‘Sellers Are Chasing Last Years Market’
Two reports on housing markets in the eastern US. “Home buyers and sellers have been staring at one another since the fall, waiting to see who will blink first. That stalemate has led residential inventory to climb 67 percent on Long Island and a stunning 82 percent in Queens from February 2005 to February 2006, according to data released yesterday by the Multiple Listing Service of Long Island.”
“Prices, however, are still rising. Suffolk County’s median price stood at $395,000 last month, a 6.8 percent gain over last February. In Nassau County, the median price reached $500,000, its previous high and a 13.7 percent increase from February 2005. Queens saw the biggest gain, a 20.5 percent increase to $470,000.”
The NYSAR reported Suffolk’s median at $400,200 for January 2006, Nassau at $490,000 and Queens at $565,000. The Long Island data is apparently unavailable.
“The potential for prices to stabilize or slow down is not entirely a bad thing, experts said. ‘If sales prices come down a little bit, it will open the doors for more buyers to come into the housing market,’ said Bob Moulton, a mortgage broker in Manhasset. So far, times are tougher for Moulton, who said volume is down 35 percent compared with last year. ‘In the last 15 years, I think this has been the weakest start to spring that I’ve seen.’”
And from Massachusetts. “West Roxbury and recently Roslindale have shared in the statewide appreciation; however, experts are forecasting a 5 percent drop in housing prices in both the first and second quarters this year. However, while acknowledging the temperature of the real estate market has cooled from all-time highs in the past years, several local Realtors don’t share CHAPA’s analysis, saying they feel that the dip in the market has already occurred.”
“‘I don’t see that 5 percent drop over the spring and then again in the summer,’ said (realtor) Justin Christensen in West Roxbury. ‘I think it’s already happened over the past six months to a year, and I think we’re at where it’s going to be for the foreseeable future. I don’t see them dropping any further than where they’re at right now.’”
“Deirdre White in West Roxbury also feels that the housing market has already undergone a substantial correction, and said she is eagerly waiting to see how the spring market will play out. ‘It’s really too difficult to predict. I think we already have seen a 5-plus percent drop since last fall, and I think the next couple of months are going to be real bellwether months,’ White said. ‘The spring market is upon us, and I think it’s going to speak volumes about who the rest of the year will go.’”
“Factoring into which way housing prices could swing is how the market deals with the annual flood of houses up for sale in the spring at a time when it has yet to shed its ‘winter weight.’ ‘There is a little bit of a glut,’ said Jesse Goldman in West Roxbury. ‘We’re just entering the spring market, so there’s more houses coming on the market that’s already loaded with a lot of properties that have been sitting around for a while.’”
“For housing prices to stay at their current levels, demand is going to have match that large supply, something many experts aren’t so sure will be happening hence the predictions for a downward turn in the market. It has all the makings of a buyers’ market, but, says Goldman, all the news about dropping prices is also serving to keep buyers away.”
“‘It is more of a buyers’ market,’ she said. ‘But the buyers are also hearing all this negative information and that’s working to drive prices down, so it also keep buyers away. Nobody wants to take that initial hit.’”
“Added into the equation, Realtors said many sellers won’t accept that there already has been a drop in the market. ‘That’s a little bit of an issue,’ Christensen said. ‘I think the problem is that a lot of sellers are chasing last year’s market. They’re trying to get last year’s prices in today’s market, and I can’t blame them, but that’s not going to happen.’”
“‘They just don’t want to believe it,’ Goldman said. ‘You’re talking about people whose real estate is their investment, and they don’t want to give up on it.’”
“‘They just don’t want to believe it,’ Goldman said. ‘You’re talking about people whose real estate is their investment, and they don’t want to give up on it.’”
One characteristic of the real estate cycle is the transition from viewing one’s home as an “investment” to viewing one’s home as simply a very expensive place to live.
I would like to hear some comments from some of our bloggers who experienced the 1981 & 1991 down turns….
Most property owners are just not that knowledgeable about market forces and trends…They basically get their info from a very narrow window (Realtor Monthly Letter Solicitations)…
They see the equity in their homes like a little piggy bank that only grows…They have great difficulty accepting less from that piggy bank then is was just a year earlier….
Especially since a lot of them have already spent it and then some.
I remember the 1981 turndown was reaction to extreme interest rate hikes , everthing came to a screeching halt. Market didnt start picking back up until interest rates went down to between 10% to 12% . Alot of adjustables starting coming on the market in the early 80″s .
In fact now that I think about it , everybody thought adjustables would save the housing market because the investors in the secondary market wanted them . Underwriting standards were tight in those days however and the lenders qualified buyers based on the adjusted up rate ,( not on the beginning rate ).
I think you’re so right. What is scary about this one is the amount of equity some people have borrowed out of the homes at the peak evaluations. However, I recently read (wuz it here?) the proportion of owners who’ve done this is not as large as you might think….especially with older boomers. Wuz in MA in 91 drop. Condo owners got massachered but mostly because large #s of the association were owned by out of state investors who just split. One co-worker of mine who owned in Natick said there was a lien on the whole association even though she had paid all of her bills so she couldn’t sell…..scary
As far as the 1991 downturn — in California’s Central Valley, entire neighborhoods were “upside down” on their mortgages, with people walking away. My parents bought their current house at the bottom of the market from a gal who sold at a loss (even with roommates, she couldn’t make her payments). They could trade up because they’d paid off their house years earlier. Their “new” neighborhood dramatically changed character from speculators and yuppies to working class families who hadn’t been able to afford houses at the peak of the market and so still had money to buy at the bottom.
Bear in mind that 100% financing was much less common then, so being “upside down” on the mortgage meant houses had lost substantial value. The craze for buying SFR’s as rental property wasn’t as widespread, either, so more sellers were people who were dumping their primary residences — and there were still plenty of sellers!
At least one new subdivision was bulldozed because there were no buyers. This is all in a large (160,000 pop. then) town about 90 miles from San Francisco, which was within Bay Area commuting range even then.
One of my SF friends bought his condo about the same time (mid-1990s), when property was shockingly cheap here in the city.
Do you happen to remember the name of that town 90 miles from SF?
BayQT~
Take a look at the top graphic at this link and you will know what the So Cal real estate market was like in the early ’90’s (hope it’s big enough).
Signposts from Two Eras
Then here’s a quote from a book that quotes the Wall Street Journal from September 1990, talking about homeseller blues in So Cal:
Will a burst bubble lead to social problems?
This whole process of getting clobbered by a market trend change reminds me of the five stages of grief: 1) denial 2) anger 3) bargaining 4) depression, then 5) acceptance, only this is happening on a massive scale.
Right now we are seeing practically universal denial and almost no anger. But maybe by the end of spring sellers will be massively pissed off at buyers and buyers will be massively pissed off at sellers. I expect that the more violent anger calling for the blood of politicians and economists, mortgage lenders, and realtors will occur more during step 4 but I have no way of knowing.
I built a new home in 1981. My original mortgage interest rate was a 14.25% w/ 20% down-30 yr. fixed for $43k.
Note was re-written at the end of project for 13.75% due to falling rates.
Can’t remember if ARM’s were even being offered then.
-Ex wife and I both worked w/ no kids which is the only way I figured we’d made it.
Remember this was also when gas prices were at historic highs. It was a pretty ugly time. Gold was at $800.00 per oz.
Refi’ed 3X over next 15 years. Property appreciation in eastern ME was nil, save for the ‘87/’89 “boom”. I coped with value via owner “sweat equity” construction completion.
The early 90’s bust was like in slow motion.
As another poster noted, the downside occured in a decreasing interest rate enviroment. Most who got stuck were developers and some sporadic small-scale, multi-unit speculators.
There was very little individual spec buying. Home purchasers who bought high either rode out the value drop, or at most got nicked for $25k at a closing if they had to bail.
On average overall residential values decreased between 12/20%.
The difference between then and now, is the monetary losses were sustainable for most people, because the valuation structure was low to begin with with av. residentials values @ $85 to $120k.
Lose $20k-WTF, I’ll earn my way out…
Now a 20% loss (which is a conservative estimate of decline for this bubble) on a $400k 0% down note is $80g’s…Ain’t no way the average guy is gonna work himself out of that loss.
We’re talkin’ American’s with a net -2% savings rate, right?
Right now I believe the conditions are right for the Perfect Storm the likes of which nobody has seen before.
Your so right . The 1981 slump was really a tight/expensive
interest rates on loans problem . Secondary market just didnt want low interest rate yields on 30 year notes anymore. At one point sometime in the early 80’s I believe I saw fixed rates on home loans go to 18% ( thats the lender saying that they really dont want to lend ).
Paid $80k for new tract house in Houston in 1981, 5% down, pmi, 16-1/2% interest rate. Sold for $68k in 1999. I really don’t want to repeat the 80’s, but it sure looks like we will and it will be much more widespread.
“Secondary market just didnt want low interest rate yields on 30 year notes anymore”
Keep in mind here that at one point, I think it was about 1980, the 30 year Treasury bonds were at 15%, so why would anyone want to buy a mortgage note for less than 17% or so? People were assuming mortgages and taking a second to cover the difference to avoid having such high rates on the whole amount. We had a negative ARM when we bought our first house in 1983, and the interest rate was 12%. The value of the house went up enough so that we came out about even when we sold the house in1987, we could hardly believe it when someone bought our 1600 sq ft home for 79k because we thought it was such a high price.
My sister-in-law and her husband bought a home in Sacramento in the early 90’s and ended up losing about 20-25% to close and from the loss of their down payment in order to sell. They were not speculators at all, just regular home owners, so regular people did take losses, not just speculators and builders.
Sold real estate in the late 80’s in San Diego and heard all the same arguments for the market never going down. In 1990 the switch was flipped and prices fell but the RE agents were convincing people to keep their prices up (bigger commissions) resulting in some real pain for people. It’s going to get ugly again no matter how many real estate experts tell you otherwise.
More like a Mexican stand off. Greed and fear is still driving this market. I guess the question is, who will win? Or, will it be a win-win for the sellers and buyers?
I like the Mexican standoff analogy.
It is a fight. Just think of Reservoir Dogs and the final scene.
Nearly everybody gets injured.
Less like a stand-off and more like a seige. Buyers will just starve the sellers out.
That’s the perfect analogy.
There is the possiblity of someone lobbing disease-ridden animal carcasses (rising interest rates) this year…
Endless numbers of people make predictions about the future price of housing. But what do they base it on? For the most part they base it on their own internal desires.
Anybody with a little bit of common sense could spend ten minutes looking at basic economic statistics and see that there simply aren’t enough people making enough money to afford all these high priced houses. Not even close to enough. Not even a million miles close enough.
Funny loans and financial tricks can only go so far. Eventually balance is restored. Riches can’t be generated out of the ether. People can only afford what they can pay for.
Trouble is the simple statistics that would help the public see this are never presented in the media. Instead, stories about housing invariably feature pundits and commentators and real estate spokespeople.
The really sad thing about this entire bubble is that it shows how desperate people are to live a lifestyle that they can’t afford. Given an opportunity to have the trappings of wealth the average joes and janes of this country will just close their minds, wish really hard and make themselves believe any fairy tale.
Excellent point…there are not enough high paying jobs to support the cost of these homes..plane and simple!!!
You hit the nail on the head and that is the bottom-line!
A simple graph of income vs. avg. home price displays the disparity of affordability.
Don’t you realize that there is this “wonderful” and “exciting” new loan product available to strapped home speculators. It is called a 50 yr mortgage and it can knock a up $150 per month of your payment!
There are many powerful backers of this bubble (global companies, US government, etc.) that cannot afford a collapse. They are demonstrating that they will do whatever it takes to keep it artificially inflated.
>It is called a 50 yr mortgage
Diminishing returns on 50 year, 75 year, 100 year mortgages. And as people have already pointed out, we already have the “infinite year” mortgage in the form of interest only loans. There are only so many blood transfusions the evil queen can take before she finally turns to dust and blows away…
If seller is capable making monthly payments regardless of interest rates, then we would have a permanent standoff. However, in this bubble, many sellers financed their houses with I/O ARM loans. Many of these sellers would not be to make their monthly mortgage longterm. Those sellers with cash reserves (through HELOC or personal saving) are able to play this standoff game. This standoff will last until the reserve is drained.
My father was here at the OC during the previous RE bust and observed that this crash is happening EXACTLY as the previous cycle - significant drop off in volume accompanied with slight median price increased (due to the fewsremaing greater fools). This would then be followed by increased in BK and lowered price. The market psychology would then turn very negative and significant correction.
People have misinterpreted the American dream, the dream that anyone can be rich, regardless of their origins.
Anyone can become rich, but not everyone can all at once.
This is very true. If everyone is trying to get rich by buying tech stocks or RE at the same time, then it is very likely the investment will do poorly (lose $$$) and most people will not get rich doing this. Big losses ahead for condo flippers that is for sure.
Well stated! Ditto, ditto, ditto,… That is why I sold and uprooted my family from our beautiful home into a rental (asked for a job transfer out of state to give me a push to actually do it). What was happening in SoCal housing in 2004 just didn’t pass the common sense test.
Keep tell yourself that junior. I’m guessing this guy isn’t old enough to order a beer or just plain braindead.
Oh well.
hummm,,, sounds like the stock bubble… they just could not believe that the 100.00 stock they bought is trading at 50.00 and just did not want to give up on it…
Quote:
“The real estate market is hot right now in terms of how many homes are out there,” Christensen added.
This is why some agents make the big bucks — because they realize an explosion in supply on the market is a sign of a “hot” market. Genius. Pure genius.
As I said previously, he’s just plain braindead. Or a graduate of the Larry Kudlow School of Voodoo Economics.
Good one, Lingus!
What’s with Larry Kudlow, he seems to live on another planet,, he turns every negative data into a positive spin… I wish he would just report is as it is being seen
—AL
EXACTLY. I’ve never seen anything quite like the carnival barking and balloon floating thats been going on for 5 years now. It’s like they’re trying to hide something. I’m not sure what it is yet but I can only imagine.
Whats troubling is Kudlow is a very competent economist yet he desperately attempts to tell the world the sky is green when we clearly see it is blue.
Tell that guy to wish in one hand and crap in another and see which one fills up first.
hmmm…. That 30 year old trite expression doesn’t make a whole lot of sense in this case.
I suppose that was the idea.
Stand off right now?????
Its not a stand off… Its just a return to a normal market.
- Speculators are gone and in some markets like Orlando and Ft Myers/Naples there goes 40-50% of your buyers
- Homes are too pricy for entry level buyers making it hard for move up buyers, grinding the whole process to a hault.
- Lending standards are much tighter now, its very difficult to get a home loan right now on a house that is out of your price range.
The result, few buyers, lots of sellers. I have a feeling the buyers will win this stand off. There is no way for most buyers to afford homes, therefore they will not be buying them.
And lots not forget how much cheaper it is to rent. Maybe people were willing to STRETCh when they thought buying a home was an investment, but not anymore.
The incentive to commit 40%+ of one’s gross income to housing was the tens or hundreds of thousands in equity earned each year. Without that incentive, there’s absolutely NO reason to stretch the way people have in recent years. Buyers will wait…and wait…and wait until housing prices are such that the monthly carrying costs are 28% of gross monthly income, based on a traditional 30-year FRM. That will be quite a wait. Hope the sellers are prepared.
I think most people that didn’t buy, but could have, will now waiit and wait and wait like you said.
The difference is this: The sellers bleed money every day, the buyers don’t. That is a buyer won’t build equity in this market, and a seller will lose equity (cash) every day.
Sellers don’t bleed money every day unless they purchased at the top. Some sellers have a long long long way to go until they lose anything. If you said “flippers” that would have been correct.
“‘They just don’t want to believe it,’ Goldman said. ‘You’re talking about people whose real estate is their investment, and they don’t want to give up on it.’”
Real estate is their investment? Come on now, we are talking hair dressers, meat cutters, Walmart greeters, sales clerks, etc. These are not the most ‘investment smarts’ segment of society. The mailman was telling me a year ago that I should be buying a house:he has two already and was thinking of buying another. Two other mail carriers were telling me yesterday that housing costs were too high here so they are transferring to Las Vegas.
Very true, Summer 05′ we saw the last of the investors buying homes… The ignorant masses.
The real estate crowd warned us again and again we would be priced out of the market… I must admit they were indeed correct… Now with everyone priced out, whose going to buy all those investment homes & condos?
Bravo!
You are right and in effect it has just been a big legal highly leverage Ponzi type scheme with no barriers to getting in. As long as the next greater fool comes along to buy your overpriced property, everything works out. Home “investors” of late are very the similar to all the same type of people (hair dressers, Walmart greeters, etc.) who had never invested in the stock market prior to the bubble and had no knowlege of financial fundamentals, who rushed out and opened accounts on the internet and started day trading dot com stocks. As we bloggers all know, the scheme actually works for those taking the risks until you are out of greater fools. I think we have hit that point.
For the new readers, others who do not know the history or just want a refresher behind the actual Ponzi Scheme and Tulip mania, I am posting links for your education and entertainment.
http://en.wikipedia.org/wiki/Ponzi
http://en.wikipedia.org/wiki/Tulip_mania
BayQT~
“Prices, however, are still rising.”
Are rising prices indicative of asking prices? or selling prices? If selling prices, who are all these greater fool morons (asking not with contempt, but with humorous disbelief) that still buy houses for MORE than a couple months ago? Other than Seattle, based on the housing tracker site, the data doesn’t seem to support this.
Surely it’s just *median* prices that are rising. Which is basically a meaningless statistic. Several have suggested that rising rates and harder qualifying have now definitively put buyers of the lowest-priced RE out of the market, such that the *only* things selling are costlier homes, when at all. Voila’ your higher median prices. I think this is pretty persuasive.
yeah, I figured it was probably either the median price or the ever-present YOY price. It will be interesting to see once this crash bottoms out (several years from now) and prices start edging back upward whether they will start reporting month over month numbers in favor of still-negative YOY. Anyone know if this was done during the last crash?
Bingo ! You hit it on the head. The lower priced market is in the toilet.
If “still rising” is based on median sold price, well, we all know how median sale price can be distorted when the lower priced homes are still too expensive for joe sixpack to buy, leaving the high end to be the only influence on the statistic.
I want historic and current $/sq. ft. reported…
there’s always going to be a few last minute mindless sheep jumping on at the last minute. it’s an opportunity to climb onto the roller coaster as it briefly pauses at the top of the first hill. “ALL ABOARD, LAST CALL”!!
yep
I don’t know how most of the users of the site feel and I’d be interested to see where others stand on the issue of affordability. For me, any one making $150,000 should not be paying more than $300,000 for a mortgage, especially with the current property tax rates.
BTW, if you were watching the finance news this am, home builder stocks at going higher! Anyone know how many insiders will be selling into this rally?
That’s my question. How do you square the case for a bearish market with the fact that prices are still rising?
See my reply to sfv_hopeful above, and look at the article again: it’s the *median* price which is rising. The potential price of the individual house you or anyone else may want to buy is going down, not up.
They aren’t rising in my neck of the woods (Central Coast California, just south of San Luis Obispo). Some are taking their houses off the market when their house sits on the market for 3 months, and some are price reducing (about 10%-15%), on the high end.
In Los Angeles, in the Pasadena/Altadena area (the Rose Parade, up against the mountains, 20 minutes to downtown LA by rail, 40 minutes to Santa Monica beach on the weekend, etc.), my RE reports a leveling off and a slight decline in sales prices (about 5%-10%) - this trend started last fall. Prices seem to have stabilized at around $350/sq. ft., but with inventories growing, it will be interesting to watch what happens.
It just amazes me that here in Arroyo Grande, houses are ALSO priced at $350 a square foot. It’s a very nice place (small town atmosphere, slower pace of life, Pismo Beach 9 minutes away, good public schools), but what industries are there here that justify the same prices as Pasadena/Altadena?
It will be interesting to see what happens to prices this spring (4 more days!) and summer…
I think the people who go to live in Central CA have already made their money elsewhere, like LA, and go up there to retire or have a second home. I don’t see incomes there supporting the home values, but I don’t think that tells the whole picture.
I agree. I think even with $100,000/yr income, one should only be paying about $2,000 PITI — ESPECIALLY when we don’t know what’s going to happen with healthcare, Soc Security, pensions, etc. We should all be saving more of our income for these potential bombshells…that means LESS of our income should be going to housing than what was considered “traditional” when people had “guaranteed” defined benefit pension plans, better health insurance and a shot at Soc Sec and Medicare. Looks like those things are on the verge of falling off a cliff. Saving $$$ looks very compelling to me.
The rise in the HB’s this morning is like the queasiest of days trying to short the Internet Bubble. HOV for Christ sakes was downgraded by S&P last night and not only did it gap UP a percent, it’s now two percent higher than that!
The only consolation for a short is that that graph and a lot of the HB’s today looks similar to the DJII for no reason whatsoever. That says Distribution to me — the MM’s know that program trading doesn’t give a damn about what the bid and ask “should be”, it just says “Now Buy 1% More Of Every Homebuilder”. It’s really a textbook case of the market maker just saying “Hey, I set the price, and I’m setting it!”.
(In HOV’s case, there are actually minutes at a time where no stock whatsoever trades, then the next trade magically gaps up 10c higher, to exactly the point where it would have been if it had actually been trading instead of following a pre-determined script.)
that’s because all the buying and selling has happened already on rumors. by the time press releases come out it’s too late.
The big difference is the HB’s have low P/E’s and the tech stocks had high P/E’s.
That’s a pretty interesting question to me, S., because these are exactly the numbers I keep running myself. My partner and I have a household income of approximately $155,000, no kids, no car loans, no credit cards. We currently rent a beautiful one bedroom a little below market price in Washington, DC - $1200. Our building is for sale, and will probably convert into condominiums. We’d love to buy our place, but figure it will likely sell for about $425,000 (a developer friend gave us this estimate and it’s certainly comperable to what recent conversions are selling for in the neighborhood). As tenants, we’d likely get a discount of about $50,000, which would bring the price to $375,000.
Would we like to buy our place? Sure. Will we buy a one bedroom condo for $375,000? No. Without a funny mortgage, our monthly housing costs (to stay in the same place) would jump from $1200 to $3400 (mortgage, taxes, hoa, insurance, etc.). We could find another one bedroom to rent for about $1400 a month, a much larger 2 bedroom for $1800-$2200. In other words, even with a large discount on the property, we could rent a bigger place and still have an extra $1200 a month we could invest elsewhere.
Why would we buy? Or perhaps the better question is, why is anyone buying?
Wait 3 to 5 years and it will be 50% off. That is what history shows will likely happen.
M,
M,
I’ve been looking in DC and have decided to wait. As long as six months ago an agent told me that people were “panic selling.” Correction only beginning.
I think 4.5 times gross income is the upper limit of “affordable.”
e.g., $1,000,0000 house with $200,000 down payment, 6.5% 30 yr fixed mortgage, and $1,000 a month in property taxes, would require at a minimum about $225,000 income.
of course, this doesn’t count maintenance.
obviously, a more traditional 3 times gross income would be better, but in more desireable areas, this might not ever be realistic.
Funny how this realtwhore (R) has jus skipped the period where prices did dramatically decline!
OT, but is anyone watching the absolutely schtzoid bond market over the last few days? Yields up 5, down 6, up 7, sideways 20. This is telling all of us something. Anyone got a clue?
I don’t, but here’s a general truth: Major market moves are usually preceded by unusual volatility. So, if history is any guide, it may well be that the bond market is setting up for a big move. Which direction? I dunno. But I bet it may be going somewhere in a hurry.
Binko
I can not agree with you enough. These are the exact thoughts I have been having over the last year. I guess great minds think alike(ha,ha).
Seriously though, I also think that the one factor no body is figureing is the unique factor of this bubble is that much or even most of the rapid appreciation is due to speculators willing to pay any price in order to capture a “gauranteed” appreciation. In listening to some of these speculators I do see that they actually feel that this appreciation is “GUARANTEED”. Now anyone that has been around for a while knows there is no such guarantee(if there was who would work, you would just invest in RE and make your “guaranteed” 100K,200K,300K and on and on).
When these speculators realize this they will disappear from the market place as the day traders did in 2001. I dont think any body realizes how many homes and condos will be dumped on the market.
The only question is when this will happen but I can see no other outcome.
As has been reported in other sections of Ben’s blog, the speculators have (for the most part) ALREADY disappeared from the demand side (buyers), and more and more are re-appearing on the supply side (sellers, or, more appropriately, dump before I lose my pants-ers).
Before the bubble (a mere 4 years ago), the practical rule when considering a home purchase was to only consider buying (vice renting) if you were going to be in the house for around FIVE years, and that was just the break even point. The reason to buy a home was more of an emotional factor (paint it my color, plant a garden, etc.). The past few years have made absolutely no sense and will make the current house prices unsustainable.
“Nobody wants to take that initial hit.”
‘Specially when it might keep hitting for six or more years running…
OT:
Ben the print edition of Fortune from March 20, 2006 has a sidebar…
“Lowering the Boom? Speculators gone mild”
When we profiled a group of amateur re speculators last year America was awash in a stark, raving frenzy that looked every bit as crazy as dot com stocks….
They’re still in the game. And they’re still hopeful. (At least the ones who would talk to us. One asked if she could call us right back, then stopped answering her phone…
…Zareh Tahmasssebian who owend 15 properties in Phoenix when we first report his story has purchased eight more in the Albq area. He refinanced all of his mortgages to a fixed rate and rented out his properties (the rents do not cover his costs)….
>rented out his properties (the rents do not cover his costs)
Leverage is like fire…it can be your best friend, but it can also hurt you too. An important message from Smokey the BEAR.
What’s up?
March 16, 2006
Treasury Postpones Auction Announcement
The announcement of 13-week and 26-week bills to be auctioned March 20, 2006 has been postponed pending action in Congress on legislation increasing the debt ceiling.
Stanley - The amount of public debt the goverment is allowed to issue is set by law. We have pushed up against the cap. Congress has to pass a bill, and the president has to sign it, before we can have any more debt auctions. It’s disgusting, to be sure, but not scandalous in the sense that anyone’s doing anything wrong or untoward.
Is anyone else tiring of the latest market-shift aphorism bandied by the media that makes the current buyer/seller relationship some sort of Mexican stand-off? Which side is going to blink?
A. The side that can’t make its mortgage payment.
B. The side that watches its equity/margin dissipate at ever increasing rates
C. The side that is being undercut by the manufacturer from whom it purchased.
D. All of the Above.
Duh…
OT in case you havent seen this - pretty good!!
“If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,’ Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany.
THE FED
Fed won’t act to preserve high home prices: Kohn
‘Greenspan put’ theory doesn’t stand scrutiny
http://www.marketwatch.com/News/Story/3CvZTHKdTqD04vPDQ7xtKwB?siteid=mktw&dist=TNMKTW
I got this feeling that this sea-change in the seller/buyer standoff won’t be signaled until we begin reading truly damning and finger-pointing comments direct at the ‘they’, as in ‘they’re destroying the housing due to… (take your pick) interest rates, bubbletalk, homebuilders, flippers, etc.’ There just isn’t enough pain out there yet, no stories of crushing debt and lost dreams, no real and observed panic.
Agreed. The tide has turned, but only just.
Notably, there are no longer stories of Joe Sixpacks becoming instant Trumps, and there are stories which suggest impending doom (like that of Zareh Tahmasssebian, above). But the public perception will not change until there’s blood in the water.
As all the FB’s are counting on spring to bail them out, it won’t be until the doldrums of summer that the tragedies start to surface.
Betamax:
You nailed it with that statement.
I actually met and spoke with a Realtor who is an acquaintance of my mother in law. She has been one for years and has family ties in banking and finance so she is a bit more grounded than other realtors. She flat out told me (without me tipping my hat to being a bubble sitter with cash in the bank) that now is not the time to buy. She said there is a great chance that alot of the sellers will panic once summer ends and inventory does not move. She said she saw it back in the early 90s and wouldnt be surprised if you see prices (here in Orange County CA) drop 15% to 20% by year end 2006.
It was almost a Twilight Zone moment for me to hear this from a realtor but then again her family has brains and money so she has less of the pressure that other Realtors with all their eggs in one basket may have.
Sellers are chasing an oblique asymptote (Im a math guy).
Buyers, however, are not.
Buyers will win since they are the ones with the liquidity and there is plenty to choose from.
OT -
Mortgage Bankers Association reports that mortgage delinquencies are up.
http://www.chicagotribune.com/business/sns-ap-late-mortgages,1,6649296.story?coll=chi-business-hed
House prices will fall, or they won’t. Either way, the inflation-adjusted house price will come down, given that it is so incredibly out of touch with history and fundamentals. So even if prices remain flat for ten years, inflation will erode the true value.
The best thing for the economy would be a quick price correction. Then homes could start selling, and people can carry on with life. I really hope that sellers get over their hurt feelings and recognize that the market price has fallen. It is in their best interest to do so, since it is unlikely that hanging on to a flat asset for a decade is desirable.
Any updates now for Zareh Tahmasssebian? Has he lost his ass yet? Or is he a Donald Trump Jr yet? What about Ismael in FL that quit his job and got a sign for his car saying “Ismael Buys Homes!” last year. Does anyone know if he has lost his ass yet, or made it to the Flippers Hall of Fame (or Shame)? How about the Boston mommy who was dividing up houses and selling them as condos? Does she have a tin cup on the Charles River yet, asking for quarters?
Fortune has a follow up see my post above.
He levered up some more in Albq NM.
All negative cashflow.
This is fascinating. My husband and I have been looking at homes for sale for months now and even made an offer on one. The home was on the market since October and we offered about 8% less than the asking price. We were turned down flat, no counter offer. Oh well, it’s now March and the house is still sitting there waiting to be bought. Some owners just don’t get that they do not determine the price, but buyers with cash do.
Since then, I’ve been reading this blog every day and am extremely queasy about buying now. We actually found a rental home yesterday that we like and might just rent instead (although it’s not a savings at all because rental homes in this area are very expensive.)
Anyway, my question is whether you all think that there are any areas in the country that might be able to weather the coming storm. We live in Stamford CT and we just can’t tell if homes in Greenwich, New Canaan, Darien, etc will ever really come back down to earth. There is too much old money and Wall Street money here. I don’t think there are a lot of speculators in this area. But I don’t have any way to knowing. Thanks.
Hedge funds and Wall Street will take a hit as well.
Goldman Sachs just published that their Value At Risk (VAR) 2 years ago was about $55M.
In two years time they have cranked that up to $98M and are warning their sharefolders that it will be going higher.
Re-read Greenspan’s quote about history has not dealt kindly with protacted periods of low risk premiums.
Goldman’s strategy works great with low risk premiums. It works until it stops working.
Hang in there. There is a lot of supply in the pipe line. The area just South of 95 is about to start sprouting condos. The price of SFHs will be back to year 2000 prices within 3 years.
I consider myself a sensible mortgage-owner. ‘If’ I was in a situation to sell (loss of job, etc) I would actually consider selling at a lower reasonable price than my home is appraised at. For instance my house is appraised at 460k, If I had to I would let it go for 360k. I bought it for 215k in 2003 so I would still make out like a bandit and make a nice family happy with their first home. I mentioned this idea to one of neighbors and she got pissed! She said that would mess things up for the rest of the neighborhood if they decided to ‘cash out’. There is still a lot of greedy people out there that are living in their own bubble. No one is budging (except me if I had to).
She said that would mess things up for the rest of the neighborhood if they decided to ‘cash out’.
If she “had” to, she would do the same thing. What a laughable statement she made. And as you said, there are a LOT of people like her out there. Question: If she and the other neighbors are just *living* in their homes with no real plan to move anytime soon, what would it matter if you sold for $100K less? Bragging rights (”…my house is worth ) would be lost? I guess to some people that means a lot.
BayQT~
The house we are thinking of renting is listed for sale also. It’s been on the market for a while…was listed in the 730K range and was lowered bit by bit. It’s now being offered for 689K with a “bring all offers…motivated sellers”. They just put it on the market for rent as well. We would rent it but not buy it. We went online to zillow.com to check what they purchased the home for…and they only paid 418K in 2001. If they were that motivated, wouldn’t they lower the price even futher? They want to make a huge profit and are willing to become landlords instead of just lowering their price to something that would attract offers. It makes no sense to me.
Never underestimate the greed of some.
Sunsetbeach Guy - I have moved to ABQ, and it has actually been one of the best performing markets (from the article that was posted a few days ago on Ben’s site here). IF Tahar is here, he may do OK as long as he doesn’t get greedy. The rental market appears to be softening, but still some appreciation. Depends on the part of the city.
Bubble Butt said…..She said she saw it back in the early 90s and wouldnt be surprised if you see prices (here in Orange County CA) drop 15% to 20% by year end 2006.
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I saw the same thing too here in OC back in 1993 and am also amazed at how identical this whole bubble is playing out. I remember many people were in denial back in ‘93 about the direction of the market - most who bought between 90-and 95 ended up being underwater almost immediately. The big difference this time however is the sheer size of these mortgages in relationship to peoples incomes. Back in the early 90’s, a 200k mortgage was a big deal - 300k was high-end - and very very few people had 400k plus loans.
Once the debt burden starts to kick in with ARM resets, negative appreciation, higher property taxes, etc I think sellers will be running for the exists.
Steph-
Welcome to Ben’s incredible blog. We live in reality here, unlike most of the rest of the nation.
We like things like facts, and observations.
Those things don’t mesh well out there in the la-la land of silly real estate.
Since you asked us- I’ll give you my advice…
Save money, sell all the old crap you don’t need on Ebay or Craigslist, and take PRIDE in creating one hulking mass of a downpayment.
Make yourself the ‘Mother of All Downpayments’.
As you begin to put money away, you’ll find renting to be easier and easier.
As your massive downpayment increases, you’ll actually begin to take pleasure in the imploding real estate market of 2006.
We have heard many silly stories, and we have many yet to come.
But it ain’t just about saving for the downpayment.
Part of the trick to this is talking. It’s activism, pure and simple. Just like burning a bra to get equal treatment for women, or sitting in the front of the bus to make a point about racism.
We need your big, fat mouth to get this done.
I talk to SO MANY PEOPLE about the bubble every day that I’m probably beating the newspaper in terms of mass communication.
The bubble was created by psychology, and psychology will bring it down. At the moment, it’s teetering on the brink of collapse.
So- to sum it all up-
If you want this bubble to pop with a bang heard in outer space…
1. Save up a massive downpayment.
2. Sell all your old crap.
3. Talk to anyone and everyone at all moments of day and night about the collapse of the bubble.
4. Come to Ben’s blog and laugh until you cry at the developing stories of stupidity and downright greed.
Hope that helps.
My downpayment is earning so much interest at Treasury Direct I feel that it will be a shame to trade it away.
Steph,
1. Rent. Enjoy the freedom.
2. Save.
3. Wait and watch and learn.
3. 100% Guaranteed: You will buy more home for less money when the time is right.
4. You will not regret the wait.
Catherine and Auction: good advice for us all.