New Home Sales, Prices Fall In May
Some housing bubble news from Wall Street and Washington. CNN Money, “New home sales posted a surprising drop at the start of the crucial spring selling season in May, the latest sign that the battered housing market could have a ways to go before hitting bottom. The pace of new home sales fell to an annual rate of 915,000 last month, the Census Bureau reported, from April’s 930,000 pace, which itself was revised lower.”
“Sales…tumbled 15.8 percent from May 2006, marking the 18th straight month of year-over-year declines. The reading was also the weakest performance for May since 2001, before a sharp drop in mortgage rates sparked the housing boom.”
“The median price of a new home sold last month slipped to $236,100, according to the report, down 0.9 percent from a year earlier. Yet the drop in prices may be even more severe than indicated, since about three-quarters of builders are offering incentives like free closing costs or extra features at no additional cost in a bid to bolster sales.”
From MSNBC. “With sales and prices of new and existing homes continuing a downward slide, it’s too soon to say how much longer the worst housing recession since 1989-91 will last, according to economists and housing analysts.”
“‘We don’t have any experience with this,’ said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. ‘First of all, this was an incredible housing boom, unlike anything else we’ve had in our history. The unwinding, the downside of this, with published price declines unlike anything in history, that is the unknown.’”
The Associated Press. “U.S. home prices fell for the 17th month in a row with all regions showing the effect of the housing slowdown, according to a housing index released Tuesday by Standard & Poor’s. It was the steepest decline since 1991.”
“Boston, Detroit, Phoenix, San Diego and Washington, D.C., showed the greatest year-over-year declines in prices.”
From MarketWatch. “‘No region is immune to weakening price returns,’ said economist Robert Shiller, the co-creator of the index. Even in regions such as the Pacific Northwest or the Southeast, where prices are still rising, the gains have been slowing.”
“The Case-Shiller index is considered a superior gauge of home prices compared to the median sales-price data released by the Commerce Department or the National Association of Realtors, because it tracks multiple sales on the same property and is therefore not influenced by a different mix of homes sold in a period.”
The Street.com. “Homebuilder Lennar offered little comfort about the state of the U.S. housing market Tuesday, posting much-worse-than-expected results for the second quarter and warning of continued deterioration in selling conditions. For the quarter ended May 31, Lennar recorded a loss of $244.2 million.”
“‘The housing market has continued to deteriorate throughout the second quarter,’ said CEO Stuart Miller in a statement. ‘The supply of new and existing homes has continued to increase resulting in declining home prices across our markets.’”
“New orders fell 31% in the quarter from a year ago. Lennar said it had to lower prices to move homes, which cut into margins. Gross margins on home sales slid to 13.6% from 23.7% last year. The price declines led Lennar to record $328 million of land impairment charges.”
“‘We have continued to adjust pricing to meet today’s market conditions,’ said CEO Stuart Miller in a statement. ‘As we look to our third quarter and the remainder of 2007, we continue to see weak, and perhaps deteriorating, market conditions. Given uncertain market conditions, we continue to lack visibility as to future results, but we currently expect to be in a loss position in our third quarter.’”
“For the second quarter, home deliveries fell to 8,940 from 12,506 a year earlier. The average home price dropped to $298,000 from $322,000 in the year-ago period. To attract uncertain buyers, Lennar said sales incentives averaged $43,700 a home versus $24,700 in the same quarter last year.”
“Orders for new homes plunged 31% to 8,056 from the prior year with the cancellation rate running at 29%.”
“Lennar has been seen as one of the home builders to react most quickly to the housing bust by slashing prices aggressively to protect sales volume. ‘We expect the sequential order deterioration to be even more pronounced for home builders who attempt to limit incentives in the hopes of preserving some margin,’ wrote Banc of America Securities analyst Daniel Oppenheim in a research note Tuesday.”
“‘We’ve generally seen that buyers are extremely price sensitive, so that the builders with higher incentives receive significantly more order market share.’ He added: ‘As such, we think that builders who attempt to limit incentives or hold pricing will be forced to adjust their strategy.’”
“‘These continue to be very difficult times for the home-building industry,’ Lennar CEO Miller said during Tuesday’s conference call with analysts. ‘Simply stated, the supply of homes available for purchase has continued to climb while at the same time demand has been sharply reduced,’ he added.”
From Reuters. “‘If this is any indication of what to expect from the other home builders when they report results, this quarter is going to be pretty ugly,’ said Eric Landry, an equity analyst at Morningstar. ‘The next quarter and beyond that it doesn’t look too good either.’”
“The chief financial officer of No. 6 U.S. home builder Hovnanian Enterprises Inc. (said) that the market will not significantly recover even in 2008. ‘08 is probably not going to be a year of strong recovery,’ J. Larry Sorsby said at the Reuters Real Estate Summit in New York on Monday. ‘Our hope is that it stays no worse than we are today.’”
“Goldman Sachs Group Inc. subprime mortgage bonds issued last year are being downgraded by rating companies at the fastest rate of any issuer, according to Citigroup Inc. research dated June 22.”
“Nearly 70 of Goldman’s GSAMP-issued bonds, which include subprime loans from a variety of lenders, have been downgraded by Standard & Poor’s and Moody’s Investors Service in the year through June 15, with 60 of those issued in 2006, analysts at Citigroup Global Markets said.”
“Benchmark ABX Indexes fell to fresh lows on Tuesday, driving the cost of insuring subprime mortgage securities against default sharply higher, investors and analysts said.” “The ABX 07-1 ‘BBB-’ series, which is tied to subprime loans made in last year’s second half, sank to 55.70 on Tuesday from 56.18 at Monday’s close. The index has fallen 42 percent since it was launched in January.”
“‘This is a continued sell-off from last week coupled with the weak remittance reports from Monday,’ said one investor.”
From Bloomberg. “The housing market may deteriorate if there’s an ‘overreaction’ from regulators, said Freddie Mac Treasurer Timoth Bitsberger, a former U.S. Treasury official.”
“The fallout will also increase if investors and hedge funds rush to unwind their positions at the same time, he said. The market’s ‘financial infrastructure’ is ‘untested’ because of the pace of growth in bonds backed by mortgages and other debt, known as collateralized debt obligations, he said.”
“‘There’s a lot of dependency on the ability of the rating agencies to make objective judgments’ of the risks backing the bonds, he said. ‘I wouldn’t be surprised to potentially see a re-rating of these securities.’”
“Bill Gross, manager of the world’s largest bond fund, on Tuesday said the subprime mortgage crisis gripping U.S. financial markets was not an isolated event and will eventually take a toll on the economy.”
“Gross said there are hundreds of billions of dollars of subprime residential mortgage-backed securities (RMBS), derivatives on subprime RMBS and collateralized debt obligations…all of which he considers ‘toxic waste.’”
“‘Whether or not they’re in CDOs or Bear Stearns hedge funds matter only to the extent of the timing of the unwind,’ said Gross, who manages the $104 billion Pimco Total Return Fund. ‘To death and taxes you can add this to your list of inevitabilities: the subprime crisis is not an isolated event and it won’t be contained by a few days of headlines in The New York Times.’”
“Holders of some investment-grade portions of collateralized debt obligations backed by subprime mortgages will lose all of their money, according to Bill Gross. With subprime loan defaults at 7 percent, buyers of the BBB pieces of CDOs stand to lose their entire investment, said Gross.”
“‘AAA? You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels and a ‘tramp stamp,’ Gross said in his monthly commentary posted on Pimco’s Web site today. ‘Many of these good looking girls are not high-class assets worth 100 cents on the dollar.’”
“Defaults on subprime loans will ‘grow and grow like a weed in your backyard tomato patch’ and if total losses reach 10 percent, CDO slices rated A may also ‘face the grim reaper,’ Gross said.”
“Bear Stearns Cos. is working to bail out two money-losing hedge funds it runs that invested in CDOs backed by subprime mortgage bonds.”
“‘Those that point to a crisis averted and a return to normalcy are really looking for contagion in all the wrong places,’ Gross said. ‘Because the problem lies not in a Bear Stearns hedge fund that can be papered over with 100 cents on the dollar marks. The flaw resides in the Summerlin suburbs of Las Vegas, Nevada, in the extended city limits of Chicago headed west towards Rockford and yes, the naked — and empty — rows of multistoried condos in Miami.’”
The entire disaster is now entering 2nd gear.
“‘AAA? You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels and a ‘tramp stamp,’ Gross said in his monthly commentary posted on Pimco’s Web site today. ‘Many of these good looking girls are not high-class assets worth 100 cents on the dollar.’”
The man seemed to know hookers. that’s the man I want to sell me bonds.
Come on’ Bill. You know they weren’t woo’d. Moody’s and Poor were the pimp, not the john. They were the ones hired to put together CDOs tranches, not just rate them.
As previous linked on THBB:
CDO Boom Masks Subprime Losses, Abetted by S&P, Moody’s, Fitch
All I know is that they should pull up the paddy wagon and haul all of these ba$tards off to jail.
Not real sure, with public perception as it is, I think we haven’t even stepped on the gas yet or left 1st. I think by the time this becomes evident to the masses it will be HUGE!
2nd Gear??? Baby, IT’S OVER!!!!
Report: U.S. Banks To Curb Lending, Call in Existing Loans
By AMBROSE EVANS-PRITCHARD
The Daily Telegraph
June 26, 2007
America faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.
The group said the fast-moving crisis at two Bear Stearns hedge funds had exposed the underlying rot in the American sub-prime mortgage market, and the vast nexus of collateralized debt obligations known as CDOs.
“Excess liquidity in the global system will be slashed,” it said. “Banks’ capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the U.S. hard landing.”
The group’s global strategist, Charles Dumas, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market. The sale had to be called off after buyers took just $200 million of the $850 million mix.
http://www.nysun.com/article/57301
the rest ….
The group’s global strategist, Charles Dumas, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market. The sale had to be called off after buyers took just $200 million of the $850 million mix.
“The banks were not prepared to bid over 85% of face value for CDOs rated ‘A’ or better,” he said.
“God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30%.
“We don’t know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know. There is $750 billion of dubious paper out there in the form of CDOs held by banks that have a total capitalization of $850 billion.”
American property writer Paul Muolo described the Bear Stearns crisis as the “subprime Chernobyl,” saying the bank had created a “cone of silence.”
Abandoned by fellow banks, Bear Stearns has now put up $3.2 billion of its own money to rescue one of the funds, a quarter of its capital.
This is the biggest bail-out since the Long-Term Capital Management crisis in 1998, which Bear Stearns refused to join at the time. Bear Stearns is now alone, a case of rough justice being served.
The warning comes as fresh data from the U.S. National Association of Realtors shows a glut of unsold homes. The median price fell for the 10th month in a row to $223,700, down almost 14% from its peak in April 2006. This is the steepest drop since the 1930s. The Mortgage Lender Implode-Meter that tracks the American housing markets claims that 86 major lenders have gone bankrupt or shut their doors since the crash began.
American property writer Paul Muolo described the Bear Stearns crisis as the “subprime Chernobyl,” saying the bank had created a “cone of silence.”
Chief: Max, you realize that you’ll be facing every kind of danger imaginable.
Maxwell Smart: And… loving it.
LOL! Exactly what I was picturing!
So long as the Fed stands waiting in the wings with liquidity fire hose in hand, we have nothing to worry about…
It’s been DOWN PERISCOPE for ML.
They were plastered everywhere the previous week.
Must be checkin’ for leaking torpedoes.
The entire disaster is now entering 2nd gear.
And the tranny’s a 6-speed!
“‘AAA? You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels and a ‘tramp stamp,’ Gross said in his monthly commentary posted on Pimco’s Web site today. ‘Many of these good looking girls are not high-class assets worth 100 cents on the dollar.’”
Harlot Hedge Funds, with ugly tattoos evident?
did he just say “tramp stamp” in a financial context? I love it!
“Panama City vanity plate” would have also worked, I think.
did he just say “tramp stamp” in a financial context? I love it!
ha. that’s great.
“‘Those that point to a crisis averted and a return to normalcy are really looking for contagion in all the wrong places,’ Gross said. ‘Because the problem lies not in a Bear Stearns hedge fund that can be papered over with 100 cents on the dollar marks. The flaw resides in the Summerlin suburbs of Las Vegas, Nevada, in the extended city limits of Chicago headed west towards Rockford and yes, the naked — and empty — rows of multistoried condos in Miami.’”
Truer words were never spoken. The bursting housing bubble is quickly turning into a crisis in front of our very eyes. The number of newly completed, unsold homes is absolutely staggering.
Wow, this guy doesn’t mince words, does he?
Okay, which of my fellow HBB-ers is Bill Gross. Come on. ‘Fess up.
Sounds like Sammy Schadenfraude to me. …
– The Judge
“You’ll get nothing, and like it!”
Moreover, one of the other PIMCO analysts very publicly called the housing bubble a bubble about a year (maybe 2 years) ago, sold his house and rented.
Strong words, strong actions.
Mark Kasriel
Doug Duncan, chief economist of the mortgage bankers association, sold his house in early 2005 and is renting. I remember reading this story in the L.A. Times and feeling a little more justified than before. We sold in 01/05 and are also renting, and waiting.
We too sold our house, Jan 2006 and our living on our 43′ sail boat. Just sitting back and waiting for this whole mess to unwind.
I sold in 05…does that make me an economist?
Congrats, you already are better than Lereah, Gary Watts, Husing,
Harvard, UCLA.
For the record, I first read about the RE crash in one of the Agora Financial publications, Strategic Investment.
In 2003.
And yet, I got lectured last night by a colleague on the Metro on the way home that I really should look at the $300K condos near the Grovesnor station (they used to be over $400). She says prices aren’t down in her neighborhood, so clearly, the crash must be over.
“She says prices aren’t down in her neighborhood”
Probably true, if there have been no sales then there can’t be any change in sale price.
No, she says there are sales. It is perfectly possible. There are areas close in to DC that will be sticky. Areas that were never really for flippers so they are owner occupied and the developments were already built out before the bubble. Doesn’t mean they won’t come down eventually. They will. But it will take a bit longer.
Oh, I was also told that I won’t ever get a really really good a deal on a condo because the developers will just rent them. Yup, for a while. I don’t know how long, but eventually, these guys will want their money.
Please remember that these colleagues also own a one bedroom condo in NoVa that they bought in the last year or two as an investment and rent out for $1400 per month (I’m sure that they paid more than 100x monthly rent for it, as a matter of fact it could be double that) and have a son who is trying to sell an 800 sq ft duplex condo for $400,000. They have reason to hope.
“Oh, I was also told that I won’t ever get a really really good a deal on a condo because the developers will just rent them. Yup, for a while. I don’t know how long, but eventually, these guys will want their money.”
Capstone Partners just announced that they will be leasing the balance of their unsold luxury condos at The Village at Idlewild in Reno, NV. This works out to be hundreds of units. We’ll see how long they can stomach property management.
property management is a grueling, thin-margin business in the best of times. Developers renting at a loss won’t last long.
And hopefully they didn’t use too much leverage in the construction… Or else, property management will be the least of their concerns.
Rent them for a while - then sell a few (4 or less) and cap gain them. Take them 30years !!! hehehehehehe
Polly - I’m in your area, and trust me - - I’m waiting at least until after Spring ‘08 to even consider looking at our market. The worst that can happen is that, by then, prices will have stabilized from their 10% YOY decrease. They will not shoot back up. This means that, as of right now, there aren’t deals in DC - - merely gambles.
That was a good article.
I agree that these comments encapsulate much if not all of the comments many here have been pounding the table with for the last few years.
Easy Wall St credit, put into mortgages, levered to the max, and stamped as AAA caused this mess. Now it all unravels….
“…in the extended city limits of Chicago headed west towards Rockford…”
What?! NO! There’s no bubble here!
Good article. I’m still waiting for someone in the MSM to say this… “The problem for now is not the foreclosure rate, but the huge losses being taken on each of those foreclosures. Once the foreclosure rate really starts to jump, the losses will truely be ugly.”
Guys, I was working on my state of the art proprietary algorithmic computer model last night and I keyed in data on interest rates, oil prices, gold prices, CDO swaps, credit swaps, black scholes option pricing models, and other sophisticated variables that are beyond simple minds. At the end of it all, I got a message on the screen that read: A shack on the ground is worth more than 10 condos in the sky.
I’ve got a Phd in Mathematics and I am still trying to figure the code in the message. Any suggestions should be sent to me via Bare Sterns, Merrill Lynch, S&P, Moodys etc etc.
I was working on finding the average price of properties that sold for the asking price. I got a “divide by zero” error every time I tried….
My favorite catch-phrase I coined. “Divided by zero, stack over flow. F$ck it.”
I have a specialized probability theorom I have used as well and when I put in your variables with your results my message says that we should join Neil with a big bucket of popcorn. The only shack on the ground worth anything is a rented shack.
I have my Theory of Limited Everything. There is only so much of anything and everything…if one person has more, another person has less. Works for weight (ever notice how when you gain weight, one of your friends is losing?), money (the rich get richer, the poor get poorer), cars, sex, food, football scores, you name it, this theory applies. Works for houses, too…..the fewer ’sold’ houses there are, the more ‘unsold’ houses there are. It’s a very sophisticated theory and I have spent years refining it.
That’s hilarious.
I tried to replicate this on my own computer model that is enhanced with realtime procedural modeling and graphics. The message became clear once my Nvidia card was able to render that the sky is truly falling.
In other words, the message you recieved is that the value of those 10 condos in the sky have much further to fall than the value of that shack on the ground.
check this out.
“The fallout will also increase if investors and hedge funds rush to unwind their positions at the same time, he said. The market’s ‘financial infrastructure’ is ‘untested’ because of the pace of growth in bonds backed by mortgages and other debt, known as collateralized debt obligations, he said.”
I thought the system was tested out in 1998 with the near meltdown of Long Term Capital Management.
That won’t happen. They’ll be as courteous about exit as those Warner Brothers chipmunks were “After you. No you first, I insist. I’d never dream of it, you go first. No, no, no, I insist you first….”
A quarter of a Billion Dollars here, a quarter of a Billion Dollars there…
“Homebuilder Lennar offered little comfort about the state of the U.S. housing market Tuesday, posting much-worse-than-expected results for the second quarter and warning of continued deterioration in selling conditions. For the quarter ended May 31, Lennar recorded a loss of $244.2 million.”
Ladies and Gentlemen…
Scheduled for 12 rounds~
In this corner, weighing almost nothing, a bantamweight:
Chicken Litttle
In the other corner, in theory… indefatigable:
Bear Stearns
No punches below the wasteline…
That should have read, “no punches above the waistline”. I’m glad I could help.
wasteline, was correct.
Hey I resemble that remark!
How does our panel of experts feel about thee ETF known as SKF?
Hm. I’ve been trading SRS but this is another good vehicle. Not as much volume as SRS but I just bought 200 in my 401K. My software has this as both short term and intermediate term buy signal. Thanks.
The amount of high-grade, structured finance CDOs that are being offered to investors has plunged to $3 billion, from $20 billion a month ago, JPMorgan said in a report dated yesterday. CDOs are pools of asset-backed securities, bonds or corporate loans divided into securities with different credit ratings and maturities to cater to investors’ preferences.
Bear Stearns, the biggest broker to hedge funds, is trying to keep two funds afloat after bad bets on securities backed by home loans led creditors including Merrill Lynch & Co. to seize and sell off some of their assets. That response by creditors, which included a demand for more collateral, raised questions about whether the mortgages and other assets contained in recently issued CDOs have been accurately valued by the market.
“We expect events surrounding warehousing liquidations last week to further slow, if not halt entirely, the new issue market,” JPMorgan analysts led by Chris Flanagan in New York said in the report.
So does this effectively freeze up anybody selling anymore of these sub-prime CDO’s?
IOW, is the sub-prime market dried up and dead? Help a liberal arts major out here puhleeeze!
“Bear Stearns, the biggest broker to hedge funds, is trying to keep two funds afloat after bad bets “
Well at least they are admitting that hedge funds are nothing but betting. Now if they could just admit that they have more chips on the table then they have money in their wallets.
Bear Stearns is liquidating both funds. It loaned the money 3.2B to allow for an orderly liquidation. The risk is not directly to Bear Stearns 3.2B, but to the reputation of Bear Stearns by using asset management funds to bail out a bad investment. As of today Bear Stearns has reduced its risk to 1.6B. The investors in the 2nd fund (Bear Stearns’s enhanced fund) will receive approximately 1/3 of their investments back.
“Recoveries in the high-grade fund will depend on how CDO prices fare as Bear Stearns reduces leverage over the next few weeks. Traders who participated in auctions of the funds’ assets last week said some bids were lower than 30 cents on the dollar, as investors tried to test the depths of the meltdown.”
Bloomberg
http://tinyurl.com/yu4uub
And of course, Bear has withdrawn its Everquest IPO officially, but quietly.
Chaneling Streisand…
Funds soft as an easy chair
Funds not so fresh, it would appear
One fund that is shared by hedgers too
I have found that true
Like a stinky rose under a June row
I was always certain these funds would eventually blow
Funds ageless and Everquest
Seldom seen, no IPO for you…
FUNNY!!!
And to think, I thought Everquest was an MMORPG.
Mugsy,
Yes. Loans to unqualified people are now dead. A lot of the newer lenders are still advertising this crap, but it’s gone. The tires are off of this cart. The speed of the downturn is now entirely dependant on how long the FB hang on. If the all capitualte today were done with the bubble by Xmas 08, but that won’t happen. IMO all these bs subprime loans to unqualified FB will wash out of the system in 2012. I know many here are pegging it much sooner, but I think that is just wishfull thinking. The 2nd big hump of subprime resets won’t be bank REO solds till then, at that point we can talk of the bottom.
Agree, Rich.
Remember that Bill Gross has extremely large bets on lower interest rates. Not saying he’s wrong, just saying that he’s not an unbiased observer. Also, he’s been wrong for a while now.
Gross flipped a month ago. He’s probably positioned for higher interest rates now — especially since he said so on CNBC a few minutes ago.
Yeah, I moved about 8% of my 401k into PIMCO about a month ago. Hasn’t been too great so far (but that hooker comment earned him a few brownie points).
Someone posted this from another blog
“Most of you probably don’t know that raw building material costs have skyrocketed in recent years. For the price that I am asking for this home you might be able to build a 2/2 in a ghetto or on the outskirts of civilization. Please don’t hold your breath expecting the majority of homeowners with full or major equity in these properties to cut their selling prices 25% to 30%. It ain’t going to happen”
An angry homeowner trying to sell this place. This is the problem with the housing market. DENIAL
I would also point him in the direction that most building materials have comed down substantially in the last couple of months. Of course that would exclude pergraniteel. Those are still in high demand as wannabe flippers still are in denial.
I don’t know the location this seller is discussing but for Pullman, WA, new construction is generally cheaper than “newer” existing homes (asking prices anyhow). Building material costs have dropped dramatically over the past two years.
My guess is that this seller is referencing what new homes cost in 2005 at the peak. Builders are ahead of the curve in many locations.
The reason most of that “new construction” is generally cheaper in price than the existing older homes is just that, they’re built cheaper. These cardboard boxes that they have been building over the past 5 years will not hold up to time. Pure junk, low grade materials and every short cut known to man was taken in building these MacMansions. I’d take a home built prior to 1970 before I’d put one red penny into these cardboard boxes.
Reminds me of the time I was scabbing for an electrical contractor in So. Cal. off the 405 in 1982, Mountain Gate Country Club. We were doing sun-up to sun-down work on some million dollar homes while the Union guys were down the hill saying “We won’t cut our wages”. So as these homeowners refuse to cut their selling prices the builders will, so-to-speak “scab” there way right into the small pool of available buyers.
Exactly. The greedy, obstinate sellers and builders are cutting their own throats, while the realistic ones are taking what they can get, and preserving their future. It’s fun to watch. Only those with intestinal fortitude will survive.
Please don’t hold your breath expecting the majority of homeowners with full or major equity in these properties to cut their selling prices 25% to 30%. It ain’t going to happen”
He’s right. These sellers won’t cut their prices, but others with the same houses will. Guess which ones get sold.
“Please don’t hold your breath expecting the majority of homeowners with full or major equity in these properties to cut their selling prices 25% to 30%. It ain’t going to happen”
Don’t worry, I won’t. You’ll actually hear a loud exhale as I roll my eyes and move onto the properties that will.
Someone will buy his house from the bank for .30 on the dollar in a few years from now. He is simply angry at the realization slowly seeping into his subconcious that he is a bagholder and will likely spend the next few decades working off the lost equity he now owes the bank. Just another FB getting lubed up for the banker.
“Please don’t hold your breath expecting the majority of homeowners with full or major equity in these properties to cut their selling prices 25% to 30%. It ain’t going to happen”
If they love their house so much why would they even put the f—ing thing up for sale? Hold on to your house, you jerk. See who it hurts!
Building materials way, way down from 18 months ago. I talked to one of our local lumber vendors and some lumber down over 50% from peak prices. So this dude needs to pull his head outta his A before opening his pie-hole.
Building material cost has no correlation to the house price. So what if material costs more in 2005. This should not be reflected on the price. It’s all about supply and demand. If you built a $1M house and no one wants to buy it at that price, how much did it costs again??? Too much inventory, too few buyers. I guess we are not running out of trees after all.
Uh, sorry qt, but if materials prices increased by 100x, then I suspect the structure built with those materials would also increase. Many things contribute to the cost of housing, though recently the expectation of future profits (imbedded house-price inflation) has been the highest.
Nothing contributes to the “cost” of housing than the ability of buyers to pay, full stop. You could build a house using hand-cut Brazilian cherrywood studs, grind up Lennox china to make the drywall, and stain the cabinetry with Opus One wine — but you’re still only going to get what a buyer can pay.
If you’ve built a house using materials that were too expensive for what the price of the finished product can support, that’s your problem. As the builders of countless McMansions strewn across blue-collar and lower-middle-class counties are discovering every day their inventories increase.
Right now that is true but in the long term there has to be a correlation. If materials/labor is too expensive for the consumer to afford, the builders will just stop building altogether. They will not keep building and taking a loss on each house. At some point the supply would decrease and the prices would indeed rise to a point where the builders could again build and make a profit.
However, that will not happen because the materials/labor will come down as well. If for some reason that couldn’t happen, I suppose we would all be living in 500 square foot residences….
I like your second point best…if builders stopped building, guess what happens to the cost of building materials?
At some point, we will find equillibrium, but we’re not there just yet.
Sir, your proctologist called. He’s located your head.
btw, that’s a follow-up on the original “pull his head out of his A” comment.
If material costs are way down, doesn’t that mean the value of the materials in the existing homes are way down also?
“Please don’t hold your breath expecting the majority of homeowners with full or major equity in these properties to cut their selling prices 25% to 30%. It ain’t going to happen”
You’re right, it won’t. Other sellers will price their homes 25-30% lower and the stubborn hold-outs can chase the market down to 50-60% off. Works for me.
I still don’t get how Millions of people still don’t get it.
The “Dry in costs” ( materials)for 2000 sf house costs about 12K . The most expensive part of materials is Fixtures and carpeting, air, etc. And even with all these costs, Materials are about 25% of the cost of a House.
On a Existing home , usually needs remodeled anyway, which means Your used House is really worth Squat. Only the land Your house sets on Increases in value (Sometimes), except for small increases in cost of labor.
Why do People think , used 2×4’s , used carpeting, old paint, old shingles, and used appliances, “Increase in Value”?
This Gives Me a Headache.
“I still don’t get how Millions of people still don’t get it.”
Hundreds of millions of people…
Pretty simple . . . Because millions have bought homes for X price and sold them for X++ several years later. That kind of historical performance for so many people is tough to refute.
Well, Sir, I don’t know much about “the majority of homeowners,” and I don’t care. All I know is that if you want to sell your house to me, you’ll knock 20% off the price.
More, if you happen to be in Costa Mesa.
He doesn’t get that nobody cares what he paid for his house. That’s his problem. Buyers only care what they have to pay.
“The ABX 07-1 ‘BBB-’ series, which is tied to subprime loans made in last year’s second half, sank to 55.70 on Tuesday from 56.18 at Monday’s close. The index has fallen 42 percent since it was launched in January.”
Launched!? Seems more liked scuttled!
It was a nuclear submarine, because the bagholders will be underwater for a very long time
No, most don’t even have a diesel submarine and instead just have a leaky swim mask and snorkel. A couple of inches of water is all they can handle and not even that for long.
“It was a nuclear submarine, because the bagholders will be underwater for a very long time”
Fantastic analogy.
Lennar has been seen as one of the home builders to react most quickly to the housing bust by slashing prices aggressively to protect sales volume. ‘We expect the sequential order deterioration to be even more pronounced for home builders who attempt to limit incentives in the hopes of preserving some blah blah blah.
This is like China. Losing money, but making it up on volume. They mandated that only 500k tons of new steel making capacity be allowed to come on line this year. So 1000k of capacity is built this year. Since no one is allowed to lay off commrade workers, the market is diluted and profits go down the toilet. Just lose money on higher volumes.
And reduce quality. If your steel before had a carbon content of 14% now it might get a carbon content of 12, or even 10% making it brittle, and unuseable for most apps. Of course they will still label it at 14%, and you will find out about it when that 110 story residential condo keels over with a 10Mph wind.
Bad things are going to happen with all this junk…
Hear hear. I’ve learned the hard way not to tighten bolts on the cheap Made in China toys. The heads come right off. What a waste of resources. Wallmart to junk yard in two months.
Guess you didn’t see the WSJ article this morning about Chinese-made tires. Gonna be a Firestone reprise.
I saw it in the San Diego UT this morning (along the article about Chinese cars assembled in Tijuana!). Now if there’s one thing I wouldn’t buy, regardless of price, it would be Chinese tires…
Anyway, it just amazes me how many resources (plastic, metal, whatever) that are wasted on cheap toys. I played with some of my dads toys (unsuccessfully trying to break them) and sold some of them 30 years later for a small fortune. Most similar toys we get for our son has something broken within the first 10 minutes, and even when new the appearance is terrible; sloppy finish, ugly injection molded parts etc…
I played with some of my dads toys (unsuccessfully trying to break them) and sold some of them 30 years later for a small fortune.
My brother is a model toy soldier collector.
Remember those Marx Bros. play set’s Sears used to sell for $9.95?
Now it’s $20.00 for just a bag of 5 men cut from a salvaged mold.
One of the funniest episodes in history was the age when all Chinese were trying to make steel in their backyards. If you have a chance, find a book that chronicles this episode in Chinese hysteria. It is hysterical, the stupidity. It seems like they are doing it again.
Off Topic:
It was part of the ‘Great March Forward’, as dictated by Chairman Mao.
Far from being hystrical, it was a tragedy - Mao basically decided that China would become the world’s leading steel manufacturer, at the expense of pretty much anything else. Anyone not with the program was hauled off to prison, sent into exile etc….
Consequently, people tried to make steel in their backyards (to keep up with the insane ‘quotas’) rather than working thier fields and producing food.
Queue social chaos and famines that killed several hundred thousand.
A good book on the insanity in China during Mao’s years is “Wild Swans” by Jung Chang.
She was an eyewitness (and survivor) of the craziness, instability and widespread death going on during his dictatorship.
“Boston, Detroit, Phoenix, San Diego and Washington, D.C., showed the greatest year-over-year declines in prices.”
Location location location. luckily, nobody wants to live in those cities. in fact, if I recall aren’t all of those undesireable places with falling population? (since the high risers were all explained by “x,ooo people moving here every day)
and as you can see, with prices falling in the above cities, the housing downturn is clearly not national. [/sarcasm]
But…. But, I thought that Boston was different, as they have all the universities, and students love to stay here…. (recently heard at a family meeting, where ID10T stepbrother who is a plumber is buying a condo in Boston. Hope that he likes submarines, because he is going to be underwater for something like 20 years around here. Pretty much his son when he is 50 will be able to sell it at break even…)
Reminds me of Ian the manager in Spinal Tap - after their Boston gig is canceled he says “Don’t worry - it’s not really a college town”. He he.
According to the US census bureau Boston MSA population went from 4,391,344 in 2000 to 4,455,217 in 2006. Meanwhile Phoenix went from 3,251,876 to 4,038,182.
If Boston picks up 63,873 MDs and PhDs from India and China while Phoenix gets 786,306 illegals from Mexico, which city is the economic winner?
There are still not enough bag holders to save this state. BTW those MD’s from China and India hold the same quality as the tires that are imported. Very few, if any chinese have higher educations worth a damn, not that the education received in those ivy league colleges in Boston is any better, just look how “surprised” so called housing experts from Cambridge are…..
Boston–and Mass–won’t really crash until the war ends. When defense industry employment drops, it’s going to be 1991 all over again.
Lots of people want to live in those areas. They just can’t afford it.
I live in one of those places. My rent is very affordable. I have no desire to buy.
There is a big difference between Boston, Detroit, and Phoenix - too expensive and regulated, economic black hole, and new but disorganized boom town, respectively.
People are leaving Boston and fleeing Detroit, but month after month the Phoenix area population IS growing. Now I’m not saying “it’s different here”, but the problem with Phoenix can be summed up with one word (or number) - 2005. If you take out the bogus “appreciation” from that year (20 % to 40% in most areas), then things seem resonable. Although all I”m still seeing is small 5% reductions in asking price as time continues to roll on. Over a few years this will do the trick - 5% or 10% real reductions and 5% inflation -adjusted reductions. In 2011 the Scottsdale house priced at $400k today may be priced at $300K, which by then may be resonable. Unless the migration reverses and people start leaving Phoenix to move back to the east coast, midwest, and California (which I can’t imagine happening at this point).
True. The biggest problem with Phoenix is speculation. There are so many vacant homes (three on my street that I know of). It will be interesting to see how it plays out. I agree though, if you take out 2005, I think its “fairly” valued. The problem is pre-2005 is still 15-20% below the current market.
Outlying areas have gotten hammered already (back to 130k pricing in the outskirts).
Try calculating it from the rent side.
Until owning a rental is again cash-flow positive (from day 1, using traditional 20% down), the drop will continue.
Yes, there are of course differences between all of the listed similarities.
but there is one big similarity between all of them: they are all overpriced, for whatever reason.
And so is most of the rest of the country.
Desireability is not enough to keep prices. Look at Boston, which is considerably more desireable than Phoenix. Or Miami, also “desireable”. Or even Atlanta or San Diego.
The biggest problems that Phoenix specifically faces are:
1) weather. most people really don’t like the weather there. They like that it doesn’t snow, but those summers are killer. so you have great weather in Phoenix for 9 months a year. Not much different than Boston let’s say.
2) prices. Phoenix was much more attractive BECAUSE it was cheap. As it lost it’s affordability, this is now a negative
3) water. there are major water issues for Phoenix long term (and the SW in general).
4) overbuilding. Phoenix metro area may be the second most overbuilt area I’ve ever seen, second to Miami. And the major issue is that it’s all the same. Cookie cutter development after cookie cutter development. So it’s not like you have “special” neighborhoods that will keep their values that high, except for POSSIBLY Scottsdale, which also has cookie cutter developments, but is home to Mayo campus as well as the high end malls and has traditionally been “exclusive”.
5) California effect/speculator effect. Too many homeowners in Phoenix are actually californians. During the big boom 20%+ of homebuyers in Phoenix were California residents, and only a few of them moved to AZ.
But price and overbuilding are the big killers of future Phoenix.
In time, inflation will take care of much of the problem IF we get wage inflation with general inflation (which may not happen given global arbitrage and illegal immigration).
Part of the issue is that many people have confused HOME PRICE APPRECIATION for DESIREABILITY. They saw homes appreciate quickly, and thought “hmm… it must be desireable here”. Not necessarily true. The worst offenders of this are Las Vegas and Phoenix. there is a reason they have traditionally been smaller cities.
I expect that we will continue to see some migration from northeast and midwest towards the sunbelt, but it will moderate IMO, and not be enough to keep prices high there.
You make a lot of good points, and I sometimes theorize that Phoenix is about twice as large as it should be given what it really offers. If 90% of the building-based jobs disappeared and some of the low end service stuff also left, Phoenix would have to shrink back to a tighter, more efficient city, which really means places like Queen Creek, Maricopa, Suprise, and Avondale may be abandoned, or at least lose 90% of their population. The big driver of this will be energy costs. If you look at the Phoenix metro on a map, in my opinion what’s inside the freeway loops vs. what’s outside will in general experience the housing/energy crunch in a much different way. But as long as the “feeder areas” continue to commit political and economic suicide, the migration flow will be INTO Arizona.
You forgot energy costs. How much does the a/c run in Phoenix? A lot.
Not if the price of solar cells comes down. I’d be more worried about water.
PHX inventory now at 60K (!) homes and rising.
The scariest thing is job is plentiful in DC. I live in Silver Spring, MD and there are many defense contractors and new FDA headquarter in the NoVA/DC/MD area. The economy is strong, interest rate low, unemployment low, etc. But housing market here is SLOW. It demonstrates how bad the bubble was here and how unrealistic the housing price has become.
One more thing, BG&E (my electric company) sent me a letter saying that they will increase the electric bill by %50 next month. Cost of living has inflated with the house prices. Too bad that can’t deflate.
What’s your kilowatt-hour (kWH) rate? What will it be after the 50% increase? We pay just under seven cents per kWH here. Divide your bill in cents (move decimal two places to the right) by your usage in kWH to come up with the number.
So do we (7 cents/kwh). I also buy 600 kwh of wind generated juice for an extra 1.5 cents per kwh.
Yeah, but MD artificially kept prices for power low for many years. Your 50% increase is making up for past losses.
I disagree with this observation that the DC economy is in a great condition. Last year I spent the longest time ever to look for job while I was still employed, but I desired to quit my old job. Nevertheless, I was lucky to find one in my field. All jobs I seen were paying less money than I was making, and job fairs were packed with people like after 9-11. Here is one of many drawbacks in DC job market…clearance. Very a few immigrants would qualify for contracting jobs, because they do not qualify for security clearance. The DHS, DoD subcontracted thousands jobs to other companies, and almost entire DC economy became dependent on them. Demand for security clearance from employers became so ridiculous that they have problem to fill positions. As it goes with temp contracts, hundreds of contractors were laid of in DC because their contracts were not renewed. Many people are coming to DC from all over the country to share the story of recession immune city with easy job to find.
On the other side, thousands people works in service industry and waiting to jump into contracting wagon. They are disappointed with the pay. Secretaries, IT workers, contractors are making usually less then 70K in city that has one the highest cost of living in entire North America. The gas is here more expensive then NY & NJ, so are the cost of many goods. The biggest chunk of salary is eaten up by housing cost. It is ridiculous, especially inside loop. Semi-trailers of the Rt-7/Cherry Ln Rd were going for 350K. Old McRoach house in my area was last time renovated during FDR and was sold for 450K. It needed to be torn down. Many of my friends pay ½ of their salary towards mortgage and share their precious real estate investment with three, four people. Each of them occupies one bedroom and share one living room. Many new condos are build in the middle of the ghetto, where there are burn cars (of Mass Ave.) and evening are patrolled by shemale prostitutes. So much for the economic miracle in Washington, DC.
The Seattle price increase doesn’t feel real on the ground. Watching the weekly real estate ads and MLS, a lot of the 1M+ owners are dumping their homes on the market and a lot of high-end condos downtown have come on line in the last year, which is at least part of the average price increase. The real estate Sunday paper section has about 40% more for-sale listings than last summer…inventory is beginning to ramp up big time here.
Yes… Portland prices are going down - I can’t believe they are higher than last year. It’s that median thing - limited action at the bottom end pushing the median up. We’re just not tanking as BADLY yet. Officially.
San Diego’s population is increasing, but they are not being counted. Illegals coming over the border every night to try and qualify for the Kennedy-McCain-Bush Amnesty act.
This seems like a relevant thread to feature an illuminating New York Times article on Bear Stearns aborted Everquest IPO. Really raises a lot of questions about fiduciary responsibility, at least to me.
http://www.nytimes.com/2007/06/26/business/26bond.html?ref=business
Early in May, as Bear Stearns executives scrambled to meet redemption requests from clients in two troubled hedge funds, a money management company affiliated with the Wall Street firm filed its intention to sell $100 million worth of shares to public investors.
Among the assets of the management company, Everquest Financial, were $550 million of debt securities purchased from the same Bear Stearns hedge funds that six weeks later would be the subject of a very public unraveling.
Everquest Financial’s initial public offering statement on May 9 disclosed that substantially all the assets in its $700 million portfolio had been bought from the Bear Stearns High-Grade Structured Credit Enhanced Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leveraged Fund.
The filing did not disclose that those funds had suffered heavy losses in March and April as assets held in them, many backed by subprime mortgages, plummeted in value. Bear Stearns hedge funds also held a $400 million stake in Everquest.
Is there a white-collar equivalent to the street-crime charge of attempted murder? Just because they didn’t pull the trigger in time doesn’t mean they didn’t have intent.
I guess what I’m wondering is whether up in some office building there sits some pension fund manager wondering why this fabulous opportunity vanished on him? Apparently someone, somewhere, was actually considering the purchase of this toxic waste. How is it possible to be this misinformed as a caretaker for billions in assets? If this isn’t a criminal enterprise being shaken apart then it is a truly amazing example of negligence.
“Really raises a lot of questions about fiduciary responsibility, at least to me.”
smells like some sort of fraud to me.
This begs the question “will purchasers of Blackstone stock on Friday have legal recourse since Blackstone did not disclose that Blackstone was an adviser to Bear Stearns during the past 2 months?”
Just your run of the mill pyramid scheme….. payoff investors in one pool with funds in another, the object being to delay the inevitable.
“home sales posted a surprising drop at the start of the crucial spring selling season in May”
They were surprised……really, I am more surprised that they were surprised and that is the most surprising thing about this expected downturn…how dumb are these people? What did they expect it to go up, because inventories have declined, personal debt has declined, prices have adjusted to 30% less, and the buy pool has grown, and the available loan programs are back for the stupid??
Puhhhhlllleeeaaaazzzzzeee!!!
The buyer pool has been drained.
“The flaw resides in the Summerlin suburbs of Las Vegas, Nevada, in the extended city limits of Chicago headed west towards Rockford and yes, the naked — and empty — rows of multistoried condos in Miami.’”
My sentiments exactly. The bubble has barely touched existing homes in prime markets. This is mostly about inflated prices due to speculation on houses no one really wanted on the outskirts of major cities, the Inland Empire, Modesto, Palmcaster, etc.
Ignore the “See Me-Dig Me” component of el lay at your own risk…
I don’t know if there is anyway to find out, but i’d guess citizens of the city of angles heloced more, per capita… than any other city.
Ouliers will always get hit first in a housing slowdown. This is going to take another decade to unwind in the Lake Forest,IL/Newport, RI/Greenwich,CN or Berkeley,CA of the states. Patience is the key. In the two decades it took to get this high, why would any reasonable person expect a 3 year fix?
It is hard at this point to see how many El Aye household balance sheets have been torpedoed full of holes thanks to investment losses on residential properties in Miami, Las Vegas and Barstow. Time will tell who is swimming naked, though.
Prime markets will get hammered as well, it will just take longer to be noticeable. Who do you think bought all those speculation “investments” out in the valley? It was the f-tards from the “prime” markets, many of whom borrowed against their primary residence in order to become RE moguls. I don’t care what area you live in, the fact of the matter is that the vast majority of people cannot afford to make the PITI payments on recent purchases. When their interest only period comes to an end they will find a much different credit market along with a home worth less than they paid. The piper will be paid, and unless you were a very astute or lucky investor, if you bought anything in the past couple of years it will not end well.
As opposed to the speculation (i.e. we will refinance later) of the major cities?
No, I agree with you. Tons of people speculating that they will be able to pull their purchase off with a re-fi or sale. The major cities will get hit in that regard; I was only referring to the fact that many of the valley “investors”/speculators came from the prime locations. I imagine many will wind up losing their homes in both locales. What it all boils down to is too many people borrowing way more money than they could ever hope to pay back. Worst of all, they invested that money in an unproductive asset. I love it!
‘My sentiments exactly. The bubble has barely touched existing homes in prime markets. This is mostly about inflated prices due to speculation on houses no one really wanted on the outskirts of major cities, the Inland Empire, Modesto, Palmcaster, etc. ‘
Fred Garvin
from the streets of LA…I have a friend in the hills (of hollywood) who has “earned” $1M in equity since he purchased his home 6 years ago. In 2005 he took out that equity (all of it) and purchased investment properties in sarasota, fl. He has all of them on the market because none are cash-flow positive. Doesn’t want to lower the price because the potential 1-time loss seems more severe than the continued losses on a smaller scale every month. It is funny how the mind works.
Sarasota? Friends have had a 300-400k condo on the market there for almost two years……Your friend ain’t got no million in equity no more.
How much of California’s equity was withdrawn from the state, and does the state ever expect to get it back?
“My sentiments exactly. The bubble has barely touched existing homes in prime markets”
yea right….that’s why i just saw a bank owned home go up on the market this week that’s being listed at 26% off the the last purchase price in april of ‘06….in a “prime” los angeles neighborhood. dream on.
It will, give it time.
Home prices have skidded for months… will they continue? ummmm… yeah!
Yahoo! Finance poll:
http://finance.yahoo.com/
Yes: 89%
No: 12%
I think the votes were tallied by NAR castoffs to come up with the 101% but the message is pretty clear. The Battle of the Bulge is over. Now it is on to the mopping up phase. That is going to be even bloodier.
“Please don’t hold your breath expecting the majority of homeowners with full or major equity in these properties to cut their selling prices 25% to 30%. It ain’t going to happen”
Then I guess you’re the permanent owner of a income draining boat anchor. Good luck with that.
Pimco’s take on subprime contagion.
“Looking for Contagion in All the Wrong Places”
By Bill Gross
“The right places to look for contagion are therefore not in the white-washed Bear Stearns hedge funds, but in the subprime resets to come and the ultimate effect they will have on the prices of homes – the collateral that’s so critical in this asset-backed, and therefore interest-sensitive financed-based economy of 2007 and beyond.”
Check out the subprime graph.
http://tinyurl.com/2h7t7c
Charlie Gasparino reporting on CNBC that Bear hedge fund collapse began with a mere 4% (!) markdown of prices. (Of course in the leveraged fund, this wiped out almost 50% of value.)
Here in Utah, we deal with an obnoxious case of brazen confidence of homedebtors and investors, which has them convinced that equity locusts from Arizona, Vegas and Cali are coming to replace the first-time homebuyers’ role in the market. I often say that “they price us out of the market at their own peril.” Yet they retort that there is no peril, they don’t need us anyway because there’s someone better coming along with more $ to offer them and they’re willing to turn us down, because there’s a bigger bidder coming that we’ll have to compete with, it’s a certainty.
It reminds me of the first year of high school, when all of the girls suddenly gained the upper hand with the boys in our grade, because we had a million more options upon entering high school. Junior and Senior “men,” who had, by that age, developed muscles (!) and facial hair (!) and could drive us places (!!!!!). They were offering us much more than the middle school pipsqueaks we were fighting over the year before and we suddenly didn’t need our fellow 9th graders anymore. Just like the beginning of the housing boom, we were in euphoric domination of our surroundings and got it our way.
Then the rise to upperclassmanship happened, and we found ourselves in our own Senior year. We had run out of older and wiser men to pick from. In fact, the boys in our grade, now Seniors themselves, had the upper hand all of a sudden. Younger, much more easily impressed freshman girls flooded the halls and now our male Senior classmates couldn’t be bothered to ask us out (except that they still did because we were foxy, but I’m trying to make the parable work). As our reign ended, the boys we once tossed aside stopped needing US, gained the power, and had all kinds of fresh, new, easily-acquired options. Just like the end of the housing boom, when the glittering prospects of out-of-staters has faded. Californians moved on to lowball local distressed sellers kind of like the older guys graduated and went to college, never to be heard from again. And the awkward moment came when we had to face those boys we once blew off, and compete for them again.
Yet if you’d told us in 9th grade that we’d be sorry later, we’d have laughed. There will always be older boys with more to offer in our school! We’ll be Freshmen forever and the Seniors aren’t going anywhere! Sound familiar? High school sucked and so will this.
I just had a call from a past client who bought 8 acres plus two lots. They appraised for $410,000 all in, about 2 years ago.
She is being transferred and must sell. She asked my advice and I told her to get three brokers to give her their best shot and then knock 10-20% off that number if she wants to sell. I also advised her that she may go for 6 months without a showing and it is likely that it will take 1-3 years to sell it.
She then asked me to appraise it. I told her that it was not possible to do so as there are so few sales and there is nothing that has sold in the past year to compare with it. I told her the market it plummeting and as such I could not value it with any degree of comfort.
I am closing the residential part of my business and focusing on the litigation end as well as the commercial market which has some life left, although I suspect that is in for some major grief too. At least dealing with investors in commercial appraisals you have someone who does not break down crying while you do your work.
We are witnessing the real hardship of losing a home daily now. The anguish is palpable and it is apparent that these people we meet are truly devastated. I have no sympathy for the investors but it is hard to be in someone’s home as they follow you from room to room asking what you think. I tell you, that the old axiom about values never falling in residential markets had all these people thinking it would go on forever. They really believed it.
They withdrew all their equity and now they are toast and the toast is burning more and more as they reset to hell. It saddens me. It really does.
I’m not all that sad. When I was a kid it seemed like complete disaster but after watching all the greed, hubris and excess. No, my sympathy is completely gone.
You still have investorgirl claiming the bubble is confined to fringe areas. The only reason the fringe areas got developed was because the values bubbled up due to over bidding with funny money close in. So the reaction time is fast out in the IE but slow in west LA.
In the end percentage losses will be staggering as sales were very significant everywhere. The credit contraction will suck all the life out of the market and prices will follow.
West LA has a lot of “strong hands” but will crumble under the extreme mass to the east.
It will be last just like it was first to rise.
Again it will be percentage losses that kill everyone. Just wait till the crime starts spilling over into all the fringes of Torrance, Hermosa, Santa Monica and Redondo… San Pedro will get crushed by the impending crime waves.
Just wait till the crime starts spilling over into all the fringes of Torrance, Hermosa, Santa Monica and Redondo…
I sincerely believe you are wrong on this one. Torrance has a great police department. Redondo/Hermosa are too close to the water, we can’t be surrounded. Pedro… who goes there after dark anymore?
IMO. These same people who cry and thought it would go on forever where making their future life miserable for themselves and families AND SHOULD HAVE KNOWN BETTER. Not to mention putting incredible stress on ALL financial systems we rely on as a society. It doesn’t sadden me, it angers me. When Greenspan said to the effect of, go take out an ARM loan and HELOC yourself into modern day financial slavery, all the cool people are doing it, some sheep didn’t follow to slaughter. But I have a strong feeling those left standing will still feel the financial and emotional pain, maybe to a slightly smaller degree, as we bail out loved ones and others for their hubris.
Whew, that feels better……
To add to this…
There are those many of us who didn’t jump off the bridge into an ARM of some lender. We’ve either postponed plans for starting new families or have completely moved hundreds of miles away from our parents and home towns just to live within our means. We’ve budgeted ourselves into a debt free lifestyle and packed away our savings hoping for a normal market in the future… where we can actually afford something more than 100 sq foot condo. For five years we’ve watched these smug FB’s gloat and spend like there is no tomorrow… new cars, clothes, trips, furniture, vacation homes…. all the while making half my take home income. The greed is sickening. I have no sympathy for any of them. The only way I will bail any of them out is if the government forces me to through some f’d government grant from my taxes or sends inflation through the roof. Yes… it angers me too, and it angers me even more that they think a bail out is coming, or that they were tricked into buying and somehow deserve a judicial exoneration from their stupidity. There, I only feel slightly better…
Just talked to a 30-something realtor/investor today. Admits prices have fallen sharply on beach/condo/cookie cutter projects over past year or two but is nonethless incredibly bullish on Jacksonville/St. Johns County/Vilano Beach areas. Thinks the market is getting ready to take off! Seems to think the building of a Publix in Vilano Beach is going to cause the market to explode! Of course, he owns a dozen properties.
Notice how all the bullish people are already “all in”? With no more cash or credit to take advantage of further price declines?
“The battered housing market”
“Ways to go before hitting bottom”
“Sales tumbled”
“Downward slide”
“Demand has been sharply reduced”
“Subprime mortgage crisis”
“The market will not significantly recover even in 2008″
DL where are you? I want to hear about soufflé’s and temporary softening and why there’s no bubble….
Why does the MSM keep trotting out these useless economisseds? Snaith used to live in the central valley of CA, which is arguably ground zero for this implosion. The whole time he was hear he was pumping the real estate market and coining phrases like souffle for the slow down. He got the local gov’t to spend tons of money on the new downtown and now they are screwed, sticking the taxpayers with the bonds.
This guy then fled to Florida where it looks like he has moved up in the world and now gets to comment on the national level. If these are the type of the people that are quoted in the MSM, the it throws into doubt anytime I read a comment from an “expert” in the news.
Kind of like the fire up in Tahoe at this time. Coe Swobee (sp?) from the TRPA is already out talking about the environmental damage this fire is going to cause and how the TRPA has Fire prevention as one of their top items to address. What is never mentioned is Swobee was the Senator who pushed for the TRPA 30-40 years ago and that since its inception it has been the biggest stumbling block in the are of Fire prevention in the Tahoe basin. In reality the TRPA is nothing but a huge drain on the citizens of the area with rampant croniism and minimal to negative benefit to it’s stated cause of cleaning up the lake.
““Boston, Detroit, Phoenix, San Diego and Washington, D.C., showed the greatest year-over-year declines in prices.”
aren’t those the “SUPERSTAR CITIES”?
I cannot speak for other cities, but DC is very overpriced with a relation to median income. Very a few percentile of population makes 6-digit salary. While it is city full of lawyers, scientists, and engineers, it has very large sector of people working in sales and service industry (39%). It employs less people than Boston (44%) but more than NYC (36%); and DC has widespread poverty. 2/3 of the city is dangerous zone, which I called Kinshasa upon Potomac where shooting and murders are occurring there daily. Even in these hellholes, McRoach was purchased by flippers and sold for more than 500K. They build here many condos, which are smaller than apartments build by commies in Soviet Europe. They are poor quality, without parking, services, shops, and it is laughable to see their offering prices. Who will buy a condo, which is no near metro, and has no parking? In addition, you have to walk through group of aggressive prostitutes like places around MA and NY Avenue. Too many condos pulled DC prices down, but I wonder when this dip will affect values of SFH and townhouses in better areas around the loop.
Apologies if this has already been posted but:
Bear Stearns says won’t bail out second fund
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-06-26T205603Z_01_WNAS4747_RTRIDST_0_BEARSTEARNS-FUND-URGENT.XML
The reading was also the weakest performance for May since 2001, before a sharp drop in mortgage rates sparked the housing boom…
————————–
I’ve often mentioned that I believe the housing market reached a “natural” peak in 2001 and the rest was simply a result of the credit bubble.
This quote is from one of the articles, and if you look at the trends around that time (2001), you’ll see the beginning stages of a housing correction — at least that’s what it looked like in California.
Just wanted to mention this so all the more recent bears see that “the bottom” just might be pre-2001.
IOW, DO NOT RUSH into the housing market. There is a strong potential for a recession & housing will lead the way, IMHO.
Be very careful & make sure that PITI payments, with a 20% down payment, are roughly equivalent to *reasonable* rents. Also be aware that rents can drop — be sure you are not looking at inflated rents, as well.
Just MHO.