Now The Slide Has Become Reality
It’s desk clearing time for this blogger. “As Miami’s unofficial prophet of doom during a condo bubble that is no longer in dispute, I wrote column after column counseling caution rather than unbridled euphoria. Now the slide has become reality, Miami’s condo-construction wave is about to end, and completed units will soon hit the closing table. I’m no longer in the minority talking bubbles — but on the plus side, I’m also not alone in seeing value in the bubble.”
“More than two years ago, when Florida International University sponsored a panel on downtown housing’s spurt, then-City Commissioner Johnny Winton was asked whether a bust would follow. He had advice for developers: ‘Build ‘em. If they fail, we’re going to end up with affordable housing.’”
“Two years to go until Florida’s housing construction returns to 2001 levels, the eve of the state’s most recent housing boom. So says Sean Snaith, University of Central Florida’s Institute for Economic Competitiveness director.”
“Snaith, you see, is generally critical of those use the word ‘bubble’ regarding Florida’s housing market and, more specifically, those who say it has or is on the verge of bursting.”
“‘It is well know that they have egos larger than an NFL player’s rap sheet,’ Snaith tosses barbs in his study at those professional and amateur forecasters who make dire predictions about housing.”
“In writing about the housing market in the past, I’ve tried to be relatively balanced. Yes, I’ve aired my concerns, but I’ve generally tempered them in various ways. Maybe I pulled too many punches.”
“It became obvious that rental prices were not rising in proportion to sale prices or appraised values. On my block, a house consisting of three rental units sold last year for $380,000. Granted, it’s in better shape than it was in 2000, when it sold for $108,000. But not that much better shape.”
“More significantly, the three units will probably at best generate about $2,500 a month in rental income for the foreseeable future. Right now, however, the total income is considerably less, especially considering that one of the three units is vacant. So how is that house a good investment? The numbers just don’t add up.”
“About 150 real estate agents and brokers camped out, some for more than 24 hours, for the chance to buy units at a much-hyped waterfront condo in a waiting game some called ’survival of the fittest.’”
“The camp-out, an increasingly common sight at some well marketed condo projects, is a sign that Toronto’s real estate market is not slowing down even as the housing recession deepens in the U.S.”
“Some analysts have been warning that over the past year or so the market has seen an influx of investor. One big risk is that a downturn in the market can cause investors to panic and start dumping their units, causing a price drop. ‘Investors are out in force, sowing their own future disappointment’ said Toronto analyst Will Dunning.”
“Again and again in these past few months, financial markets have appeared to be on the verge of something very scary. During each of these episodes, the financial pages filled with fret: Would this be the moment when markets turned south, when credit dried up, when hedge-fund managers and private-equity partners started applying for work at Wal-Mart?”
“Something with far more impact on most Americans’ lives than a stock-market correction has already happened. That something is the close of a remarkable era of easy money. If you are stuck with an ARM that’s about to reset or have been relying on home-equity loans to make ends meet, you may be in trouble.”
“D.R. Horton executives had braced for a poor spring, normally the best time of year to sell houses, but the results in the April-June quarter were even weaker than expected.”
“‘It is now clear that the selling season did not materialize this year,’ said Horton’s CEO, Donald J. Tomnitz, adding that it was unclear when a housing recovery would begin. ‘We don’t see one on the horizon.’”
“One impact of the continuing housing slump is that people find themselves owning homes they can’t really afford. But how do you know before you buy?”
“Newlyweds Sean and Susan McDonald are shopping for their first house. (They) were surprised at how much a bank was willing to lend them. ‘Then Sean did some number-crunching and realized we can’t afford a monthly payment like that,’ says Susan.”
“‘About one-third of your income devoted to all your housing costs is a very good rule of thumb,’ economist Mark Zandi says. The good news is that Zandi predicts prices will continue to fall until housing becomes more affordable for first-time buyers like the McDonalds.”
“Century 21 Real Estate’s CEO Thomas Kunz may have unintentionally hit the nail on the head when he declared that a ‘pity party’ is gripping the housing industry right now.”
“As this punishing, steep decline has taken hold, everyone from home builder CEOs to real-estate agents to mortgage lenders can’t get over the turn of events. At an auction of townhouses near Fort Myers, Fla., last month, homeowners who had bought into a development built by Levitt and Sons for $300,000 watched as neighboring properties sold for $145,000.”
“‘They promised us that they were not going to go below the market value,’ said one of the homeowners, in a newscast . ‘This is not fair,’ said another.”
“Century 21’s Kunz is fed up with that feel-bad-for-me camp. He hears that kind of talk every day, from buyers, sellers, agents, managers, brokers and more who are angry and confused by how things have turned out.”
“What I am seeing out there is a pity party for everyone involved in real-estate transactions,’ Kunz said.”
“In the end, though, he and everyone else in housing industry must fess up that they are reaping what they sowed. That’s little solace for home owners under water or facing foreclosures. But that’s the way markets work.”
“There is hope! Earlier this week, The Times’ front page screamed, ‘Foreclosures in state hit record high.’ Indeed, Los Angeles County’s foreclosures in the second quarter this year topped out at a whopping 2,581, up more than 700% from that same period last year. Inland Empire counties had it much worse.”
“So why the upbeat interpretation of such a sad story? With potential buyers having a few choices, home prices stand to fall (albeit modestly) to levels that aren’t insane.”
“Painful as it is, the only way that can happen is for the housing market to correct itself and reverse part of the bubble, and that means more foreclosures.”
“For now my wife and I will just have to drive past those desperate for-sale signs that scream, ‘Price reduced!’ In the meantime, we’ll ponder how aggressively we’d like to renegotiate our rent.”
Wow, what a huge week for building housing bubble consensus! My thanks to those who support this blog. Please check back this weekend for news, your market observations and topics.
It seems we’re past the consensus. Now the consequences are approaching fast, and everyone knows.
From the CNN homepage:
“The Dow Jones industrial average plummeted more than 200 points Friday, dragged down by higher oil prices, tighter credit and more troubling news from the housing sector. At least one analysts says there’s no need to panic: “This is one of those cases where fear is worse than reality.” “
When scores of market “analysts” insist on telling small investors “don’t panic,” it’s time to panic IMHO.
They’re trying to keep the party going with Other People’s Money, and if J6P bails or moves into cash, the party’s over. I moved into all cash two weeks ago, and boy do I sleep soundly.
– Judge Smales
“You’ll get nothing and like it”
Until a few minutes ago MSNBC homepage had the title ” MARKET SLIDE” and in small title ” no time for panic ” or some such drivel.
Notice the words chosen: ” Slide ” as in it’s a just a harmless slide, not a bad drop, or fall, no noooo , all is well , all is well, just a small harmless sliiiddddde … like in a playground.
Tomorrow = all better now. Everything A-OK.
God, the BS SPIN from the media is just incredible !!!
CNBC has to be careful. They could probably bring about the fall of Western Civilization by concentrating on the negative.
Not to mention that it’s a large crowd and a small exit, and they want to be the first out.
I moved into cash back in early February. I plan to stay that way until this housing/credit bubble correction plays out. If anybody fires up the printing presses, then I am going to jump into Gold.
Man is it ever hard to get diversification in the U.S. stock market any more. Large caps, small caps, mid caps show a coherence near 100%, as a glance at this chart indicates (headline indexes are basically mirror images of one another tick-by-tick). This suggests that the market is controlled by large movements of money in and out of the market as a whole, rather than any meaningful consideration of where value lies in different sectors…
http://www.marketwatch.com/tools/marketsummary/
You hit it on the head GS. I’ve observed this with some of my own holdings as well. I have several biotechs that will suffer 0 impact from nearly anything that is happening in the Housing /Credit / Retail markets and they all got whacked in the past two days…good thing I had those Jan 08 puts on CFC. Thanks Tangelo.
I am sorry to inform you, but at least 75% of all the companies in the US are at risk. (personally IMHO it is closer to 90%). Unless the company is being run debt free (5% of the US companies), then the credit market collapse is going to effect your company. Most of the companies will weather the storm, but a lot of companies rely on their stock price. The financing that goes along with the stock price is demand adjustable. Many of the loans are 3 yr callable financed at prime rates for subprime companies. 75% of the companies in the S & P 1000 are categorized as subprime.
The total world equity market is 51 Trillion dollars, but only 14 Trillion of that is US companies or 27% of the total. Not that long ago it was 50% of the total.
Hoz, do you think the financial collapse of the US (a la Soviet Union/Russia) might be underway?
based on crooksblog (which I suspect Hoz frequents)….
US metldown may already be baked in….
hey palmetto
good to see you back
Thanks, AQIUS. I really haven’t been away, just haven’t been posting as much due to a change in my schedule.
to Palmetto: In all honesty, I hope not. I believe that is less than 40% probability, probably closer to 20% (that is still higher than its resting 5%)
to Jungle Man: I do enjoy Jack’s writing - I did not know he had a blog site. What is the link?
Please remember my goal is to not make moneys, it is to not lose moneys! As opposed to TxChick (whom I admire), I try to set up positions that may take months to mature - I do not like to pay commissions.
I look for discrepancies in the market place. When I am wrong, I take my loss(es). When looking for a 7% return over 6 months and it doesn’t happen, I close it out. And should I receive the 7% return in one month instead of 6 months, I close it out. The markets are a math game.
Unfortunately for the US investors, it is nay to impossible to calculate what will happen at any given time. First, the world market is 3X the size of the US market, thus what some mope does in India affects the price of bonds and stocks in the US. Second, investment companies work as herds of cattle, as an investment adviser, it is safer to buy an IBM or Samsung than to buy Ford in March of 2003 at 6 3/4. The mentality of the Street is ‘keep your job at all cost’. I read the investment advisories from Goldman, Pimco, Merrill et al. I know some good individuals at those firms. I also know good people that quit those firms. Third, I look for ‘oddities’ in the market place and research it. An example that I posted on this blog for the last year is industrial metals, a year ago gold was 560/oz today 650/oz - a very nice investment; however Cobalt was $10/lb, today it is $28/lb. IMHO it is not likely to get cheaper. There are stand alone Cobalt mining companies listed and if one uses the Black/Scholes equations and treats these companies as “options”, it is relatively easy to get a fair price for any mining stock (including gold stock). Fourth, I plan my escape before I get involved in any company. I ask myself what is the worst that can happen? If I cannot see an easy way to get out, I will not buy (at this time, in the US markets, there are no easy ways out). Fifth, I never look back on a trade - There are more trades available than I or any one else can possibly do. If a trade reaches my objective - good bye - if the trade happens again - hello - But it is treated as a new trade.
and before any action I repeat
my mantra, which is:
The market will do,
what it can do
to cause the greatest amount of pain
to the most amount of people.
I do not violate that. If the herds are in XYZ stock, I will stay out of the stock as a “long” no matter what my risk/reward analysis shows.
Good stuff, Hoz.
Just when I thought I couldn’t get any more bearish I just recently learned of corporate America’s own “ARM reset” like problem you just mentioned.
I already knew that most company’s bonds were rated junk; I didn’t know that they’d all have to refinance inside of 3 years at nosebleed rates.
As if it isn’t going to be bad enough already.
Thanks Hoz.
Just starting to read and do research on trading and the stock market (great timing :)). I have no idea what you are talking about, but I have saved your post so I can refer back to it later.
For the this last week, I have tried to read every comment in every thread on this site. It takes some time and wish there was a way to sort by date/time instead of digging through older comments. But I must say that you consistently force me to open notepad and copy and paste your comments to read later in future. Thanks
“Tangelo” You’re killing me! Orange you glad you didn’t buy CFC?
Heeeeeeeeeeeeeeerrrrrrrrr’s Cramer!
http://video.msn.com/v/us/msnbc.htm?g=9f6ff665-0db6-4e47-94bd-f1ccffb42165&f=00&fg=
We will refer to him in the future as Voldemort (thanks to Adam Warner at http://www.adamsoptions.blogspot.com, a terrific site).
When you can’t sell what you want, sell what you can.
I remember reading how during 1987 they just sold everything regardless. they just started with the A’s and such.
GS
The worst part isn’t the rising correlations between sectors of the US stock market, it is the rising correlation between almost all asset classes globally. This suggests even more strongly that it is money flows that are driving it as you suggest. IMO, it is the money creation of the credit system that drove the global asset frenzy and the lack of same is causing the demise.
National stock markets have become highly correlated to one another and corporate bonds of all stripes have become more tightly correlated to stocks. Throw in international RE and commodities as well. Most disturbing is the very high correlations between US equity and precious metals, which suggests that gold is just as much overvalued due to credit inflation as stocks for now. Perhaps once the frenzy has come out of them, gold and silver can resume their safe-haven status - much like RE.
Totally expected. Shaking out the “weak hands” again, plus likely liquidation for those trying to meet margin calls. I wouldn’t be surprised to see further drops.
Even so, PMs themselves only dropped a fraction of the overall market (although the miners got slammed). Check out the charts — GLD & SLV just didn’t follow stocks off the cliff right before the ending bell.
GS
I think you’re absolutely right about why we’re seeing “all the same markets” behavior. But it goes even further than sectors and market cap groups moving together. Foreign stocks are highly correlated to US stocks and each other. Corporate bonds moving with stocks, which have risen along with global RE and commodities.
The scary ones are the high correlations of gold with stocks and junk bonds. This suggests that precious metals are just another asset class destination for the money manufactured by the credit bubble. It sounds strange but think about the way the same bubble has impacted residential RE.
RE is normally an excellent inflation hedge but otherwise not a great investment. Those terms both apply to gold but even more so. Given the wild run-up, RE is not going to function as a good inflation hedge for the foreseeable future - ie. until it returns to the trendline or maybe lower. Why should the same dynamic not apply to gold and silver in an environment of wild credit inflation and money supply expansion?
As that unwinds, I expect all those highly-correlated asset classes to take a similar beating. Once they’ve resumed their historical valuations, I think they will slip back into their historical roles - and non-correlations.
Deron - I couldn’t have said it better. I agree with you 100%.
As mentioned elsewhere, the high levels of leverage employed virtually guarantee correlated declines as the margin calls start coming in fast and furious.
When guys who make their living playing with Other People’s Money tell me not to panic, it’s time to panic IMHO. They don’t want J6P bailing or moving into cash.
I moved into cash two weeks ago and I sleep so soundly.
– Judge Smales
“You’ll get nothing and like it”
nothing warms my heart better than knowing I’ll read about the Trillion Dollar Survey in books about the 2007 Crash.
CNBC Trillion Dollar Snap Survey: Wall Street Still Bullish
By CNBC.com | 27 Jul 2007 | 06:16 PM ET
The top Wall Street strategists and money managers responding to our CNBC Trillion Dollar Snap Survey remain bullish after Thursday’s big decline in the stock market. Forty-six percent of those answering the survey said they see the drop as a buying opportunity with another 43 percent calling it the beginning of a correction in a long-term bull market. None of those answering the survey said it’s the beginning of a bear market.
http://www.cnbc.com/id/20001471
I almost laughed. is this start of a bear market? no, it’s the resumption of the 2000-20?? bear market that was just taking a couple year breather to watch the dead cat bounce.
survey says?
bear market.
Interesting because the financial guru that I saw said that the down day was due to those investors not wanting to get trapped by a reversal in the Carry trade that was not voluntary.
Oh, ok I won’t worry then.
Oh, ok I won’t worry then.
“I wrote column after column counseling caution rather than unbridled euphoria. Now the slide has become reality, Miami’s condo-construction wave is about to end, and completed units will soon hit the closing table. I’m no longer in the minority talking bubbles — but on the plus side, I’m also not alone in seeing value in the bubble.”
Too bad that, so far as I am aware, not one political leader on the national stage stood in opposition to unbridled euphoria. Cheerleading from the top is one big reason the bubble reached ginormous proportions.
Main Entry:
gi·nor·mous Listen to the pronunciation of ginormous
Pronunciation:
\jī-ˈnȯr-məs\
Function:
adjective
Etymology:
gigantic + enormous
Date:
circa 1948
: extremely large : humongous
Well, considering our leadership is hollow morons taking us to Hell on the bullet train…there is no real surprise. The damage that has been brought on the US since 2000 has been staggering and will cripple us for a long time to come I fear. The legacy of this administration is weakness, and fear, and prolonged financial distress. They will go down as the biggest failures in American politics ever, and I fear we are not even close to being done yet, and there will be no movement to impeach and remove these national cancers. Oh well….Rome wasn’t destroyed in a day.
“last month, homeowners who had bought into a development built by Levitt and Sons for $300,000 watched as neighboring properties sold for $145,000.”
I kept saying 50% hair cut isnt out of the question…
But I have to say it caught me off gaurd hearing this is happening now. Im pretty sure these homes may see furthur price declines around 100K we are just getting started…
Hey Neil! Im still going to watch to show! pass some of that popcorn around..
the speed of a train wreck seems like slow motion, when you are on board, but when watching from the sidelines…..its fast and out of control
While in Sarasota a couple of weeks ago, I watched what I think was a local clip about a meeting of homoaners with one of the big builders. The builders were, I think, selling their remaining inventory in a large subdivision for about 50% of what the first-in buyers paid. Boy, were those screwed owners hot! The builder was trying to explain the economics of “take what you can get and leave” and they were having none of it — wanted the builder to go down the tubes with them.
Legally speaking the homemoaners dont have a leg to stand on. Dont they realize how stupid their claims sound? Duh!
As I reported last year, a real estate agent in Miami who concentrated on luxury condos downtown told me in late October (only 9 months ago) that business had never been better. I was completely flummoxed, and concluded that he had just made an executive decision to always maintain a positive attitude, because there was nothing in FL more outrageously excessive than the glut of condo units being built in Miami.
Something that these cheerleaders, for the housing industry, aren’t taking into consideration, is that most these homeowners that are getting blown out by this downturn, are going to be taken out of the pool of potential buyers for many years, some won’t buy again for the rest of their lives. So when they predict a turn around next year or the year after, they’ll be far fewer willing and able buyers. The fools already bought in and they won’t be able to buy again for a long time. Those that don’t get taken out, will be stuck in their homes for a decade, useless their willing to take a loss. The stuck owners also won’t be creating transactions.
Wise words, indeed. New home sales should be from 400-500k annually for at least a couple of years when the market bottoms for these reasons and many others.
Yes home Sales! … but Inventory will be nearly
4-6x Sales Oh what a blood bad bath in price we will have…
I agree that stuck owners will not be creating transactions.
Going from memory on Realtor commissions as a fraction of GNP:
So let’s see… peak Realtor ™ commissions this bubble: 0.9% of GNP
Normal bubble peak: 0.6% of GNP
Normal: 0.45% of GNP
Normal recession: 0.3% of GNP
Oh… they’ll be hit hard.
As to BK’s being out for a long time… I was shocked how quick they were let back in last time… So I won’t be surprised if they only have to serve 3 years in the penalty box this time. However, most will hold out until at least 2008… So no worry before 2011.
And once bitten… twice shy.
Got popcorn?
Neil
You have got to be kidding. Realtor commissions totaled nearly one percent of the Gross National Product? Source, please.
I think Neil is right. Rough back-of-the-envelope: peak MLS sales rate of about 7 million units annually (2005, from CR), a guess at average sales price (note: > than median) probably ~$300k, 6% commish, using 13T as GDP, gives 0.97%.
Remarkable, though.
I was shocked how quick they were let back in last time…
Won’t happen this time. This is a *credit* bust. If they can get credit at all, FBs will be paying rates that’ll make pawn shops blush.
And who says they will have saved that 20% downpayment? I see those fools not getting into a house for 10, 15, 20 years or even life. And if any somehow get in before that, they may get foreclosed again! Once dumb, always dumb.
“The fools already bought in and they won’t be able to buy again for a long time.”
Our nation’s policital elite may well surprise you with the ingenious ways they can requalify deadbeats to get back into the Ownership Society.
Even if you did find a way to get deadbeats back in the housing market you won’t be able to get qualified people to bid anything up for a long, long, time. Few will be able to get a reasonably affordable mortgage without the standard 20% down for years to come. And even deadbeats know there’s no point in buying a an asset that isn’t appreciating.
Heh.
I read the infamous March 27, 2007 Credit Suisse report on the mortgage market today. What hit me the most was when the C.S. report predicted that the low point of the burst would be when annualized new home sales were 880,000.
Yesterday’s numbers? Less than that, and we haven’t even started. This is exceeding even my idea of how bad it would get. It used to be I thought I had cash for a down payment: now I’m starting to think I might have the ability to pay cash for a house.
In that vein, I hope to buy my home with cash in the next 2-4 years. I am not a “venture capitalist”, I am a VULTURE capitalist!
My experience is that analysts are afraid of low predictions/numbers and almost always underestimate despite the obvious problems. Within the predicted mean = job security.
Wow! How much have you saved for a downpayment? If it is around $25k, that will be enough for a small 2/1 house in some of the more rural areas, towns or small cities or in crime infested ghettos in metros. If it is $50k, thatll get you a decent house in the above locations. $100k? Youd probably be able to get the USA median house. Meaning half the houses anywhere in the USA will be yours for cash! wow!
great point- stuck homehomers combined with weak don’t create any demand
I grew up with my grandparents, who lived through the Great Depression. It’s amazing how their attitudes towards debt and savings differed from what we see today. People who experience that sort of trauma never forget and often pass those values down to their children.
Until those folks and most of their kids departed this mortal coil, it was impossible to recreate the Roaring ’20s because folks would never allow themselves to get that deep in debt or speculate that much in the financial markets. 70 years after the Great Crash, we had the tech bubble then the housing bubble. That was long enough for anyone who remembered 1929 to be far into retirement at least.
Vmaxer,
That’s an excellent point….once bitten, twice shy.
Makes me think I need to put more money in SRS (ultra-short real estate).
http://tinyurl.com/ysev8k
This is a link to a news story about a home builder in trouble in Saint Louis. Story mentions that many houses have mechanics liens on them and are not finished.
I wonder if many homes will be in legal limbo during the bust and have to go through legal proceedings before they can be sold.
short answer: YEP!!!!
Do you want to live in a neighborhood where the builder is selling houses like yours for 50% less than you paid, or would you rather that builder wnet under, leaving you with liens on your property and paying HOA fees double or tripple what you’d expected?
“It is well know (sic) that they have egos larger than an NFL player’s rap sheet,” Snaith tosses barbs in his study at those professional and amateur forecasters who make dire predictions about housing.”
Snaith is losing it… and that makes me happy.
So Snaith is in Anger…
Ok. Call us names. We’re too smug to care.
This is not going to be pretty.
And once prices are down 30%+, the bubble is a proven past tense fact. So Snaith is just going to look stupid.
Got popcorn?
Neil
Denial
Anger — Snaith et al are here
Bargaining
Depression
Acceptance
Speaking of angry fear…. did everyone with a Zip Realty account get this drivel coming out of OC? It looks like Gary Watt doth protest too much.
http://gwynsters.blogspot.com/2007/07/2007-mid-year-real-estate-update-by.html
Guy sounds like a bitter blowhard.
When you can’t argue the facts, attack their character.
Nice…. Looks like AZCentral (AZ Republic and NBC news) just took down the reader comments attached to their real estate articles.
They had a new couple articles I wanted to comment on, but no way to comment. So, I went to check the status of existing conversations about other articles…. comments gone from them too!
They are trying the same old tired tactics. Keep the sheeple in the dark as long as possible. Maybe a few more will keep spending on houses, cars, Harleys’, flatscreens, etc…
“‘It is well know that they have egos larger than an NFL player’s rap sheet,’ Snaith tosses barbs in his study at those professional and amateur forecasters who make dire predictions about housing.”
It is also ‘well know’ that those who make dire predictions about housing have comparable winning streaks as of late to those of top professional athletes.
“It became obvious that rental prices were not rising in proportion to sale prices or appraised values. On my block, a house consisting of three rental units sold last year for $380,000. Granted, it’s in better shape than it was in 2000, when it sold for $108,000. But not that much better shape.”
Yep,this is the state of affairs in South Florida. Now,wait till the rents start to drop. Not only do ya have a vacant unit,but the ones you have are cash flowing less.
My dad has already told me to lower the rents up to 20% to keep people in our units. How are people going to compete with him when his units are fully paid for ??? I am waiting for prices to come back in line with rental incomes so we can actually buy some more units…I haven’t even looked at anything in over 3 years because everything is negative cash flow at this point and we are getting a good view of how that works !!
Chris
If they sold for 100K in 2000 i cant think of any reason they arent down in that region considering we had slight inflation. Given all that 308K is way over priced. 50% or more decline is still in the works IMHO…
Interesting - I read it incorrectly as 308K the first time, too, and thought, hmm, no big deal. But go back and you’ll see it’s 380K.
“On my block, a house consisting of three rental units sold last year for $380,000. Granted, it’s in better shape than it was in 2000, when it sold for $108,000. But not that much better shape”
Hoo hoo… ha ha… hoo hoo… ha ha…bwahahahahaha!!!!
Wow that is almost a 72% haircut and at 2000 prices none the less! I am seriously thinking that 50% haircut is too generous and that we are going to undershoot the bottom. I am now calling 67% haircut on peak 2005 prices. Meaning a $500k house becomes $167k!
Check out “Our Case-Shiller” at:
http://www.viewfromsiliconvalley.com/id346.html
Thanks!
“”This area of Mountain View is always a fairly hot market.”
Since when ? I hate that idiotic hype crap… most of it is from realtors who came here in the past 2-3 years anyway. I seen MV since 1970s’ and it isnt even worth that much.
” … last month, homeowners who had bought into a development built by Levitt and Sons for $300,000 watched as neighboring properties sold for $145,000.”
“‘They promised us that they were not going to go below the market value,’ said one of the homeowners, in a newscast . ‘This is not fair,’ said another.”
But market value is what you can sell the place for. How do you go below what you can sell your place for? If the you can only sell your place for 145k then that is the market value right?
I guess they’ve expected the promise to mean the market value of the place will never be less than what they originally paid for the place.
The wording of the promise is certainly misleading, a perfect example of a politician’s statement.
You absolutely *have* to watch the video that goes with that (This story links to it).
It’s one of my favorite stories of this whole bubble.
“You’ve got to be kidding me, dude.”
“IT’S NOT FAIR!”
Thanks for that link!
I’d be p!ssed too, but c’mon those people thought $300K was the right price when they bought, no? Misplaced blame is all I saw out of the earlier buyers.
It’s not fair??? I tell you what’s not fair! It’s not fair that financial institutions loaned a bunch of $$ to ass clowns like you! It’s not fair that these same morons bit up prices with borrowed money putting home ownership out of reach for the fiscally responsible. You got what you deserve, and that is fair.
Watching the market dive, real estate chaos everywhere, and blood in the streets, it is really hard NOT to have a great weekend!
LOL
“The camp-out, an increasingly common sight at some well marketed condo projects, is a sign that Toronto’s real estate market is not slowing down even as the housing recession deepens in the U.S.”
Greater Toronto has a lot of people who haven’t lived there long enough to see its real estate market go through a downturn. It can and it has. But they only see the “bargains” compared to places like London and Manhattan. Toronto will never be one of those cities any more than Detroit or Cleveland will.
In my view, Toronto is a wonderful city that could have been like London or Manhattan if it had developed a stronger subway system back when.
Toronto is no Manhattan. Toronto is more like Minneapolis than Manhattan. The only difference is that the amount of condo towers in Toronto is just awe inspiring. If Miami looks worse then, “holy cow”. I visited Toronto last August and couldn’t believe the amount of building. And Toronto is still a slow-paced, small city.
Conclusion: They are screwed.
I had a chart of Toronto house prices, I’ll see if I can find it again. It peaked in late 80s, dropped for 7 years, then took 7 years to go back up again. So whoever bought at the peak had to wait 14 years to break even. And I don’t remember if those prices were adjusted for inflation.
One thing that puzzles me is that now Calgary and Edmonton are more expensive than Toronto.
NYCityBoy: they’re screwed True enough Toronto is not Manhattan but real estate in Canada is different than the States. Tougher lending practices and no deduction from income taxes, different currency, different country. Toronto’s housing market will be similar in some respects.
The rise and fall in Toronto will not be as dramatic as California or Florida for these reasons. But the same root problems are there: too many amateur speculators running amok with too much borrowed money, pushing prices too far out of whack with rents, which are nowhere near London or Manhattan levels.
At least the condo developments downtown almost make sense. But the many buildings springing up in areas like Square One, or at the foot of Park Lawn like the one above, are going to create horrendous traffic problems in areas not very well served by transit. Toronto has a long history of building huge high-density housing projects in areas with no real public transit.
Hank and the other gangsters on CNBC today tried really hard to pump up the market.
Nice try Hank. Nobody is buying your bullshit.
Just a great post, plain and simple.
Happy Frightday..
http://www.youtube.com/watch?v=QHFK1yKfiGo
Bill Fleckenstein is the only journalist I have any respect for in the MSM. He has been on target since the beginning of this debacle.
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/300pointdropjustthestart.aspx
Fleck’s a keeper, no doubt.
Quit posting Fleckenstein articles. It gets TXChick’s blood pressure up.
My wife and I just got back from dinner. We went to one of the big Wall Street areas (the alley where Ulysses is located). You get no sense that anything is wrong. All the little snots are out drinking and hitting on girls. I want to see blubbering. I live 4 blocks from the Stock Exchange but you can’t tell what’s up just by walking through the neighborhood. Bummer!
Darn it, if a girl would even look at me I’d be happy and blubbering!
Hoz / TxChick57,
Interested in your take on Fleck’s tech stock comments…
That’’s because they are too blind to see where this is headed (toliet). Those wall streeters look at the numbers and shrug saying, “ah geez, that’s only a 2 percent drop.”
In the meantime, I’m sitting out on the street in a lawnchair, eyes turned skyward, waiting for Bernanke’s money-dropping helicopters.
Please pass the popcorn.
That’’s because they are too blind to see where this is headed (toliet). Those wall streeters look at the numbers and shrug saying, “ah geez, that’s only a 2 percent drop.”
In the meantime, I’m sitting out on the street in a lawnchair, eyes turned skyward, waiting for Bernanke’s money-dropping helicopters.
Please pass the popcorn.
I love Fleck. It’s interesting he’s writing on Friday. After that article I just had to think to myself, “what the heck do I do to protect against this?”
You will need “cash”, which actually means highly liquid assets, such as the Swiss franc and gold. Of course, most US residents think of cash as the US “dollar”. However, that piece of paper is getting to the end of its “sell-by” date as cash. I would avoid it other than enough to cover your current expenses for a few months.
Does anyone have that link for the heat map that showed the decline of Southern California prices during the last downturn?
“April 7, 2005
Has the Fire Burned Out?
Dr. Christopher Cagan presents this mathematical study of real estate trends in the Southern California area as an example of a return to a normal market. Through the use of charts and color-coded maps, Dr. Cagan visually depicts how the real estate business cycle has worked over many years.”
See this and other studies here:
http://www.firstamres.com/marketwatch?page=list&moduleid=6
It will be a few clicks in - eventually you’ll get to a pdf of the study.
The best part is that when you fly through the pdf with the scroll bar it shows the “heat” flying right out of market over the years studied.
And the “cooler” the colors, the more foreclosures, etc.
It’s definitely one of my favorites.
Here’s the pdf:
http://www.firstamres.com/pdf/Cagan_FireBurn_1104.pdf
Thanks sf jack, I’m going to use this for a post on the La Land blog the asshat there wonders if pricing is going to fall in Los Angeles. Instead of using a thesis I thought I’d present this. Thanks again.
Excellent - glad I could help.
As someone mentioned yesterday, “many thanks” for sticking around here.
Did anyone catch that FL piece on Thursday financial news (fox) where two owners in a development were fighting each other because they were not paying the same HOA fees. The one that attacked the other is being ousted. And this is early in the ball game.
I was just noticing the other day that some Condo projects in Florida were charging different fees to different homeowners based on the price of condo .I’m use to HOA fees being the same for all homeowners in a development . I don’t know if this is just a Florida thing ,or something that came about in recent times .
Wiz — my experience is the same as yours — same fee, regardless of the condo in a complex. There are some condos that have multiple associations within the complex, but I don’t know if they have different fees.
A condo in College Park (Orlando) was charging condo fees based on square footage, which essentially is the same idea as in Salinasron’s post — wonder if that’s a Yankee thing. The salesman at the time (late 2004) seemed surprised that I was surprised at the method of determining fees. Since I had owned a condo from before he was born, I just walked and didn’t bother with an explanation.
Well, it’s rather odd to me to charge different fees based on the price of the dwelling .Its almost like a property tax approach .
In the complex we rented in (located in Westchester, NY), the fees were different for different sized units. It makes sense. A 2,000 square foot 4-bedroom triplex with a garage has more exterior maintenance, garbage, etc. than a 1000 sq. ft 2 bedroom unit. IIRC the cost was about $700 for the larger unit compared to $400 for the smaller unit.
Yes , I see what you mean . In projects where exterier maintenance is included in the HOA fees it would be necessary to charge more on larger units .
The GDP report today seemed to be an attempt to gin up some “good news” and stem the ongoing return to reality in the financial markets. It failed miserably and for reasons that will make HBBers laugh.
They admitted that consumer spending fell from 3.7% in Q1 to 1.3% in Q2, so far so good and any one of us could have told them that. Inventory got rebuilt so it swung from a negative to a positive - no biggie. But the 2 big drivers of this GDP report were both RE construction.
First, they’re trying to tell us that commercial construction was up over 22% from an already high pace in prior quarters. This sounds fishy on its face and way too high to me, especially considering what we see out of FL, CA, AZ, NV, etc.
Even worse was that they said residential construction was a much smaller drag this quarter, only falling 9.6% vs 16% in Q1. Hellloooo!?!? Did they not notice that new home starts are down 23% in the quarter vs a year ago? Or maybe they missed all those homebuilders telling us that orders, deliveries and revenue were down 30-40%? This doesn’t even pass the laugh test, it’s just that stupid.
It looks like stocks reacted positively to the initial number but started to sell off as soon as they looked at the details. The BLS would have done better to report 2.7% instead of 3.4% but with less blatant manipulation of the numbers. They managed a 2 hr rally and further damage to their credibility. Brilliant!
Oh but they will readjust the GDP number 6 months from now in revising it lower saying “We were off.”
“They managed a 2 hr rally and further damage to their credibility. Brilliant!”
Nice observation. And whoever thought that having bush and his 4 horsemen deliver the news was a good idea? Right there was a major clue that whatever bush was saying, the reality in the details was bound to be another story. Further damage to his credibility??
Interesting that the admin is finally waking up to the domestic economic unraveling. So, will the prez candidates be waking up soon as well? And what will they have to offer?
Personally, I do think there may be a lot of commercial construction hetting high gear, at least here in PHX. There is way too much under construction, and first done has the best chance of getting tenants. Get the builgings complete and leased out before everyone else style race to the finish line before prices collapse and you lose your shirt…. and pants, shoes, undies… and skin……
No way will there be tnenants for all the commercial, retail and office space that is currently under construction in PHX!
When all this new construction hits and doesn’t find tenants, and additional construction completely stops, and the #1 industry stops….
There is a lot of commercial construction, no doubt. But the question is not the absolute level of activity, it is the direction and magnitude of change. The GDP report is based on the assumption that commercial construction is growing at over a 22% annual rate.
Texas has one of the healthiest regional economies and it’s not growing that fast even here. Look at Florida where commercial looks like it’s shrinking - just following residential with a lag. The inland areas of California are showing a similar pattern. Non-residential construction is still growing but not at anything close to 22%.
I read about commercial buildings being cancelled regularly in both Phoenix and Vegas. A friend who is a RE attorney tells me that while building is at high levels, it’s flattening and headed down in both areas. Do you see something different?
Yep, I couldn’t believe the damage control I was seeing today . Many stock broker experts on TV soundbites were saying that the global markets were strong ,which sounded alot like the spin in the real estate market that the baby boomers were going to buy up all the real estate .
Pretty soon foreign central bankers are going to go on TV and tell their citizens that the US problems are “contained” and not to worry.
CNBC is a 24 info commercial for US Stocks.
Stocks go down it’s a great time to buy. Stock market goes up time to buy or get left behind. One sector down another is up.
Those talking heads make david Lereah look like a choir boy.
OT, but this is just hardcore bizzare
http://news.yahoo.com/s/ap/20070728/ap_on_re_us/astronaut_drinking
Drunk Russians on a Soyuz! Say it isn’t so! Sheeeesh even their rocket fuel is vodka, I’m sure.
“One impact of the continuing housing slump is that people find themselves owning homes they can’t really afford. But how do you know before you buy?”
hmmmm…easy. Income minus expenses. What do you have left?
Very negative news out late this evening on AHM. They are stopping all dividends on their common and A and B preferred. Guess we can look forward to the lenders stock prices dropping more on Monday.
” The disruption in the credit markets in the past few weeks has been unprecedented in the Company’s experience and has caused major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities. “
Hey Ben I have an idea, how about a “blast from the past” article this weekend, one that quotes from, links to, and otherwise revisits articles from the not-so-distant past yimmer-yammering about RE expectations.
No doubt you could find:
- The usual garbage from the talking heads (NAR, etc)
- Reporters taking the bait hook, line, and sinker
- People on the street with glossy eyes blathering away about their future RE fortunes. (Think opposite of all these sad sack stories about foreclosure victims.)
I know this is like shooting fish in a barrel, but it sure would be interesting to put up some of these as if they were recent news. What a contrast that would be!
“As this punishing, steep decline has taken hold, everyone from home builder CEOs to real-estate agents to mortgage lenders can’t get over the turn of events. At an auction of townhouses near Fort Myers, Fla., last month, homeowners who had bought into a development built by Levitt and Sons for $300,000 watched as neighboring properties sold for $145,000.”
“‘They promised us that they were not going to go below the market value,’ said one of the homeowners, in a newscast . ‘This is not fair,’ said another.”
I have news for you. $145k is the new market value. In fact prices may be around $120k at the bottom. That is more than 50% haircut from those absurd $300k prices. Indications like those should give everyone hope that the house they want is going to have to drop easily at least 50% and in some very overpriced areas, I am hearing 60%, 67% or even 75%!(Thus a $500k house can be as cheap as $125k!)
I think it’s pretty clear now that the house prices will enter freefall. What I mean is, support for high prices is gone. Mortgages are going to have be given only on valid information. If we assume an average household income of say 60k a year (very generous), that means the loans will mostly be limited to 180k. If you need to sell your house for much more than that, too bad. You’re hosed.
Me? I bought a 150k home at the bottom. I can sell for 200k lets say and undercut your ass and your 400k house big time. Same for everyone else who bought at a sane time. Some bubble buyers are going to have to sell. People get divorced (BIG reason), die, lose their jobs, get better jobs somewhere else, etc etc.
The current listing “dream price” majority are not greedy sellers, they are desparate, ALT-A FB’s trying to break even.
and by the way… FB more appropriately stands for F’d Banks.
By my estimation, I realized a $140000 profit via HELOC/ATM
combined with a Donald Trump CH13 BK while my brother in law
has now lost every penny of the REAL CASH he put down on his 2006 McShitbox.
Life is good.
I am dying to know if you are a ‘ramennoodleater’ or really are a ‘ramonnoodleater’. Because I am not familiar with that brand.
who put up the link to Jim Morrison and the doors “the End”? Its Perfect!!
This is the end, Beautiful friend….of our elaborate plans, the end!! I’ll never look into your eyes again.
Hey, what exactly does FB mean? That and a few of the other acronyms used here lost me.