that its success is based upon arbitrage (momentary advantage), rather than sustainable advantage. Tethering IndyMac’s fortunes even further to the arbitrage model was its specialization in Alt-A loans … they require little or no documentation of the borrowers’ income.’
‘Since we have concluded Alt-A loans are inherently collateral-dependent–i.e., the lender looks to the collateral as the source of repayment, not the cash flows of the borrower–data may never have been relevant.’
“‘Buyers today need to have a traditional view that housing as a long-term investment is an added benefit to their shelter expense. If so, that investment generally will build a nice nest egg over time, especially if they use a traditional mortgage instrument that reduces debt,’ Yun said.”
YUn is actually an acronym. It stands for Young Urban Neanderthal.
Anyone who believes the Geico-commercial-star-wanna-be in still in the dark ages.
“traditional mortgage instrument”
Perhaps such a thing will begin to make its comeback in the Alt-A Bay Area in 2012 - after prices have adjusted appropriately.
The analysts comments on Alt-A are important in general. He is correct in saying they are collateral dependent, which means that those done as 100% financing will perform very poorly as home prices drop. A huge percentage of Alt-A was high LTV financing, and the only reason it was not called sub-prime is because of credit score. Those of us who know the risks of high LTV financing consider these to be a “sub-Prime” product.
‘Since we have concluded Alt-A loans are inherently collateral-dependent–i.e., the lender looks to the collateral as the source of repayment, not the cash flows of the borrower–data may never have been relevant.’
If that is true, why did they care about the FICO scores? (good FICO= Alt-A vs subprime)?
“Why do you need this payment shock feature to get people into homes? I really don’t understand that,’ Bair said.””
Well, let me spell it out v-e-r-y s-l-o-w-l-y.
Most people can’t afford to service all the interest on a $600,000 loan at 6.5%. Some of those people can afford to service that interest with a teaser rate of 4%.
What happens to those borrowers at reset is not the lender’s problem if he’s offloaded the loan and seasoned it.
Here’s why they are able to refinance it later at a prime rate — the freaking fanthom APPRECIATION covers the down payment they were supposed to have brought to the table. So as long as the escalator keeps moving any dumbwit can swing a house and the paper appreciation will bail them out before the reset hits.
Only when the water receeds do we see who’s been swiming naked.
got cash?
That is a very good point that is glossed over in the article. The reason the subprimes were able to refi to a prime was that appeciation improved their laon to value ration during the teaser rate. Without the creation of the “phantom” downpayment, they never would have qualified for the fised rate loan.
Oh, and how do we know that they will really be able to pay the fixed rate one? Loans are still being given out based on FICO score alone. As soon as they got the fixed rate mortgage, they probably got a home equity loan to help make the payments. With no appreciation, they won’t be able to refi again.
Delay of the inevitable.
“Most people can’t afford to service all the interest on a $600,000 loan at 6.5%. Some of those people can afford to service that interest with a teaser rate of 4%.”
How many of these people can afford to service all the principle on a $600,000 loan? Because I thought resets involved amortizing the principle over a shorter-than-30-year period?
Appraisals are poetry!!! HA HA HA HA!
It takes an European to say that!!!
and the rest of the quote:
‘Bankers have said to me, ‘Why do you care if the appraisal is fake? It will be true in the future.’”
Quantum Finance.
Also see the the very next quote:
“‘The problem here is that people have this unshakeable conviction that prices simply cannot fall,’ Encinar said.”
So, Europeans and Americans are really not so different after all. We both have a strong tendency to succumb to the power of mass delusion.
The unbearable lightness of delusion…
That is not true. Americans are different. Ve vill never be like zhe Germans who allowed themselves to be mass hypnotized by zhe Nazis… seig heil!…
Ve Americans cannot be mass hypnotized by people like zhe NAR. Ve are too szmart for that, ja?
Mein Fuhrer, I can valk!
President Merkin Muffley: Gentlemen, you can’t fight in here! This is the War Room.
So, in a race to the bottom, who’s in worse shape…Florida or Spain?
I love your sarcasm!! We will never know who is more brainwashed unfortunately. Only have the luxory of living in one century!!!
Home prices inflate
No appraisal was too high
Now the prices drop
Crazyness all over again in Canada. The train has some steam left to run in some countries for a few more years I think. But this is a worldwide bubble. I see it in my home country as well. Fundamentals are out of the window!
that canada has jumped on the train is amazing to me. My understanding is that you can only get a 10 year mortgage there, and the interest isn’t deductable. Seems like that should temper enthusiasm.
But everyone from America will want to live there once global warming kicks in and the U.S.A. goes broke. And they aren’t making any more land there.
LOL. They still have more land than the US, hopefully it will thaw out…
Maybe they think that rich Latin Americans will be buying second homes in Winnipeg and Saskatoon.
It saddens me to see Canadians participating in this mania, because I’ve visited the country and really liked the people. Just goes to show that greed is a universal human failing. Also reminds me of a line in a novel I read recently: “The prospect of outsized profits leads people to exaggerate their own capabilities … they pretend to themselves that they are in control of events when perhaps they are not.”
Do they have option ARMs? If there is, is there a reset chart for Canada?
No option ARMS in Canada. All mortgage products are traditional 20% down with an option for a fixed or variable rate that typically has to be renoegotiated after 5 years.
While the mortgage market may appear more traditional here in Canada, I think when the dust settles we’ll see that lending has been almost as loose as in the US.
Mortgages are not 20 per cent down at all in Canada. You need minimum 5 per cent. That’s all. To do that you just pay a small insurance fee. And we have Genworth with its 40 year mortgages too. And you can get a variable rate mortgage, though not the suicidal ARM kind.
Correct - 10 yr max fixed rated mortgages, no interest deductible. Therefore, our affordability is arguably worse. And 100%+ mortgages are available, despite having no option ARMS to allow deadbeats to buy in.
But affordability doesn’t matter to the masses who see RE as a can’t-lose investment with double-digit returns. People are beggaring themselves to buy in, assured of greater fools later. And once these news stories of out-of-province investors hit, the local yokels jump on the bandwagon with gusto.
What timing. Thanks for the article on Edmonton, Ben. Last week a friend of mine said he “invested” in a condo in Edmonton on spec, and he shall “flip it for a quick profit” once it’s finished in 12 months! Oh my.
I told him he was a lunatic, a lunatic with too much money; he told me that this (unbuilt!) condo is increaing in value at the rate of $C 1,000 per *DAY*!
I just cannot believe he fell for that. There must be lots more like him, too, because he said there were lots of other people there all excited and signing on as well. I reckon they, like him, have no intention of ever renting the places out, much less moving into it themselves. Oh, this will end badly.
But at least the Canadian dollar is strong. It’s closing in on parity with the US dollar. And, no joke, besides natural resources, Canada is blessed with an abundance of pristine water–which in the future may be more valuable than oil.
A strong dollar hurts our exports to the US (huge part of our economy), so it’s not necessarily a good thing for everyone.
Canada is blessed with an abundance of pristine water–which in the future may be more valuable than oil.
They don’t call it blue gold for nothing!
The way I see it, the US wants a North American Union to have easy access to:
Canadian natural resources
Cheap Mexican labor (without all the “illegal” issues).
Maybe in the very very distant future.
12 months? Tell your friend hes about to take a bath in hot water.
To clarify for non-Canadians: the cities mentioned above are all cities in the prairies in the middle of nowhere. Think ‘Fargo, North Dakota’ (only smaller), and you’ll have some idea of these dumps that are experiencing a RE boom. Winnipeg is sometimes referred to as ‘Winterpig’.
Anyway see a Canadian sitcom on PBS about an American news anchor who takes a job in Calgary and nearly goes crazy! I think its called An American in Canada.
No sorry,
it’s WinterPEG and I am proud to say that this was my home city born and raised in.
It’ s not a dump, actually a bustling nice city of over 1/2 million.
Saskatchewan has a smaller population today than it did before the Great Depression. That’s one reason why houses in Saskatoon “look” cheap compared to Alberta and BC where the locusts are coming from. Saskatchewan has about one million people in an area the size of Texas, and just as flat.
But this really takes the cake - I mean you don’t get locusts from Seattle buying in North Dakota, do you? This will actually hasten the inevitable decline in Alberta and BC, as the buyers get clobbered on their out-of-province “deals” and lose equity.
The two main debates among Vancouverite bears:
1) Whether we have the most unaffordable real estate in North America. As in real estate prices relative to income.
2) How much crime is influencing our bubble. Money-laundering Asian gangsters, grow-ops, mortgage fraud, crooked real estate agents etc. etc. etc.
“Buyers today need to have a traditional view that housing as a long-term investment…”
As opposed to the buy and flip attitude you were promoting 18 months ago.
“…that investment generally will build a nice nest egg over time, especially if they use a traditional mortgage instrument…”
As opposed to the exotic I/O ARM’s that you pushed to shoe horn people into over priced homes.
We need a Lawrence Yun Watch guys.
I agree absolutely. This guy is another Liareah
The fortune tellers at the NAR are a ridiculous sideshow! They have to revise downward the predictions they put out just two months ago, but they still say with a straight face that everything will be back to normal by the end of the year.
Well at least we’ve finally got an explanation on “RE always goes up”. What they REALLY meant was: if you buy a house with a fixed mortgage you’ll end up with a nice nest-egg after 30 years…..
And what’s worse is that it’s incorrect: they will end up with a paid-off house in 30 years, not a “nest-egg”. Yes, there’s no mortgage payment but the house still requires “feeding”: taxes, insurance, and maintenance. It’s only a nest egg if you sell it. My grandmother refused to sell her house and spent her last years fretting about maintenance. My Dad and aunt got the windfall of her nest-egg.
On top of that, you will have paid about 3X the mortgage. In essence, if you bought at 250K, you will pay 750K over 30 years. As mentioned above, not a nest egg unless you sell at that price of 750K or somewhere near that mark. Alas, the sheeple just don’t understand how mortgages work. On the other hand, if you look at housing as a somewhat fixed cost and a place to live, now you are on your way to enlightenment about home debtorship.
Of course, the third option would be to buy outright cash, but in this bubble market, how many can, and even if they could, who would want to overpay by 100Ks?
I think that too many people have an Uncle Joe or an Aunt Martha who bought their house in OC in the 70’s for 25K (with a $120 month payment) and now its “worth” 750K. They believe that the same will happen to them.
WTF ? larry yumyum NAR
the lkow end getting kicked is holding the median up you lying sack of sht
‘Because the sales volume has shifted from many high-cost areas to moderately priced markets, we’re not getting a true apples-to-apples comparison.’”
I bet lieRAH comes here every day now
“‘We continue to experience a temporary distortion in comparing median existing-home prices,’ said Lawrence Yun, NAR senior economist.
Earth to Bozo: 100% appreciation in 2 years is a historic grotesquerie. What is happening now pales in comparison. What will happen in the next few years may be interesting!
“Inspired” listed the Top 10 Signs of a housing bottom on 5/9/07.
Number 10 was “Media & public now say homes are shelter, not an investment.”
We may be getting a bit closer to that prediction with the NAR’s latest diatribe:
“‘Buyers today need to have a traditional view that housing as a long-term investment is an added benefit to their shelter expense. If so, that investment generally will build a nice nest egg over time, especially if they use a traditional mortgage instrument that reduces debt,’ Yun said.”
This is a 90 degree turn for the NAR. Another year or two, and the NAR will encourage you to ignore any investment value and buy for shelter only, since you have to pay for at anyway!
Inspired calls the meaningful signs. The other 9 were?
1) Residential supply falling. No
Gold to DJI ratio less than 4. (I don’t know what this means)
2) Sub prime lending down to pre-bubble levels. Not yet.
3) Builder BK’s. Some
4) Stocks peak and fall for 18 monthts. Not yet, but may have started.
5) Credit squeeze driving up rates. Not yet, but rates rising.
6) Media stories of projects halted in mid stride. Some
7) Heavy equipment idle in fields. Some
9) Rents offer cash flow on purchase price. No, but getting closer
I repeat these for this blog because I found them very useful and pragmatic. Comments and additions are welcome
This is what I think number 8 means:
A troy ounce of gold to Dow Jones 4 to 1. Gold goes for around 650-680 these days, Dow is more than 13K. So for that to happen we need gold at 3-4K or Dow at 2,800 or some kind of a combination…
OR it could mean gold should be $3200+, duh.
Yeah, one thing that no one mentions is that at the peak of Gold, in early 80s the RATIO of GOLD to DOW JONES was VERY VERY close to 1:1….. Just imagine that happening again.
Just an explanation if you already do not know.
Price of Gold right now - 650-680 for a troy ounce.
Dow Jones around 13,500 ( falling today)
Ratio of about 20.
Don’t tease me, I am long gold.
So you are saying that gold was $800/ounce and the Dow was at 800 in the 80’s? I think I get the ratio bit now. So Inspired’s comment was if the Dow is 12,000, gold should be a minimum of $3,000/ounce? That seems pretty crazy. What was the gold/Dow ratio in 1990 when housing tanked in that cycle?
At the time of the October ‘87 crash, the ration was 5+ to 1, and dropped to 3.8/1. Over the next few years the spread began widening and then exploded until it hit 40 to 1 in 2001, DOW @ 10,500 and gold @ 260.
Are you sure about that. I think it was much closer than that. This is from someone who does this for a living, for a lot of money. Is he wrong?
“After gold reverted to its mean (and overshot some) in 1980, gold and a single unit of the Dow Jones Industrials actually reached parity, meaning one ounce of gold ($800 +) traded for one unit of the Dow (800ish) as the repricing overshot equilibrium. “
No, we’re still ok. 81 was a close-to-parity year, but I was looking at ‘87 and especially 2001. I would guess that if anything, this out-sized fluctuation in the ratio says a great deal about the amount of credit-inflation running around the world. When it slows (or ends) a mean reversion would be destructive at best.
Not so crazy. The inflation-adjusted high price for gold was over $2000. Some believe gold fair value now should be 2000-5000 per oz.
This ratio is just stupid. Who cares about the price of gold against the Dow? It is a meaningless number as the underlying value of the Dow changes through acquisitions, divestments, and growth of business. Gold just sits there as gold. The only real relevant number is the price of gold to the Dow’s book value per share. That at least would show you how the hard assets of the Dow stack up to gold and how they are perceived in the marketplace.
It is true. Gold is a terrible investment, if it even could be called that. It just sits there. But at times when everyone else is loosing money and you are increasing your networth compare to other people, I think it is not bad. Especially, if you do not see other better opportunities.
Gold is a terrible investment, if it even could be called that. It just sits there.”
Kind of like a house? At least gold won’t rot or burn down, and I don’t pay taxes on it every year.
A house is a capital good, genius. It has a yield - the value of the accommodation (rent) minus the carrying costs. That doesn’t necessarily mean a house is a good investment right now, any more than a given stock is a good investment at any given time.
Gold has no yield, which is why it is not an investment. It is only worth something because someone else is willing to buy it, because someone else is willing to buy it, because….
And you can’t print more of it every day, like you can with dollars, euros, yen………
Regardless of what you may think about it, the ratio always, ALWAYS, returns to roughly even. Good as any indicator for marking the bottom.
p.s.: Oh, and if you’re holding anything but gold, your assets have declined against it.
Measured from what starting point? Obviously not 1980. Or even 1929, for that matter.
‘Because the sales volume has shifted from many high-cost areas to moderately priced markets, we’re not getting a true apples-to-apples comparison.’
Give me a break. Is he saying that because people are still buying houses in Cincinnati, but have stopped buying in San Diego, the national medium is falling? But all markets are local, that’s what they told me. I guess that’s not true anymore since people living and working in SD are buing houses in Ohio to live in. - LMAO.
Is he saying that because people are still buying houses in Cincinnati, but have stopped buying in San Diego, the national medium is falling?
What he is saying is that the distribution is changing, which is probably true. As volume drops in high cost markets, more of the volume will be at the left end of the curve (on price). However, that doesn’t mean that the whole curve isn’t also shifting to the left at the same time! It’s just more obfuscation from the NAR
but wait…. I thought they were recording higher medians just a short while ago because the higher market was fine but the lower end was falling out. Now they are saying the lower end is fine but the higher end is stalling?
Guys I’m actually done analyzing anything these morons say. It’s a sales organization… lets just forget them.
Here, here. Their only aim is to separate people from their money.
This idea from Yun comes from the famous “blame the weather” theory first developed at the Univertity of Shill.
If sales are good and the weather is good, it’s because the market is healthy. If sales are bad and the weather is bad, it’s because the market is healthy, but we had some bad weather.
Ergo, the market is always healthy. Always. Do not ask questions. The market is always healthy.
Now we get a twist on that old canard: median prices are down, but only because people are spending less money, and spending it in cheaper locations.
Let’s see… searching the memory banks… about five years ago we probably had the opposite shift - people buying more on the bubbly coasts and less in the cheaper regions.
By the NAR’s own reasoning, this shift a few years ago would have increased the median price in the same “artificial” way that they now blame for lowering the median price.
But did we see any such explanation back then? Of course not.
Back then, a shift in buying patterns that raised the median was a sign of a healthy market! Today, a shift in buying patters that lowers the median is just a statistical fluke in a healthy market!
Sound familiar?
Just blame the weather. Real estate only goes up, right?
Italics off please… sorry I think I broke it
mediummedianNo, dipschtick. Buying at bubble-inflated prices and then pretending that it was smart (or “traditional”) by holding onto the house forever to spread out the pain of what could have been an easily avoidable loss is a dumb strategy at best, and self-serving, specious, deceitful “advice” from you at the worst.
YOU need sheeplike buyers to buy high and keep generating your commissions.
Buyers need nothing of the sort. Thanks for the investment advice, pal, I will spend eternity doing the precise opposite of everything you say.
close
once more
c
There –that last one did the tirck!
Barn door closed. Horse gone.
http://www.azstarnet.com/business/186281
The National Association of Realtors said it now sees the median price of existing homes sold falling 1.3 percent this year.”
LOL!
Does anyone believe this rubbish?
Bubble houses in my bubble area are down at least 15% from the peak.
that is houses sold not some of the dopey asking prices from some of the sellers late to the game.
“The outlook for home prices this year - already expected to post the first drop on record - got worse Wednesday as an industry group cut its forecasts for sales and prices for 2007.
The National Association of Realtors said it now sees the median price of existing homes sold falling 1.3 percent this year.”
Over what period is this prediction for? Do they mean the drop will occur between Jan. 1, 2007 and Dec. 31, 2007? I’ve never understood what period this “statistic” is supposed to reflect.
It means that the median price of all homes sold in 2007, vs the median of all homes sold in 2006. It pretty much takes out any seasonal/weather variations out of the equation.
Thank you. They never tend to clearly state exactly what period they’re spouting about. Sometimes it’s YOY for a given month, sometimes qtr over qtr comparing the last 2 years, etc. Makes my friggin’ head spin.
Good news is…..it’s all becoming bad news.
Italics off?
how about now?
and 15% off the peak is still way to pricey. Take another 30% off wuld be wise.
NAR and their toilet economists are at it again….
“Home sales are projected to move in a relatively narrow range with a gradual upturn becoming more pronounced by the end of the year,”
Yeah because the resets are going to becoming due at the end of the year, so with that happening there is going to be many people in a position to move up in houses. Freaking joke of an organization, make weather forecasters look like they have lazer like accuracy in their predictions. What a big giant sack of ….well you know.
Its been a noticeable trend that the naysayers predicting declining prices have data to back them up, like ARM resets, but those that say a turnaround is “right around the corner” never cite any specific reason. What are they counting on, other than blind faith and hopeless optimism?
Thanks for the Canadian content Ben.
Alberta is the new California in terms of equity locusts. Alberta homeowners witness a doubling of prices in 2 years, and now think that anything less expensive is “undervalued”. Hense, they are buying homes sight-unseen in places like Saskatchewan.
So you guys know, Saskatchewan is like the North Dakota of Canada, but with less population density. If there can be a bubble there, nowhere is immune.
LOL. I compared those cities to North Dakota above, before I read your post here. It fits. I rode across the prairies on a motorbike in the summer of ‘02, and they had snow in early August. Admittedly it was freakish weather, but it still happened.
Looking back on that part of my trip, I vaguely remember three days of straight, flat, mind-numbing nothingness, while freezing my butt off in summer riding gear. I wore four T-shirts in layers under my jacket and managed to find a dusty scarf for sale in a Work Warehouse store, but I still froze and welcomed every gas-stop along the way so I could warm my hands under the hot-air dryer in the gas station restroom. I was convinced that hell had frozen over and I was there.
I recall reading that the thermometer drops below freezing (32F) in Calgary every month of the year.
Yes, much thanks for the “CanCon” as we call it. It was hilarious to read that Saskatchewan is crediting B.C. as well as Alberta for its equity locusts. In B.C. the real estate shills and sellers hold Alberta up as the sole driver of our recreational property boom as justification for why it still sells when local BCers are priced out … Alberta really is Canada’s Californa. But then, if I was living there, I bet the Albertans would blame the Californians ….
If you want one more thing to chuckle about, Saskatchewan is Canada’s bastion of socialism, where the socialist party has governed for about 3/4 of the time since WWII and is currently in office. Alberta is Canada’s most conservative province, and I can’t think of anything more hilarious than the cowboys wanting to put their dollars into Saskatchewan RE and generating tax revenues for those awful pinkos.
“‘Credit has increased by 25 percent a year for six years,’ Paramés said. ‘That’s never happened anywhere else in the world, even China.’”
I knew Spain had a run up/overbuilding in the RE maket but this quote really creeps me out. This is gonna end up really ugly…and i am a bull overall….
Chris
The fact that more housing units were built in Spain last year than in France and Germany combined is just as scary as the credit number. Spain’s population is only 40 million, which is about 1/3 that of Germany and France combined. Also, its population growth rate is one of the lowest in the world. So, all of this construction is going to take decades to get absorbed.
“‘We continue to experience a temporary distortion in comparing median existing-home prices,’ said Lawrence Yun, NAR senior economist. ‘Because the sales volume has shifted from many high-cost areas to moderately priced markets, we’re not getting a true apples-to-apples comparison.’”
What a steaming pile of crap. I don’t suppose Mr. Yun is familiar with the S&P 500/Case-Shiller index, which controls for changes in the quality mix of homes that are selling by averaging the price change for individual homes which sold twice over the time horizon of the data? Because this quality-controlled index shows San Diego prices dropped by 6% YOY from 2006 Q1 to 2007 Q1.
The only thing in Yun’s statement is that we aren’t getting an apples to apples comparison by looking at the median. However, the distortion is almost certainly in the opposite direction to what Yun is claiming as it’s the bottom sub-prime prone part of the market that’s seeing the biggest falloff in sales.
“The guidance ‘is simple common sense,’ she said.”
The Good Lord knows there is a severe shortage of simple common sense in recent U.S. home purchase and financing decisions. And it is govt-sponsored stupidity, to boot.
——————————————————————————–
HUD Secretary: Don’t Forget Homeownership is the American Dream
Kerri Panchuk | 06.05.07
…
“One way to do this is by modernizing the FHA,” Jackson said. “We need this reform now. If Congress passes FHA reform, we could help hundreds of thousands of families and we could do so without cost to the taxpayer.”
http://www.dsnews.com/view_story.cfm?id=1212
“we could do so without cost to the taxpayer.”
I’d like to know exactly how he plans to manage that.
The cost of FHA loans and possible defaults are supposed to be covered by a premium put on all FHA loans. The premium is calculated using a model of past behaviour of house prices and defaults. There is no cost for the taxpayer until there is, due to a break down of their model, e.g. falling house prices. Then the taxpayer is on the hook because of the federal guarantee for these loans.
“…falling house prices.”
They are already falling.
“There is no cost for the taxpayer until there is, due to a break down of their model, e.g. falling house prices.”
So, to correct Mr. Jackson, it will all be at the cost of the taxpayer. Jackson is another sleazy scam artist.
No, the taxpayer is already paying the cost, right now.
Or, try to use a private company to insure that loan, see what it will cost. Instead, the cost is born by the federal government, as is the cost of yet another federal agency not even hinted at in the Constitution. Why means the cost is born by those who pay taxes, which means they have less money to give to their children.
I don’t see how someone who took out an option ARM because that was the only loan they could afford, will be able to qualify for an FHA loan. The FHA loan would require a PI payment, an escrow payment, and full documentation. We also don’t know how many of these option ARM’s have an upside down loan balance.
“…will be able to qualify for an FHA loan.”
- Taxpayer-subsidized below-market interest rates
- Taxpayer-subsidized loan guarantees
No cost to the taxpayer. Another bunch of crap that can be added to the proverbial last words dung heap!
“But lenders have failed to prove to regulators that those borrowers wouldn’t be better served with a fixed-rate loan. ‘Why do you need this payment shock feature to get people into homes? I really don’t understand that,’ Bair said.”
Because u stupid bitch people cannot afford a home using a fixed rate.
“But lenders have failed to prove to regulators that those borrowers wouldn’t be better served with a fixed-rate loan. ‘Why do you need this payment shock feature to get people into homes? I really don’t understand that,’ Bair said.”
In a lot of cases, they would have. But, that wouldn’t have provided the brokers and investment bankers the kind of dough they were interested in. A majority of the loan packages for subprime and Alt-A borrowers were ARM’s. It’s like the industry said “If you have bad credit or cannot document income, we’re going to take you to the cleaners”.
“Because….people cannot afford a home using a fixed rate.”
And it’s not just the affordability issue with a fixed rate. Those loans are more difficult to qualify for as well.
“‘Buyers today need to have a traditional view that housing as a long-term investment is an added benefit to their shelter expense. If so, that investment generally will build a nice nest egg over time, especially if they use a traditional mortgage instrument that reduces debt,’ Yun said.”
This is an interesting variation on the usual NAR “real estate always goes up theme.
As long as home prices are falling, wouldn’t it be smarter to build your nest egg in a bank account? This would help restore the U.S. to a positive national household savings rate, too.
Yes, as long as people have the discipline to NOT spend every penny they have.
Which, by and large, they don’t.
True. And given how easy it is to “tap your equity”, homeownership hardly forces the masses to save anymore. They would probably be better off as renters in the long run if they can’t keep their hands off their equity. Zero net worth is still better than negative.
Subprime mortgage guidance opposed by some of the nation’s biggest lenders will be ‘largely intact’ when completed by a group of regulators later this month
Why do the lenders oppose this language in a “guidance” document, which by virtue of its name, one assumes does not contain mandatory regulations? What, if any, ramifications are there for a lender that disregards the guidance?
Overbuilding and speculation/greed is beginning to take its toll here on Vancouver Island (Victoria). Listings are way up and many are for “below appraisal”. Price reductions are everywhere, condos and high-end homes are sitting. American speculators have apparently left town. The building however continues….
My mom was from Winnipeg and my dad from Vancouver. So we’ve got the Western Canada bubble covered
Vancouver really is a beautiful place, sort of the San Francisco of Canada. I can see why it would be premium priced to some extent.
Oh. But there is coast all the way till Alaska.
Its important to remember that almost no one lives more than 100 miles north of the US/Canada border. I am sure that there are some towns up the BC coast, but they might be considered to be very remote.
I am from Winnipeg, born and raised and proud to actually say it out loud.
The bubble is bubbling in Winnipeg, my last house I sold for 134,000 in 1998 is now listed for 285,000
Off topic but interesting. I’m the CFO for a $500 million foundation. Just got a cold call from Bear Stearns pushing CDO. Hasn’t happened in 6 years. Could be coincidence or could be desperation - guy sounded really depressed. More info here http://www.businessweek.com/bwdaily/dnflash/content/may2007/db20070511_093244.htm
I can’t beleive that there are institutions that buy this stuff. Defaults, REOs not marked to market, loan modifications, and still the money comes in.
Really! Now that is interesting. What sort of return did he promise you?
Great article. Goldstein is a good writer. He used to write for Realmoney, I think.
“I can’t beleive that there are institutions that buy this stuff.”
Truly a conundrum…
Depressed enough to warrant puts against Bear Stearns?
emcee
I think maybe so. Although it is amazing how long these things can play out. Go long in duration would be my advise. I saw this today http://www.marketwatch.com/news/story/bear-stearns-criticized-over-subprime-securities/story.aspx?guid=%7BD8716033%2D3C15%2D4B69%2D84CB%2DADA6C1E529EF%7D
I’m pretty convinced that BS is in a bad situation. Either the music stops and they don’t have a chair or they pushed an old lady down to get their chair ie they pawned what they new was junk on unsavvy retirement plans etc with no due dilligence on sophistication of investor. Either way it would be bad for BS
Government regulators love to see intelligent CFO’s. Keep up the good work. Try to educate your board, if you can.
‘Bankers have said to me, ‘Why do you care if the appraisal is fake? It will be true in the future.’
Cool! Real estate always goes up in Spain over the long run, just like in the U.S.
Speaking of distorted price comparisons, I just received some anecdotal information from the consumer trenches on milk prices (thx to my wife):
Price of 2g’s of milk
Year ago = $4.10
Last month = $4.69
Today = $5.59
That’s a $0.90 cent (19 percent) increase in one month — a 722% annualized rate of increase in milk prices. Luckily the volatile food and energy sectors don’t affect core inflation, or else I would be highly concerned.
Yes, but imported Chinese plasma TVs have dropped 35% since February ‘06! All you need to do is figure out a way to liquefy a plasma TV so you can feed it to your children. “Win-win”
Watch what you wish for. With all the food-scandals getting uncovered in China, and more and more of our food (or ingredients) originating from China, it might be that in the not so distant future your milk will have plasma TV residues in it….
Think of food poisoning from China as the revenge of the bag holders.
You guys aren’t going to believe this. In my sister’s condo complex in Mountain View, CA, a 3/2/1600sqft/2cargrg unit was asking $725k (recent comps in the low to mid 700k range) and apparently went for $883k. This is just off Shoreline, about 2 miles from Google. WTF is happening?
“…about 2 miles from Google. WTF is happening?”
Up, up and away…
http://tinyurl.com/3b8bhw
Be sure to click on the “Insiders” tab to clarify the picture…
Easy, cashback fraud. Inflated appraisal, cash back to the buyer (and seller possibly) and the lender…well….I don’t know;-)
Looking at recent numbers for NOD’s and Foreclosures, I’m curious if anyone knows what percentage of NOD’s generally go to foreclosure, or if there is there no discernable trend.
In San Diego it was 10% in Jan. ‘06, 26% in Dec. ‘06 and 40% in April ‘07.
In the same time frame the number of NOD’s has gone up by about 2.5x… I’m not a chief analyst, so I’m probably mistaken in seeing a trend here…..
http://www.foreclosureforum.com/stats.html
May ‘07 numbers should be out any day now…..
The realtors I spoke to at today’s foreclosures in Northern Virginia indicated that they have already seen prices retreat back to 2004 levels, a 20% drop in most of the area. The banks continue to withhold the REO properties and have not been willing to reduce the prices to get them to move. The realtors today suggested that the banks could get them all moved at 5 to 10% more, which would be a 25% to 30% total drop.
The banks at today’s sales tried to get full payoff for the loans and failed to attract a single bid. At least one second trust for $100k was completely wiped out, and a property with almost a million in loan value went back to the bank. Losses are racking up faster than a gas pump’s price display, and I continue to maintain that 2q results will be spectacularly bad.
A 25 to 30% total drop could do a lot for affordability with four years of inflation and raises added on to it. Looks like some places are getting there, but the data doesn’t show it.
Not much affordability in NYC, however. Our prices are INSANE.
No, you are wrong. Crazy Eddie’s prices are INSANE! BTW, is Crazy Eddie’s still around? Been along time since I have seen one, esp. living in So Ca for the last 21 years.
Crazy Eddie went to Jail for fraud (the owner, not the actor). I’m not kidding. Google it.
“Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year,” Yun added.
Existing home sales are projected to rise 3.7% in 2008, to 6.41 million, according to NAR’s forecast.”
Reasons for not hitting that target: Weather? Tighter Lending? Over Supply? SubPrime? Snakes in the attic?
“The National Association of Realtors said it now sees the median price of existing homes sold falling 1.3 percent this year. That’s almost twice the 0.7 percent drop forecast just two months ago, and is worse than the 1.0 percent drop in prices it estimated in May.”
One can only imagine how the now former chief NAR economist David Lereah would have worded that. Terms like “worse” and “drop in prices” never came out of his mouth during his 7 year tenure at NAR.
Oddly timed press release by NAR with the increase in the 10 Year Treasury yield in my opinion. Perhaps NAR spinsters will now attempt to slowly spin RE into a greater “drag” on the economy to prevent an increase by the FED to attempt to keep housing affordable at the current (inflated) prices instead of lowering them to where they should be.
Personal and professional opinion is that if the 30 year rate hits 7.00+ the only thing to move the inventory would be to cut prices dramatically as the drying up of liquidity in the Alt-A/Non prime market is astounding.