More Signs Of ‘A Change In Public Thinking’
Time to wrap the week up. “The cost of second-hand housing in Shanghai is dropping rapidly. ‘Investors can hardly be found for those transactions,’ said Huang Weiwei. A wave of speculators flooded the real-estate market from the second half of 2004 to the first half of last year, driving housing prices to an unprecedented high. ‘Speculators who feel more financial constraint are struggling to find buyers prepared to open their pockets at this moment,’ said Huang.”
“Arguably the Fed’s most important single indicator is the bond market itself, and that indicator is busted. Today it is clear that bond-buying by our trading partners, recycling their export winnings, has downwardly distorted long-term yields. So, what to watch? Sez here: watch mortgage delinquency rates.”
“Pimco’s mortgage-watcher says the last three years have been the lowest delinquency interval in modern times; a mere return to mean will be a shock. Perhaps the best way to measure delinquencies will be changes in mortgage underwriting standards, as I expect that Fannie and the credit derivative market behind all the modern bad ideas (sub-prime and 100 percent adjustables) will be very quick to back away at signs of real trouble.”
Some foreclosure news from three states. “More Bay State homeowners are behind in their mortgages than at any point since 2003, while loan-foreclosure rates remain at an eight-year high. MBA Chief Economist Doug Duncan said borrower woes include.. greater use of risky adjustable-rate and interest-only loans.”
“Indiana led the nation with the highest rate of mortgage foreclosures for the final three months of 2005, according to the MBA. Nearly 1 percent of all Indiana mortgages tipped into foreclosure for the quarter.”
In Texas. “Foreclosures are up more than 5 percent for 2006. There have been 3,825 homes posted so far this year. Foreclosures have grown dramatically in recent years, propelled by..people overextending their credit. The average number of monthly foreclosures in Tarrant County has steadily risen in recent years. 2000: 365, 2001: 448, 2002: 559, 2003: 728, 2004: 826, 2005: 866.”
“You can call it another sign of the real estate market coming back to earth: Refinancing is slowing down as well. In Modesto and nationwide, mortgage companies are reporting a downturn in refinancing. The drop in refinancing is being felt by area remodeling contractors, who report less business than a year ago.”
“Melinda Williams, office manager in Turlock, said her company’s business is about half of what it was in March 2005. ‘Usually, when real estate slows down, we do well because people decide to remodel rather than buy a house,’ she said. ‘But it seems with the latest trend that we’re with everyone else at a standstill.’”
“(Mortgage broker) Robert Ivan said with too many brokerages and too little business, it will take a shakeout to bring balance back to the industry. The other is the perceptions of homeowners. When they hear about a softening housing market, they pull back on their plans, and the market softens, he said.”
“‘There’s a lot of negative press out there on where housing is going,’ he said. ‘And there’s definitely something to that in how homeowners react.’”
“After a few years of real estate boom, which spread dramatically higher prices to many (though not all) parts of the U.S., the market has recently seemed to change course. That made us wonder: What would it take to make things really go off the rails?”
“Robert Shiller believes that the biggest potential market shifter is far less tangible than a tsunami, interest rate spike or other newsworthy event. ‘I think that most likely what would cause a big drop in real estate would be a change in public thinking,’ he says.”
Another great week of building consensus. My thanks to you for supporting this blog. Please check back this weekend for news, your topics and market observations!
My friend is a mortgage broker and I see parked outside his offices are Hummers, Mercedes, BMW’s, Land Rovers, Lincoln Navigators, Escalades.. you name it.
I wonder when I will start seeing for sale signs on these bad boys.
About a year and a half ago, a large mortgage broker moved into my office building and there was suddenly limited parking in the building’s parking structure. I have been parking on the roof ever since and my daily elevator rides were like visits to a crowded frat house.
About a month ago, I noticed fewer cars in the parking structure. At first I thought it was due to some religious or government holiday of which I was not aware. But the trend has continued. I can now park in the shade, and my elevator seldom stops on their floor.
They went quietly, without a peep from the local media.
This brings to mind the consternation over rising rents in San Fran circa 2000 — artists and small firms were finding themselves homeless because the dot com mania gobbled up all the commercial RE at high rents. Then, suddenly, a great silence veiled the corporate RE landscape…
From today’s Washington Times:
“The biggest challenge in pricing the home is a seller’s level of greed. Sorry to be so blunt, but sellers always want more, regardless of the market condition.
My advice is to get over it. Waiting around for the “right” buyer is just plain foolishness. If you’re putting your home on the market, don’t waste your time, the buyers’ time and the agents’ time with an unrealistic asking price.
If your agent provides feedback from colleagues that your house is overpriced, move from denial into acceptance and price the house right. Remember, the goal here is not to price the property as high as possible, but to sell the house. ”
http://www.washingtontimes.com/fhg/20060315-084909-3839r.htm
Reading this, I can’t help but be reminded of what some bloggers have said on this site before, that is that real estate agents will eventually encourage sellers to lower their asking price in order to achieve a sale. No sale = no commission. Especially since the Washington Times also reported today that in many regions of the D.C. metro area the chance of sale is so low that they have officially transitioned to buyers’ markets:
http://www.washingtontimes.com/fhg/20060315-084907-5076r.htm
Spare us the morality lecture. Sellers always want to get what the market will bear; the problem is that they are clueless of what that amount is given the softening of demand, and unwilling to adjust their price downwards to find out…
That would be a good topic . How does the seller adjust to the right market price if he cant use the last 3 to 6 months in comps . since the market has changed ?
No mystery there,
Look at the other homes for currently for sale and price yours bellow all homes similiar to yours.
Hah,
Avoid the home cable show bullshit about how much your improvements are worth. Just assume that the lowest price on the market close to your homes size is nicer than yours and set your price bellow it.
In this kind of market if you don’t price your home to be the next to sell you shouldn’t even bother putting a sign in the yard. It is just a big waste of everyones time and energy.
I tell all my client this now, some are shocked. “No I will not list your home. Go find someone else, when you fail and want to take my advice I will be glad to sell your home. This is not the time to test the market. Do you want to sell your home or not?”
I learned in the last bad market in the early to mid 90’s that listing not priced to be the next to sell are crap. Frickin albatrosses around your neck. Listings would sit for YEARS while the sellers were lowering their prices a few grand at a time. I won’t touch a listing now if my sellers are not willing to match the least expensive comparable property. Doing anything else now will be the kiss of death. Not quick death, kinda like hari-kari gut cut death.
Housing Wizard,
We have had this discussion a few times over the past year, but perhaps before you were a regular. The basic fool-proof strategy for selling in a declining market is referred to as a Dutch auction — start at a higher price than any buyer is willing to pay, and gradually reduce the price until a buyer shows up. For individuals who can afford to sell (not underwater) or really need to sell (way underwater and getting in deeper due to negative cash flow), this seems like the way to go…
A question for the economic historians in the (virtual) room: Was the Dutch auction invented to unload tulip bulbs which otherwise would not sell?
GetStucco,
The Dutch Auction was invented not for the tulip bulbs, but rather for cut flowers:
bulbs last forever (so buyers and sellers can negotiate at length,) but cut flowers are very time sensitive (they are already dying.) So, a Dutch auction means everything gets sold, and sold quickly.
nobody wants to be the first shmoe to bring down the prices in the whole neighborhood. I heard recently about a homedebtor neighborhood watch meeting that turned into neighbor bashing by the folks who had their houses up for sale and were angry at a homedebtor who reduced his price to less than what the neighborhood folks thought was desirable for their neighborhood.
You know what? If I had my house for sale and wanted to get it sold, I’d price it where I thought it would sell and wouldn’t give a rat’s ass if the neighbors liked it. If they don’t like the price, they can buy the house at what they think it’s “worth.” What, no takerrs for that one? Then shaddup!
What are the CA neighbors going to do — come out to Lake Havasu City to throw eggs at the window of your new digs?
You falsified the quotation. Why? You don’t put quotation marks around a fake quotation.
This statement was in reference to this previous one:
“The biggest challenge in pricing the home is a seller’s level of greed. Sorry to be so blunt, but sellers always want more, regardless of the market condition.
I don’t know why the message was relocated.
having been in the business for 25 years now, there has never, ever been an easier time to make money in the business than over the past three years. along with unprecedented demand from the refi business in 2003, we added a subprime market the likes of which we have never seen. i can’t imagine that the industry as whole needs to less than half of its capacity going forward, which will do a doozy on the unemployment numbers. most of the younger loan officers that got involved over the past three years (about 200,000 or so) will not have a clue how to make a living in a market that requires down payments, credit, jobs or equity.
what affect has the internet had on your business and what do you see going forward ? Seems to me that a software package could take care of most loans much like the travel sites do.
the internet has educated the borrowing public about their options, made it much more competitive. my belief is that the average prime borrower (job, income, credit, silly stuff) will be able to log on to fannie mae directly, input their social security number and get an approval in seconds. a title company will handle the transaction for a set fee. subprime will be toast. we are busily preparing web-based services to assist distressed borrowers (and lenders); that’s when we’re not being bombarded by calls from wholesale reps and lead generating companies.
boulderbo –
I wonder what you think about the risk of a regulatory crackdown causing collateral damage after the coming meltdown in subprime has played out? From the standpoint of an interested outsider, it appears that the era of “low-doc” or “no-doc” may lead to a legislative backlash, which inappropriately blames efforts to streamline the approval process with a complete abandonment of traditional underwriting standards. Bumbling legislators are likely to try to fix the problem by getting us closer to the olden days, which required hours of paper-signing to get a deal done …
Thanks for your insights.
GS
first the backlash, which will tighten standards, then the lawsuits, as these people were taken advantage of by those horrible lenders. all of that no-doc and low-doc paper is securitized and insured. what’s not insured is any material misrepresentation (aren’t these liar loans, heh, heh), so when these loans default ameriquest, novastar, etc. will collapse like a house of cards.
how does all this tie in with PMI’s?
When I was in the loan business ,in the cave man days , the loan packages were 3 to 4 inches thick . You had to verify everything , sometimes twice . Underwriters today couldn’t determine the different between a high risk and a low risk loan I bet .The loose underwriting standards of the last 5 years is the part that worries me the most as things come unglued because there has always been a better cushion in prior busts .
we understand!. having seen ditech ads all these days!
RE…Subprime market-Do you mortgage finance desk jockeys ever go out to see the POS garbage you lend on?
Sure like to know what the collateral numbers on the books look like with all the wholesalers…
Most dog excrement filled, bust-outs aren’t even worth the site value because of the cost of demolition and gettin’ rid of all the asbestos and other toxic building materials.
Gonna be a good run on the PMI insurance crowd.
I have looked at every property I have financed whether for 5mm or 15K as have most A+ rated lenders. I like my A+ rating, I get better rates than run of the mill LO’s, which means I make more money and my borrowers get better rates. I would not be A+ if I did not verify the property.
Cherry picking seems to be the way to go in a market where subprime is doomed for near-term bust…
OT:
There is a new post up at there is no housing bubble.
http://thereisnohousingbubble.blogspot.com/
It is worth a read, just don’t drink anything that would shoot out your nose while reading.
Try to keep the comments in the same spirit as the blog writer.
Charles should be a national hero!
Charles who?
Charles Ponzi!
Hmmm, the all this “bubble” talk must be really slowing business.
“I be a realuhtor in san jose. I sell milliun dolor homes to janiters waitors and morgage brokers. I urn my 6% comision. I maid 1 milliun dolors last yeer selling homes. I urn my money. Tell people the trooth about homes allways going up in price. Its a fact. I no. I’m a realuhtor.”
Too late…and now I can’t get the Sprite out of my nose…
Oh my _____
Oh my gawd!!! What a story that was. He is good with his words. He should be a politician.
Oh man that is a great site! Sorry if it’s TMI, but I sat down at my girlfriends teak desk to have a look at Ben’s “clean-up,” with a Michelob Light (being Friday, ahem.) Well, it went through my nose! So I have to clean up the mess - but it is worth it. Cheers!
Sunset beach guy- The Web site is hilarious! thx
You can be like a kid in a candy story and cherry pick the finest homes made by the skilled artisans of Mexico that this nation has to offer and get them while they are still at ground floor prices. Believe me when I say you won’t see prices like this in 5 years. You’ll get down on your knees and beg to buy a home at these prices.
LMAO
As far as I’m concerned, Buck is brilliant! I can’t stop smiling.
So according to “there is no housing bubble” we should expect our home values to appreciate 10% to 20% a year forever. How does this happen when our real earnings only increase at a few percent a year ? Hmmm….
Oh come on…it’s a joke! The whole site is a joke, get it? Jeez, lighten up….
I tried to insinuate that the site is a joke site with Charles Ponzi and projectile nose fluids but I will have to be more direct.
No, please, no more nose fluids!
Didn’t you get the memo on pan?
read the comments of that other blog.
PAN is perpetual appreciation number. (tongue in cheek)
I worry that there may be few people– who never get the satire and few others who may believe it and buy some more real estate.
They get to learn the meaning of the phrase “a fool and his money are easily parted.”
I’m curious. Is it 100% sure it is a joke? I never saw anything on there that proves it is a joke. You’d think he’d break character at some point.
He better get a disclaimer up fast .
The best jokes come with no disclaimer. I remember a couple of months ago when Patrick (of Bay Area Housing Crash fame) ran a thread regarding his change of mind about the housing bubble. I noticed a number of other regulars on this blog who joined me in posting “capitulation” remarks explaining how we now realized the bubble was a myth. Next came the angry rebuttals from those who missed the joke…
And then there are the jokes by those who do not even realize they are joking (Liareah, etc.)
Damn– I thought you meant:
Pan is a god of creativity, music, poetry, sensuality and sexuality, or panic and nightmares, who haunts forests, caverns, mountains, brooks and streams.
and usually depicted in ancient artwork wielding an enormous ___________
“Perhaps the best way to measure delinquencies will be changes in mortgage underwriting standards, as I expect that Fannie and the credit derivative market behind all the modern bad ideas (sub-prime and 100 percent adjustables) will be very quick to back away at signs of real trouble.”
The same question as usual comes to mind: Who is left without a chair when the music stops?
“Robert Shiller believes that the biggest potential market shifter is far less tangible than a tsunami, interest rate spike or other newsworthy event. ‘I think that most likely what would cause a big drop in real estate would be a change in public thinking,’ he says.”
I think Robert Shiller gives Ben Jones too little credit for his role in bringing about this change in public thinking
yeah…he should mention him by name! seriously…this site has really been soo educational for me since discovering it, and so useful as a shield to hold up against the madness…the constant message, flying in the face of all reason but claiming you are nuts to resist (like that crap article on toddler-tending house flippers in BayArea, “you can’t afford not to buy; you’ll go broke”), from the RE-frenzy-machine.
Thanks Ben and contributors here!
But I guess that’s what Shiller is refering to anyway…the change in public thinking, part of which may well be coming from this sort of activity..
cheers!
Read about Real Estate Weekly — March 17.
“Check out the latest column by MarketWatch’s chief economist, Irwin Kellner, in which he explains what goes into “national average home prices,” and why those numbers may not reflect the true picture of today’s market.
Plus, read our stories on the latest housing-market data, including higher mortgage delinquencies and slowing housing starts, plus find out why the financial markets are convinced the Fed will stop raising rates sooner rather than later.”
OT but important…
http://blogs.ocregister.com/lansner/archives/2006/03/insider_qa_the_dataquick_dude_1.html#more
Jon Lansner interviewed John Karevoll from Dataquick, and asked him the Inventory question…
Pretty cool of Mr. Lansner, in my opinion. He’s really showing some balance now.
See what you all think of Karevoll’s reply…
Here are my comments from over there.
Man most blog posters aren’t very articulate on the OCR blogs.
“It is very ironic that MLS data is pretty much unusable.
How can NAR/CAR be trusted if an ostensibly independent scorekeeper cannot use its data due to low quality?
Doesn’t that point to a market opportunity for DQ news to expand its reliable third party scorekeeper business.
Another poster has mentioned that most RE reporting is a significant lagging indicator.
Forward looking analysis vs backward looking analysis is the reason for the apparent big gulf between the RE industrial complex and bloggers.”
Here is another poster’s reasoning why RE industrial complex forecasts are so accurate (lagging indicators).
Jon,
Gary Watts and other real estate analysts probably won’t be too wrong in their so-called “forecasts.” Their forecasts are usually structured with much of the appreciation (or depreciation) they are predicting already built into the market.
For example, a prediction of 8% price growth for 2006 may actually be a prediction of only 2% price growth if we were to start with the December 2005 median price of $621k.
I posted my thoughts on real estate forecasts in the comments to yesterday’s “O.C. runs with So Cal pack” blog entry.
Sunset…
I posted a comment over there, too.
It seems to me that the Inventory issue is simply a matter of ‘push’.
If we push hard enough, Dataquick will simply have to track Inventory.
Karevoll’s answer, in my opinion, was not satisfactory.
Maybe no one’s ever taken them to task for leaving it out?
My guess is that they’re discussing it right now, over there at Dataquick.
I bet we’ll see Inventory reported on Dataquick sometime soon- with a chart. It’s too far of an important number to just dismiss as ‘unreliable’.
Somewhere in Dataquick-land, a meeting is being held.
If not today, then tomorrow morning.
Your tenacious comments have made a difference in OCR land.
John Karevoll’s comments on inventory is a valid one. one example is Riverside vs. San Bernardino counties. Both have similar population, type of population, same economic base, same status as commuter counties. Thus, they really should have very similar inventory numbers. But Riverside, since I first started tracking in 9/05, started with 12,000 homes and has increased to close to 20,000. San Bernardino, during the same time period increased from 8,000 homes to roughly 12,000. It appears San Bernardino inventory is significantly undercounted due to local real estate practices that allow for exclusivity and prevent the likes of ziprealty from obtainly ALL listings.
because of above, I selectively track Riverside county and leave out San Bernardino county because I deem SB numbers to be unreliable, I can do that on my blog, but DataQuick can not.
Bubble Market Inventory Tracking
Another interesting market is Bakersfield. ziprealty doesn’t even cover Bakersfield. Why? Because they don’t even have MLS. They have a “BLS”, as in Bakersfield Listing Service. Very difficult for national data companies like DataQuick to put these numbers out there when they can’t varify the correctness of these info. Afterall, do I really trust the “BLS?” If I don’t even trust the MLS that much, what make us think the BLS will be a true reflection of inventory data?
The BLS and the MLS factions have recently kissed and made up so the data is (more) reliable. As in every MLS operation I am familiar with, HOWEVER, the DOM, days on the market ,numbers are suspect. Does anyone know what is going on with the Glendale MLS lawsuit over erroneous DOM data???
A guess: Relisting starts thd DOM number all over again. A home which has been on the market for 1 year and relisted 11 times has an average DOM of 30 days.
Sunset…thanks. I’m a bulldog when it comes to the truth. You’re making an impact, too, ya know. Here’s to our big, fat mouths!
OCRenter…
Maybe you should talk to John Karevoll?
Could you solve his problem?
I mean, you two could come up with a between this and that number, couldn’t you?
All we need Inventory numbers for is to spot the trend, as it’s happening.
It doesn’t have to be a perfect number.
Just enough of a number to see where things are going.
Maybe Dataquick could use you as a source, and trade you the exposure for using the info? Your hits sure would go up if the Register used you, wouldn’t they?
If that’s what you do- inventory tracking- maybe Mr. Karevoll would be interested in talking to you?
Do I get a cut- 10%- if I broker an arrangement?
Just kidding.
I just want to get this stupid problem solved.
Yes, it may be difficult, but we don’t need EXACT numbers.
Kinda like television ratings. Just enough to spot the trend…
Ocrenter…
I just went to your site.
Nice job! You rock!
Dataquick should just use you!
I’m impressed!
“I doubt very much I will sell this house by June. In that case, I will get a tenant in there. I am also looking at adding a lease-option. This is most definitely not working out like I had planned. It appears szabo brought a lot of his investors to Star Valley and we all had the same idea-flipping. Ain’t happenin’ folks. Very disappointed in this.”
sorry, i couldn’t resist………
“and we all had the same idea-flipping. Ain’t happenin’ folks. Very disappointed in this.”
somebody stop me!
What I would like to see is all of these numbers in perspective, longer than the last five years. I think its hard to put things in the right context looking at changes over the past few months.
Anyone have a site they can point me to for data goign back 10 or 20 years?
Simmssays…AmericanInventorSpot.com
http://www.ofheo.gov/HPIMSA.asp
Office of Federal Housing Enterprise Oversight
Goes back to the mid 70’s or so…
I was just checking out Data Quick’s report re: California Jan. home sales, at the end they wrap it up:
“Market stress indicators are still very low: Down payments are stable, speculation buying is moderate, there are no significant shifts in market mix and default rates are rising, but still low. Earlier increases in non owner-occupied purchase activity and flipping activity have leveled off.”
I had to laugh, “down payments are stable” - well thats easy when $-0- has become common. And, speculative buying is now only moderate. Oh, and default rates are rising, but nothing to be concerned about.
I think the realtor will use the same line even if he’s the last one left in California. Everything is great no matter what? How come my coworkers in Ventura and SB just can’t unload their homes? I guess he can find good words for Great Depression too?
From the vanguard.com site, opinion of two investors/senior vice presidents of Wellington Management. They don’t think that losses in real estate will be wide spread.
Housing: Could the rafters collapse?
As housing prices rise to the rafters, some experts foresee a collapse akin to the dot-com stocks in 2000. Others see no reason for alarm—isolated areas of overbuilding, perhaps, but not enough to trigger a national recession in housing prices.
Paul Kaplan and Thomas Pappas, senior vice presidents and partners at Wellington Management Company, LLP, recently offered their insights. The pair has advised Vanguard® GNMA Fund since 1994. The fund invests at least 80% of its assets in Government National Mortgage Association (GNMA) certificates, which are fixed income securities representing part ownership in a pool of mortgage loans supported by the full faith and credit of the U.S. government.
(Note: A portfolio manager’s opinions about a given investment or securities market are subject to change.)
Do you see a collapse of housing prices on the horizon? Are we in the midst of a housing bubble?
Mr. Kaplan: There’s a lot of dire talk about what’s going to happen when the real estate bubble pops. There’s a lot of hysteria. If you buy five condos “on spec” in Las Vegas, you will get hurt. If you bought one that you plan to live in, you’ll be fine. You shouldn’t care too much if the value of your house goes down 5% in one year if your income is solid enough to cover fixed mortgage payments.
There could very easily be areas where there are problems, areas where we’ve seen the biggest participation by investors—for example, parts of southern California, Florida, and Arizona. My guess is that some people will lose money. But that’s different from saying there will be a widespread price decline. That didn’t happen during the recession of 1990, and I don’t see it happening now.
A big decline could occur if we see a high unemployment rate, but that doesn’t feel like it will happen any time soon. When Texas had issues in the late ’80s, there was high unemployment and low starting equity in houses. Housing prices fell, eventually causing negative equity. In that environment, you get unemployed people mailing in their keys and defaulting on mortgages. That didn’t mark the end of the housing market then, just as regional problems won’t do so today.
Mr. Pappas: Turnover is slowing down. You might not want to be a Realtor in this environment. Mortgage prepayments that result from housing turnover are likely to diminish.
Mr. Kaplan: Yes, and housing prices are not going up as quickly. In some areas, they will flatten or decline slightly. But I don’t get a sense of panic in the air. Most people buy a home and stay in it.
Mr. Pappas: I agree. If people can afford their fixed-rate mortgage payment, they’ll stay in their house. If the payment is higher because of an adjustable rate, maybe homeowners have to tone down spending elsewhere. But there’s still a growing population with the dream of owning their own home.
Some observers feel the prevalence of creative financing vehicles, designed to help people buy very expensive homes, could exacerbate a housing decline. What do you think?
Mr. Kaplan: There probably has been too much subprime lending, and some of that will unravel. The housing market is huge, however, and this segment of the market is not big enough to cause an overall decline in housing prices.
Mr. Pappas: The risk is not in the agency bond market. Traditional GNMAs are fixed-rate, government-backed, and triple-A rated, so they don’t include the risks of subprime loans or adjustable mortgages. Our mortgages tend to be held by the homeowner, who isn’t acutely affected when housing prices stop increasing. The loans that are in the greatest danger of defaulting have low investment-grade or lower ratings and are widely held by hedge funds, real estate investment trusts (REITs), pension funds, and other institutional investors. If default rates go up, the risk is widely spread and is unlikely to produce a major ripple effect on the broader economy.
Could rising interest rates—and the many adjustable rate mortgages (ARMs) tied to them—prick a housing bubble?
Mr. Kaplan: I don’t think rates will go up that much. If short-term rates go to 12% or 14%, then that’s a different issue, but I don’t see that happening. Moreover, of the $700 billion in new loans over the past 12 months, only 40% were ARMs; the rest were fixed-rate loans. There are well-developed housing markets in the world that depend on ARMs for almost all of their mortgages. Yet, as rates have risen in these countries, there has been no collapse in prices or in the economy. The United Kingdom is one example.
How will the economy be affected if people are no longer able to pull cash out of their homes through refinancing?
Mr. Pappas: As rates have gone up, homeowners increasingly lose the ability to refinance and cash out some of their equity. Refinancing slowed down some time ago, but I don’t see that alone leading to a recession—maybe a decline in consumer spending, but not a recession.
Mr. Kaplan: After the equity market peaked in 2000, there was a perfect storm that sent real estate prices upward. Interest rates were low, stocks were down 20%, and people began investing more money in real estate. Those conditions were temporary. Housing prices won’t continue going up as they have in recent years, so people will be disabused of the notion that they can use their houses as automated teller machines. The result will be a negative effect on consumption, which is not the same as a real estate collapse. Residential real estate is not about investing; it’s about having a place to live, so it is more resilient to downturns than the stock market.
What is your outlook for interest rates and the yield curve, and how will investments related to them (GNMAs, REITs) fare under this outlook?
Mr. Pappas: The current low level and flat nature of the yield curve reflect a benign inflation and growth environment, one which seems reasonable enough to continue for several months. Therefore, we are not taking a large duration position and we expect rates to stay around these levels, and though some additional Federal Reserve rate hikes are likely, they are built into this interest rate structure.
In this fairly boring environment, mortgages should do reasonably well and generate a higher level of income than Treasuries, without too much risk attached. Though mortgage investors typically fear prepayment risk, we are more wary of a rate rise exacerbating a drop in housing turnover, which could cause mortgage prices to decline a bit more rapidly than usual. But longer-term bond funds and leveraged interest rate plays, like some mortgage REITs, would suffer even more. The GNMA government backing does eliminate the credit risk coming from a weak housing sector, though we believe any housing declines will be muted on a national aggregate basis.
This was posted at indexcalls.com today:
“And then direct your attention to a recent Mish post:
QUOTE
Houston, We have a problem
It seems Centex has over 140 Houston homes with “quick move in” availability. Nearly all of them are available “immediately”.
Austin, We have a problem
It seems Centex has over 100 Austin homes with “quick move in” availability. Nearly all of them are available “immediately”.
Dallas, We have a problem
It seems Centex has over 200 Dallas / Fort Worth with “quick move in” availability. Most of these will be available within the next couple months.
Killeen, We have a problem
It seems Centex has over 65 Killeen homes with “quick move in” availability. Most of these will be available within the next couple months.
San Antonio, We have a problem
It seems Centex has over 190 San Antonio homes with “quick move in” availability. Most of these will be available this summer but there is an ample selection now and over the next couple of months as well.
Hmmm. Let’s see that’s about 700 Texas homes Cextex needs to get rid of in the face of declining sales and rising inventories. Bear in mind that is just Texas….”
Good observation Dawnal. They will just keep coming.
Count the number of ifs in that “report”.
A ton of weasel words. They didn’t say anything with authority. Most money managers comments are probably misdirection anyway.
This (Irwin Kellner of Marketwatch.com. ) is a day or so old, and may have been posted here previously. Apologies if it’s redundant. He gives an interesting explanation of why the median house price is rising in some areas and questions the validity of the report.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BA4434D59%2D303E%2D4D85%2DBB20%2D334256808B1C%7D
Found on http://www.housebubble.com/newspage.pl
Did anyone see Brian Williams interview Cramer on prime time news tonight? Cramer basically said the housing bubble is over and they’re putting the money in the stock market and the bull should continue all year. Now I know Cramer is full of it but this is a huge shift in market psychology. RE bulls have to sell alot of bull to keep this game going. I’m sure a many of wanna be RE investors are stumped as to why their properties are sitting cold with no offers. Well you’re late to the party newbie. All I know is I’ve had a good year on the street and am enjoying every red flag in RE sound off that prices are going down down down. As a side note I heard their are 90,000 RE agents in Phoenix now. In my zip code there are 576 listings with 380 of them being reduced. However prices are not even close to making any sense.
You’ve made some great points Cactus Cody!
Jim Cramer’s (CNBC MAD MONEY) take on the RE bubble will effectively start changing the views of millions of investor wannabees. Once he starts touting selling real estate- watch those inventories rise! I like Cramer for his entertainment value and his success “story”. I know people who know him personally and he is evidently a super nice guy…he of course could probably care less what other people think which is another reason I respect him.
Mr. Cramer reads this blog, too.
He, like many others, come here to understand where things are going, rather than where they’ve been.
Most people are still caught up in where it’s been. Real estate, that is.
The guys from Wellington Management had some good things to say up in that earlier post. I think we differ on the severity of the decline because of one Gary Wattsish school of thought.
Gary Watts says it’s all about the jobs.
I say, “Okay- but what if all the jobs are in Real Estate? What then?”
Kinda blows a shotgun blast through the theory of both the Wellington guys and Mr. Watts.
Apparently, no one ever bothers to ask any of them-
“What kind of jobs do you mean?”
If it’s all about real estate, and real estate goes into a decline…
…are people going to go back to their auto manufacturing jobs?
…how about their computer programming jobs?
…no? what about their design jobs?
…Hmm…well then…
Maybe we should all rethink the ‘jobs’ theory.
Especially in Southern California.
Side note:
Did you guys see ‘Mad Cramer’ on Prime Time news tonight mention that ‘money from housing is being put into the stock market’. That is a big deal. That is all that he said…He made sure that that was the point of his little sound byte…
Again I know that guy is nothing special BUT at least more evidence for the pendulum swinging the other way….
Yes I am an IDIOT> I didnt read of the previous posts…SORRY!
OMG. I don’t have enough time to respond to that. I just have to laugh.
Coming soon to a market near you - a correction that will wipe out all of the gains this year and part of last, which hopefully will then produce a buyable and holdable bottom. It ain’t here and now.
LA Times Today (Saturday):
“Housing Speculators Relocate to Hotter Spots”
“Some who scored with L.A.-area property take their profits to Las Vegas and Arizona. Their flight may soften the local market’s landing.”
http://tinyurl.com/hueyq
“Justin Lane is seeing the consequences of other speculators’ efforts in Arizona.
After watching prices double in the 16 months since he moved into the newly built Queen Creek neighborhood east of Phoenix, Lane says he can’t afford to sit on the sidelines. So he listed his five-bedroom house for sale in November.
Six other neighbors had the same idea, including one absentee owner who priced his house about 10% below the rest. That forced Lane to reduce his asking price from $362,000 to $343,000, still well above the $165,000 he paid.
“The investors are pushing down prices,” he complained.”
…
“For the nine months ended in September, investors snapped up 11,000 homes in the Phoenix area, according to mortgage data collected by LoanPerformance, a division of First American Corp. That was the largest number of investor sales for any U.S. region and a 14% increase over all of 2004.”