Seriously Challenging Market Conditions Prevail
Some housing bubble news from Wall Street and Washington. Dow Jones, “New-home sales resumed falling in August, sinking to the lowest level in seven years, and prices tumbled. Year-to-year, new-home sales were 21.2% lower than the level in August 2006. The median price of a new home decreased by 7.5% to $225,700 in August from $243,900 in August 2006. The average price declined by 8.0% to $292,000 from $317,300 a year earlier.”
From CNN Money. “It was the slowest pace of sales since June 2000. The inventory of new homes on the market rose to an 8.2 month supply, as the glut of completed homes without a buyer was near a record high, with 180,000 completed homes listed for sale, just off the record high of 182,000 set in May of this year.”
“As weak as the new home sales report is, experts caution it could actually be masking other signs of weakness. Builders have reported significantly higher cancellation rates for buyers who have signed a contract but then back out of the sale. So demand could be weaker than the report suggests.”
“Also about three quarters of builders surveyed by their trade group report offering incentives…in order to maintain demand. So the drop in prices could actually be more severe than the report indicates.”
From Bloomberg. “Sales of new homes in the U.S. dropped more than forecast in August and prices plunged by the most since 1970. The number of properties completed and waiting to be sold rose by 2,000 to 180,000.”
“KB Home today reported a third-quarter loss on lower sales and $690 million in expenses to write down real estate.”
“‘We see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins,’ Jeffrey Mezger, CEO of Los Angeles-based KB Home, said today in a statement. ‘The oversupply of unsold new and resale homes and downward pressure on new-home values has worsened in many of our markets.’”
“KB Home, the homebuilder that has lost half its market value this year, reported a third-quarter loss on costs to abandon land purchases.”
“‘The oversupply of unsold new and resale homes and downward pressure on new home values has worsened in many of our markets as tighter lending standards, low affordability and greater buyer caution suppress demand,’ said Mezger.”
“Net orders fell 6.2 percent to 3,907 in the third quarter, KB Home said. The average selling price slid 7 percent to $267,700.”
“KB Home’s biggest markets by deliveries are Las Vegas, Houston and Orlando, Florida, according to the company.”
The Street.com. “‘Our third-quarter results reflect the seriously challenging market conditions that prevail for homebuilders across most of the nation,’ said Mezger.”
The Wall Street Journal. “Mezger also noted impacts from higher foreclosures and builders and investors cutting prices to move supply, all of which cut the company’s prices and profit margins and ‘prompted us to take substantial write-downs of inventory and goodwill.’”
“Excluding charges, gross margins fell to 13.9% from 23.3%.”
From Reuters. “The cancellation rate for the quarter was 50 percent, compared with the prior quarter’s 34 percent, reflecting the troubles in the mortgage market, KB said. For the just-completed quarter, net orders for new homes, an indicator of future sales, were off 6 percent at 3,907.”
“‘I was kind of surprised to see that their orders were actually down compared to a really bad number last year,’ said analyst Alex Barron.”
“The value of the assets of Carlyle Capital, the publicly traded credit fund backed by the private equity firm Carlyle Group, fell 24 percent in August as it sold holdings and global debt prices declined.”
“Credit fund managers were hurt as rising mortgage defaults sent investors fleeing all but the highest-rated securities. Carlyle Group twice propped up the fund in August, lending a combined $200 million and buying $900 million of its assets.”
“‘It was a common theme that these companies moved to rescue their affiliates during a month of extreme losses,’ said Bradley Alford, who runs an investment firm in Atlanta. ‘I would question how long Carlyle is willing to prop up this entity if losses continue.’”
“Kenneth Heebner, manager of the top-ranked real estate fund in the United States, has sold stakes in New York property owners, saying he believes prices will decline as banks, hedge funds and buyout firms fire workers.”
“‘You’re seeing a retrenchment in the private equity, hedge fund and brokerage businesses, and there could be a lot of layoffs,’ Heebner said. ‘That could have a devastating impact on high-end residential real estate in New York.’”
The Seattle PI. “Last month, Carol Allen was two months out of bankruptcy and set to refinance her Seattle home. Just before closing, Option One decided to ‘reprice’ loans in its pipeline, adding 1.6 percentage points to her interest rate and about $400 a month to her payment.”
“‘I can’t afford that,’ Allen said last week.”
“So Allen) walked away, sticking with her adjustable-rate mortgage. Allen’s story is just one example of how the hangover in the subprime mortgage market, which serves people with poor credit, is causing headaches for many Seattle-area homeowners and buyers.”
“Lenders who previously approved mortgages to people with bad credit, no down payment and little or no documentation of income now are refusing loans if even one of those three factors is questionable.”
“Option One spokeswoman Christine Sullivan acknowledged Monday that the repricing of loans such as Allen’s was part of the larger fallout. ‘Like other lenders, Option One has tightened underwriting guidelines and made product and pricing changes,’ she said.”
“Tightening standards is good, but it has gone too far in certain cases, said Adam Stein, president of the Washington Association of Mortgage Brokers.. He noted that a recent customer’s low credit rating and high-debt level precluded him from getting a loan, despite an income of more than $200,000 a year.”
“‘This guy’s still got $80,000 to $90,000 a year of discretionary income,’ he said. ‘The market just isn’t tolerating exceptions right now, even if they would make sense.’”
“The subprime market has nearly dried up altogether during the past two to three months, said Angela Ceaser, who owns Integrity Community Mortgage in Lakewood, and worked with Allen on her loan.”
“But while the subprime market has been most affected by recent problems, prime borrowers are not immune. Ceaser said she recently ran into problems with a prime borrower whose information she fed back into Washington Mutual’s system to look at other options after the bank already had approved a loan.”
“‘It wouldn’t even price her,’ she said, even though she still was able to close the already approved loan.”
“Patricia Sawyer of Renton refinanced into an adjustable-rate mortgage in December, after hearing a radio ad promising low payments and no closing or appraisal costs.”
“‘Now I know it was too good to be true,’ she said last week.”
“Her new payment was lower than her old one, but higher than expected, and she didn’t realize it added $1,100 a month to her principal because it was less than the interest charge. With her payment set to jump in October, Sawyer would like to refinance.”
“But her credit is bad, she said, and if she qualified for a new loan, the added principal and prepayment penalty from her current lender would push her payment above what she could afford.”
“Allen, who walked away from her refinance, said her adjustable-rate loan resets in October. She plans to save and work on her credit in hopes of qualifying for a better loan in a year or so. ‘I can’t even tell you the last time I even went shopping,’ she said.”
Cramer deserves credit for this honest assessment. It is very funny too.
http://www.cnbc.com/id/15840232?…33257614& play=1
http://tinyurl.com/2l95j9
can’t seem to get that damn thing to play.
that site stinks!!
Don’t try using firefox as your browser it won’t work.
http://www.cnbc.com/id/15840232?video=533257614&play=1
on CNBC look for “Cramer on Homes”, you will find it.
Doesn’t work for me with Firefox or IE.
Try this one. I guess the space between the ‘&’ and ‘play’ mess it up
http://www.cnbc.com/id/15840232?…33257614&play=1
Wow, I followed the link (great video) and came across that idiot Diana Olick, who says in a rebuttal article “I think sellers have dropped prices, and now may be a great time to buy before prices start skooching back up again.”
http://www.cnbc.com/id/21011946”
“On Squawk on the Street today, Cramer did recommend waiting for the real-estate bottom, which he expects will come in a year. And he says that’s more optimistic than what he’s hearing from many of the builders he talks to. He also took a jab at the National Association of Realtors, suggesting the group has been saying it’s a good time to buy a home for more years than it’s even been in existance.”
Well, right now Cramer wants people to park their money in the stock market rather than real estate . The fact that hes calling the bottom in a year from now is again another wrong bottom call.
Cramer does not see himself as the same kind of cheerleader that the realtors were for the bull run in real estate ,but he is that same kind of cheerleader for stocks . IMHO ,this guy Cramer is a loose cannon who has gain to much power as of late in spite of some truth coming out of his mouth . The other day ,right after the BB rate cut ,Cramer was saying a number of bank and builder stocks were good buys .
“New-home sales resumed falling in August, sinking to the lowest level in seven years, and prices tumbled.”
There is a whole lot of tumbling going on these days. Luckily the stock market (almost) always goes up, or all this tumbling would be serious cause for concern.
http://www.marketwatch.com/tools/marketsummary/
I cannot help but notice that recessions tend to end when new home sales hit ~400,000. The one exception was the 2001 recession when interest rates were dropped to boost the economy.
Gulp!
Got popcorn?
Neil
“I cannot help but notice that recessions tend to end when …”
When do they begin, and is a govt announcement required to make it official? (My guess is the NBER only dates the onset of recessions through the rear view mirror in order to not exacerbate them with the pile-on weight of academic opinion.)
My recollection was that the definition was 2 Q’s of negative GDP. It is only possible to measure the GDP for the past, ergo, the pronouncement is always in retrospect.
Yes, that is the definition… However, the inputs to the GDP equation are some of the most intentionally manipulated stats in the known universe. Given the stakes, this Administration and its appointees will do everything possible to keep the reported GDP positive and, as a result, a recession from being declared. If they fail to do so, the outcome would likely terrify the sheeple consumer, which could drop-kick the U.S. and world economy into a deflationary spiral of epic proportions.
The retrospective 2 consecutive GDP quarters defn of recession has the advantage that it cannot be computed contemporaneously, but only through the rear view mirror view. There is no reason one could not define a recession using contemporaneous measures of economic activity, but doing a very good job at this would lead to the potential for contemporaneous announcements of recessions to worsen the economic situation. Better to only identify them in retrospect.
It is also noteworthy that economic forecasters do not really get paid to accurately describe the future economic situation, but rather to accurately predict movements in the govt summary statistics which are supposed to describe the future economic situation. Assuming these are one and the same could result in a misleading assessment of the economic situation at hand.
I also will go out on a limb and conjecture that “lean into the wind” nowadays means for the Fed to ensure the stock market keeps going up when the storm clouds of recession form on the horizon, as the market “knows” that all is well so long as stock prices are headed higher.
Well, one of the reasons people need to know when a recession is coming is so that they don’t over order inventory or overbuild like the builder did this cycle.
The public needs to know if they might be laid off or what chance they stand and tighten their belt if they are at risk .
The cheerleaders make it impossible until the last minute for the public to know what’s coming . If the public is maxed out in with debt ,than times will be lean for a while ,or should be.
“Well, one of the reasons people need to know when a recession is coming is so that they don’t over order inventory or overbuild like the builder did this cycle.”
Bingo! An overly rosy assessment of the economic situation can make a crash all the worse when the massive pachyderms eventually are too glaringly obvious to hide under the rug any longer.
But the upside of one more good bonus makes it worth it.
I wonder when people will decide that cheap tract houses on no lots miles from anything are basically worthless… causing KB Home to wind up in bankruptcy just like KB Toys did…
KB has announced a ‘New Plan’ to include Mickey Mouse and other disney decoration ideas here in the So Ca new homes. They claim that there customers are “Family” oriented and will flock to the new concept.
-All So Ca families love the Mickster.
They’ll have a sure winner if they let China paint them.
Are you being serious or joking? I am so confused of what I am reading, hearing, and watching in MSNBC debates if half this stuff is real.
MSNBC was debating the fact that Americans might not be working long enough hours to keep up with global forces/competition . I’m suppose to keep up with slave labor in third world Countries ?I thought America did away with slave labor years ago . Can you see how globalism is going to take away Americans standard of living ,while the Corporations get richer ?
I’ll start working harder as soon as MSM reporters/journalists start doing critical, comprehensive, and thorough investigations on relevant topics.
In other words - never.
” I’m suppose to keep up with slave labor in third world Countries ?”
A friend of mine just finished editing a book for a local company’s CEO. She said it was his practice to work 3 days a week and golf or conduct other personal affairs on the other two. Perhaps he was attending board meetings of other corps. so he could rake in even more dough despite making an already outrageous factor of his workers’ pay for 3 days/wk work.
So, Mr. Housing Wizard I’m sorry to have to break this to you, but I think you are expected by your employer to do what it takes to maintain the standard of living that the top brass is accustomed to. Now kiss your family goodbye for the week and give us some 12 hour days!
(Feeling nostalgic for Lee Iacocca!, btw)
Well, I use to work 16 hours a days when I was young ,but I would rather have people work 40 hours on average and have more balance in their lives ,but still make a decent wage . We already need a 2 income family in this Nation to survive these days .
It just strikes me that Americans are losing ground fast ,so all this cheerleading about global markets being great ,is not true .The global markets supplied to much money for this stupid housing boom (BB and Greenspan blame the housing bubble on money supply from global markets rather than interest rates ).
Since the majority of Americans get their “news” from corporate television, which extols the blessed state of free trade…..a concept they’ve bastardized beyond recognition…..I see no way the sheeple will figure it out …ever. Mondo whining and starving coming up very much soon.
They are advertising the same thing here in San Antoni, KB Homes and Disney. They are giving away Disney merch and you can enter to win $1K of Disney themed furniture for your child’s room.
OT, but sad….calling txchick to the rescue:
http://www.tylerpaper.com/article/20070927/NEWS01/70926011
That was nauseating. Who would buy a dog from this woman? I’d be afraid the puppy would die as soon as I got home. You could see the puppies were horribly diseased and malnurished.
Who would buy a dog from this woman? I’d be afraid the puppy would die as soon as I got home.
Hence the name Wickedheart.
Whatever @sshat. Buying a puppy mill puppy is perpetuating and supporting cruel industry. Why would anyone want to support what this b!tch is doing? (no pun intended) I also would not subject my family to the heartbreak of dying dog. We don’t take it well when a fish dies, let alone a dog.
Over the last 32 years my family has picked out exactly one pet, from the Humane Society BTW. Every other pet found it’s way to my doorstep from the streets or was given to me by their owners for some lame @ss reason or another. I have taken in iguanas, dogs, cats, parakeets, turtles, bunnies, guinua pigs, fish, etc. At one time I had 11 bunnies and people kept trying to give me MORE. I finally had to say NO and do you know what the idiots would say to me, “You got 11 bunnies, what’s one more?” So I said “Yeah you’re right, what’s one more bunny, how about I give you one!”
Here’s one you missed. Foxton’s is going under. This is the broker who started charging 3% commissions. Guess how that worked out?
http://www.app.com/apps/pbcs.dll/article?AID=/20070927/NEWS/709270425/1070/NEWS02
Foxtons, a West Long Branch-based real estate company that made a splash with its discounted commissions, said Wednesday night it is closing because of a downturn in the housing market.
The company said it is contemplating bankruptcy for an orderly shutdown, and it will continue only with a skeleton crew; it is laying off 350 of its 380 employees.
“The plain fact is that we have been battling against a real estate market that recently has turned into a sharp decline, and the company no longer has the liquidity to operate as a going concern,” said John D. Blomquist, Foxtons’ senior vice president and general counsel.
The decision marks the latest casualty in the softening real estate industry, and it brings a stunning end to a company that was a lightning rod among real estate agencies.
It was founded in 1999 as YourHomeDirect.com by Glenn Cohen, a Shore area entrepreneur who was put off by having to pay a 6 percent commission to a real estate agency when he sold his home.
His idea: He would pay his employees a salary as opposed to a traditional agency, which pays agents a commission from the sale. In turn, consumers would pay a 2 percent commission. And the company would win business through an intense marketing campaign that included agents driving around in purple and yellow Chrysler PT Cruisers.
It’s hard to fight the status quo, even more so in a down turn. My aunt was a teacher and turned to real estate as a retirement income. She told my wife that they wouln’t show homes that were FSBO or listed by discount brokers. Frankly I was disgusted, she’s got a taxpayer guaranteed check coming in and she still won’t represent her buyers honestly. The ranks are thinning, though, we’ll see how long the lines hold.
When I look at KB in the mirror, all I see is BK. Ironic, isn’t it.
lmao.
Bankruptcies in your side view mirror
May appear closer than they really are…
It’s selling assets.
elpoep tbed ees i
Last night was… “A Fourth Night”
Anyone remember when they were “Kaufman & Broad”?
Good one!
“Kenneth Heebner, manager of the top-ranked real estate fund in the United States, has sold stakes in New York property owners, saying he believes prices will decline as banks, hedge funds and buyout firms fire workers.”
Excellent. One couldn’t find a nicer bunch of people who suffer the pain of job loss.
Said this yesterday. There is no way that Manhattan is immune from the effects of the housing mess.
Thanks for this, Ben. Carlyle taking a hit…makes my day.
“The value of the assets of Carlyle Capital, the publicly traded credit fund backed by the private equity firm Carlyle Group, fell 24 percent in August as it sold holdings and global debt prices declined.”
“Credit fund managers were hurt as rising mortgage defaults sent investors fleeing all but the highest-rated securities. Carlyle Group twice propped up the fund in August, lending a combined $200 million and buying $900 million of its assets.”
“…all but the highest-rated securities.”
As if that’s a guarantee of safety.
Does that include AAA rated MBS’s and CDO’s?? Silly me.
spike, last night I read the Vanity Fair article about private equity, most notably the rivalry between KKR and Blackstone. What an eye opener!!! These guys have no skin in the game and make outrageous fees, nice work if you can get it. The numbers are mind-boggling. Frankly, they look like parasites to me, I can’t for the life of me figure out what real worth to society all their activity generates, unless it is the philanthrophy, which is what they do to justify their existence. Made me sick to think of all the taxes they manage to dodge. Again, I have nothing against the productive wealthy, even Bill Gates, because at least he produced something of value. I can’t see the value behind what these hedge funds/private equity groups do. I have a feeling a lot of pension funds who invested with these guys are in for some bitter disappointment.
We should be more specific when talking about “private equity”.
Venture Funds (which take risk to create companies) are also Private Equity Funds, as are Real Estate Opportunity Funds (which develop new and/or fix broken assets).
They are like the realtwhores, but on a huge scale.
When you mention big fees, no skin in the game, parasites, lack of productivity, etc., I was reminded of a couple of RE agents I know. They constantly hound me trying to become my buyer’s agent. They are in friends’ circle but I work hard to evade them…
The value of the assets of Carlyle Capital, the publicly traded credit fund backed by the private equity firm Carlyle Group, fell 24 percent in August as it sold holdings and global debt prices declined.”
“Credit fund managers were hurt as rising mortgage defaults sent investors fleeing all but the highest-rated securities. Carlyle Group twice propped up the fund in August, lending a combined $200 million and buying $900 million of its assets.”
Yeah, but these people have more money than God. In fact, they charge God interest, and they are not slashing rates.
“Yeah, but these people have more money than God. In fact, they charge God interest, and they are not slashing rates.”
yep, and I hope every pensioner with their money in Carlyle or Blackstone, et al, thinks about that when they want to retire and find out the well is dry. Or goes to the banks , that lent these parasitic shills money from the deposits of working stiffs, only to find the cupboard is bare. Because I have a feeling that is what is going to happen. Wonder why LTCM got bailed out? Oh, Kravis and Schwartzman et al will be just fine, with their mansions and yachts and art collections and vacations on St. Tropez. They’ll be hoovering up the caviar at the social events to raise money for the art museums or whatever. And looking down on the “little guy”, without whose money they would never have made theirs, with sheer contempt and scorn.
Carlyle Group…let’s see, George Bush Sr., Caspar Weinberger,
the bin Laden family…..yeah, a lovely bunch.
Carlyle is better known as an ongoing crime syndicate. Need proof? Look at it’s principals.
I’ve been think commercial was a bubble for awhile. lots of space empty when the hedge funds close along with all those mortgage brokers and realtors fold up their offices.
“lots of space empty when the hedge funds close”
I’m not fond of hedge funds, but it has slowly dawned on me that the hedgies make their money off the backs of pensioners and working stiff bank depositors (like me). Now I know why they get bailed out the way they do. Because they can take entire economies along with them on the way down.
You think the For Sale signs on houses are bad in some of these pictures? I think I will start taking pictures of For Lease signs on commercial buildings. Its a lot worse than the house sale signs in my area. That has to be hurting someone.
“‘This guy’s still got $80,000 to $90,000 a year of discretionary income,’ he said. ‘The market just isn’t tolerating exceptions right now, even if they would make sense.’”
Got Crunch?
“Tightening standards is good, but it has gone too far in certain cases, said Adam Stein, president of the Washington Association of Mortgage Brokers.. He noted that a recent customer’s low credit rating and high-debt level precluded him from getting a loan, despite an income of more than $200,000 a year.”
“‘This guy’s still got $80,000 to $90,000 a year of discretionary income,’ he said. ‘The market just isn’t tolerating exceptions right now, even if they would make sense.’”
So go ahead and lend him some of your money, Adam. Would you do it? That’s what I thought. Sounds to me your borrower is a high credit risk, regardless of his 80K - 90K income. High debt load tells me he might not qualify for 100K, let alone 200K. Tell your borrower to come back when he can prove he knows how to manage debt. Meanwhile, you can always lend him the money yourself. Again, that’s what I thought.
$200k? On what ? A W-2? 1099? Tax return? Cocktail Napkin?
‘Cocktail Equity?’
The alleged $200,000 income may not be verified by reference to something credible such as a W-2. That may also explain the lender’s unwillingness.
Even if it is verifiable we are seeing multiple examples in this whole debacle that high income and fiscal/debt responsibility are two different things.
But if you could prove your income you wouldn’t actually be making that much?? Hmm an all cash business? All income is provable since you are supposed to pay taxes on it. Well thats how I thought it worked. Probably wrong though.
The $200K/year could be legit…but for how much longer? Suppose he made 200K last year as a mortgage broker - that would make him a bad risk going forward.
If he’s made 200K/year for a long time, and his job is steady (won’t disappear or move to China), then why the low credit rating & high debt?
As much as I want to pile on this guy, I can sympathize. I’ve got about $70K in student debt and an embarrassing credit score thanks to two batches of uncovered medical costs that came in at $20K and $10K, respectively. I have a prospect of getting a big bump in my income (if I can pull off a lateral move from my current Fisher-Price law firm to a real one), and would be just about exactly in this guy’s situation.
I live well within my means. Although it’s possible I could have minimized the medical expenses (although it would have meant litigation, and I have a strong policy against smoking my own product), those were more or less unavoidable. Without going into detail, they’re not likely to recur. Unfortunately, lenders will just look at the credit score and assume I “haven’t learned to manage debt.”
I believe lenders’ worship of credit scores (which don’t necessarily tell the whole story), while simultaneously ignoring the question of income pretty much altogether (go ahead! State your income! We trust you, wink, wink!) is a really boneheaded business model. Assuming I get the income bump I’m chasing, and bought (as I plan to) something much lower than the maximum I could afford, I would be far and away a better credit risk than someone with a higher credit score who borrows to the maximum limit of what he could qualify for.
Well said, Thomas.
I would just require that the 200k a year borrower just put more money down ,(got 30% maybe ).Lenders use to always make commissioned salespeople put down more money (unless they had a extremely long tract record with assets .
Also, giving realtors low down loans was stupid during the boom . Course realtors who double escrowed all the time didn’t even need a loan .
I believe lenders’ worship of credit scores (which don’t necessarily tell the whole story), while simultaneously ignoring the question of income pretty much altogether (go ahead! State your income! We trust you, wink, wink!) is a really boneheaded business model.
I agree - and I generally do well in the above business model because of very clean credit. The problem is that looking at income, discussing prior situations, and future income potential require paying the salary of someone to talk to the borrower in question.
Apparently it’s cheaper to to have a computer generate garbage loans than to pay someone to weed out the good from the bad.
The most important detail of a loan is first that you have a valid appraisal ,(lenders during the boom considered this the least important detail of risk) .also it’s important how marketable the property is . Tracts out in the middle of the boondocks carry a higher risk and the lenders should of required greater down payments for instance . Speculation projects with high rent verses own ratios carried high risk so lenders should of required greater deposits .The property conforming with local rental ratios is another aspect of viewing the value of the property in a pinch .Appraisal valid has to be solid.
The second most important risk factor with a loan is how much skin in the game of the borrower ,(lower down payment =higher risk regardless of other factors .
Thirdly the next most important facts is debt ratio and ability to pay, which includes a analysis of stability of job and how long on job ,etc.
The least important factor in rating risk is the credit rating ,not to say that it isn’t important or that a person with a good credit rating shouldn’t get a lower rate or a prime loan rate because of it ,but only if the other factors listed above check out .
I’ve got about $70K in student debt and an embarrassing credit score thanks to two batches of uncovered medical costs that came in at $20K and $10K, respectively..
I live well within my means.
Then what was the problem?
“He noted that a recent customer’s low credit rating and high-debt level precluded him from getting a loan, despite an income of more than $200,000 a year.”
Barring some catastrophic unforseen medical expenses or some such, if a person is making $200K a year and has $90K discretionary spending power there is NO reason or excuse whatsoever that such a person should have high debt levels or low credit ratings. Why isn’t this guy using his “discretionary” spending (which is still more than most of us make as total income!) to pay down his debt and start improving his credit rating???
That’s what I don’t get. $200K of income and a “high debt level” WTF? You know, frankly, the thing that is bankrupt here is our education system, for not teaching kids how to LIVE WITHIN THEIR MEANS as adults! Ugh.
schools may force behavior temporarily, but good values and strong character are displayed and then absorbed from mom and dad.. or not, as the case may be
I’d settle for basic math - or barring that, instruction on using a calculator.
How much longer before we see Domino’s (appropriate, eh?) pizza 2 for 1 offerings, albeit on houses… not dough
“Also about three quarters of builders surveyed by their trade group report offering incentives…in order to maintain demand. So the drop in prices could actually be more severe than the report indicates.”
“KB Home, the homebuilder that has lost half its market value this year, reported a third-quarter loss on costs to abandon land purchases.”
Stock prices are a leading indicator of where the market value of the product these companies produce is headed. If builder stocks are off by 50 percent or more, I see no reason to expect a much different fate awaits the price level of the product they produce, which is houses.
He noted that a recent customer’s low credit rating and high-debt level precluded him from getting a loan, despite an income of more than $200,000 a year.”
“‘This guy’s still got $80,000 to $90,000 a year of discretionary income,’ he said.
So, he has money, he’s just not interested in paying his debts.
Whatever could the solution be?
That’s exactly what I thought when I saw this. And if he has so much discretionary income, than why is his credit rating so low (since we know that it’s not from paying for everything in cash)? There are plenty of financial deadbeats who make good money.
My 80yo aunt used to tell me stories of when she worked in accounting at a utility company (she retired from that job back in ‘87). She always said the worst late/no pays were always doctors and lawyers. She never understood how those earning incomes in the top 5% could be so irresponsible with their bills…
Utilities don’t report to credit agencies, so some people don’t care if they pay late.
It must depend on the state because utilities report in Wisconsin. In Wisconsin, they report highest bill as well as current or late.
Yes, when I went through two long stretches of unemployment in the late 90s, I had utilities in PA that reported.
“Utilities don’t report to credit agencies, so some people don’t care if they pay late.”
Here in CNY you can pay $250 out of $300 bill (to show good faith) and still the countdown to shut off begins immediately. There is help for really low income but as usual there’s that gray area. An older woman was profiled in the paper a few years back. She was shut off when after a particularly long cold snap she paid all but $40 on her bill. Nice! (Snark)
Lawyers, I can understand. Many lawyers rely on clients paying in a timely manner or rely, on a contingency basis, for settlement. Since, clients are a poor source for funds and settlements can take years….
That’s only if you are a sole practitioner, and you run your business and choose your clients very poorly.
Most attorneys that I know who work on a contingency fee basis do not work on such basis exclusively, and frankly, make it a very small part of what they do.
More likely, the late payments by doctors and lawyers is that for doctors, nothing is more important than their work (except golf), so paying attention to the small details (like phone bills) is almost irrelevant. For attorneys, if you’re working 16 hour days, small details fall through the cracks…
I doubt it’s for lack of funds, just lack of time/attention to detail.
I used to own a small business in Seattle. We maintained, rented, and serviced at the race track single seater and sports road racing cars. Bruce McCaw (yes, THE B. McCaw) had us do a little bit of work on an older Indy Car he owned. My mechanic drove over to his house, did the job, but we never got paid; that small amount of money meant a lot to me then.
That’s disappointing, but not surprising. There used to be a guy here in Denver who worked on Ferraris. One of his wealthy clients left an engine (worth more than my house) at his garage. The engine sat there for YEARS, and nobody could remember to whom it belonged and nobody came in to claim it. The garage shut down a few year ago. I have no idea if they ever reunited the engine with its owner. Hmmm…I wonder if it belonged to Bruce?
My point is (yes, I have one) that these guys operate in a financial world that people of average means can’t even imagine. Doesn’t excuse their behavior, but it might explain it.
Doctors are infamously bad with money.
My wife does accounting for a famous surgeon who’s been earning $1mil+ annually for decades; most of it goes to support adult children, extra houses, and his current wife’s hobbies. He’ll manage a decent retirement, but not lavish, and there won’t be much left in the estate after he’s gone.
My financial advisor has shared similar stories with us (no names, of course). There are a lot of fiscally irresponsible, temporarily wealthy people out there.
Try fat honkin’ student debt loans.
They’ve lifted their minds above mundane things?
I wouldn’t loan him money either. Why does he have any debt at all, and why does he have a poor credit rating?
Could be that they are young. Newly minted I-bankers are 22 years old, have a ton of student debt and a short credit history. This brings up the interesting point that banks are more interested in a “credit score” than in actually evaluating the individual - exactly the kind of behavior that got them into trouble in the first place.
–
“‘I can’t even tell you the last time I even went shopping,’ she said.”
There are at least 15% of the households in similar situation due to mortgage payments sapping their spendable dollars.
Folks, can you spell recession?
Jas
If by “shopping” she means groceries, then I will admit to a miniscule amount of sympathy for her.
If by “shopping” she means she and her friends buying that 45th pair of shoes at the mall, well………by that definition I can’t tell you the last time I, even as a renter and saver with money in the bank, went shopping either. Boo-frickin-hoo.
Door # 2.
Bingo.
r-e-c-e-s-s-i-o-n
recession
–
You get an A.
Jas
Why do MSM-quoted analysts always have to pretend they know when the market will bottom out? And why are their estimates always so short compared to historical evidence? Do they get paid extra for underestimating the duration of a housing bust? Or are they just too lazy to compare the situation at hand to historical evidence, in order to come up with a plausible estimate?
ECONOMIC REPORT
New-home sales plunge 8.3% to seven-year low
Median sales price down 7.5% in past year, biggest drop in 37 years
By Rex Nutting, MarketWatch
Last Update: 11:30 AM ET Sep 27, 2007
WASHINGTON (MarketWatch) — Sales of new homes dropped 8.3% in August to a seasonally adjusted annual rate of 795,000, the slowest sales pace since June 2000, the Commerce Department estimated Thursday.
Sales are now down 21.2% in the past year, with no sign of a bottom in the crippled housing market. Read the full government report.
“This is just hideous,” wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics.
“This is more evidence that it’s going to be a long and — for a lot of people — a painful process,” said Mike Schenk, economist for the Credit Union National Association. “The soft housing market will be with us for a long time, at least 18 months.”
http://www.marketwatch.com/news/story/new-home-sales-plunge-83-seven-year/story.aspx?guid=%7B22E1E083%2DBA8B%2D4355%2DAC85%2D57D8B99C1C81%7D
37 years- wake me up when we get a 1921 or 1933 type number
Does Mike Schenk pronounce his name “shank?”
Probably pronounced as ’skank’
skenk
LOL. - skink- , although I dislike disparaging a wonderful creature.
I must be missing something, because I still don’t understand why so many people are paid to be “analysts” or in-house “economists,” when it seems like their success rate is less than could be obtained from flipping a coin.
Why are pundits who are consistently wrong given equal (or greater) MSM time as pundits with good track records? It seem like whenever there’s someone on the air talking sense, it gets “balanced” by 2 or 3 others spouting gibberish.
–
Please remember that they are part of the Propaganda Machine. They are paid very well for their “obvious fraud,” that Nassim Taleb calls the Wall Street analysts.
What if in a “free market” deception, fraud, and manipulation pay very well?
Jas
Jas, excellent source, thanks for that; His “Fooled by Randomness” is now on my reading list.
I can well understand how the MSM would tend to slant to optimism when covering financial markets, as it depends on the good will of industry insiders. Also I expect that financial reporters are sourced more from the world of traders and economists than from schools of journalism (not to place much faith in the latter, either!).
My guess is the truth will be revealed shortly after noon on January 20, 2009.
thats a pretty good guess.
The media is lazy. They parrot talking points without questioning anything. Anything that comes from the NAR or similar industry types should be challenged due to their obvious motives.
Look what happened with Iraq: you still see the same pundits/shills on TV who have been wrong for 5 years now. Why would anyone continue to believe anything they say?
Frankly, I don’t “know” much of anything about Iraq, since all my sources of information pass through the filter of someone with an agenda (I include government “spin” AND MSM bias). By contrast, the real estate market is relatively transparent!
By contrast, the real estate market is relatively transparent!
How quickly the past is forgotten. Hard to believe you would say that, better send Ben some money.
–
Yes, the Baghdad Bob!
Jas
Ah - that corporate bottom line getting in the way again. I do not know how lazy/incompetent reporters are, but I do know that investigative reporters are few and far between…because they cost money.
Media CEOs - ever watchful for that bottom line - rid themselves of much expense by dispensing with actual reporting, but for rare - and not always accurate - cases. Hey, corporate media releases fill air space, don’t they? Then we have gov’mint reports available online… all sorts of ways to prop up profits.
So we get a handful of talking heads, spouting the party line, and a print media mystified about being on life support. C’est la vie.
“Why do MSM-quoted analysts always have to pretend they know when the market will bottom out?”
Because they’re “experts.” A person wouldn’t be considered an “expert” if his answer was “Damn if I know”!
From Harry Truman:
“An expert is someone afraid to learn anything new because then he wouldn’t be an expert anymore.” Or something like that.
Or… “An expert is a man who has made all the mistakes which can be made in a very narrow field.” — Niels Bohr
Father-in-law’s definition of an expert—Some SOB from out of town…or to update…on television. TV lends instant credibility for most of the population no matter how wrong they have been in the past. Nobody remembers anyway.
‘A person wouldn’t be considered an “expert” if his answer was …’
I would not consider someone an expert if their forecasts were consistently biased in the same direction, either.
“This is just hideous,” wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics.
Oh relax … everything will be rosy once the HOV sale of the century numbers hit the books.
A expert is a person that meets the approval of the advertisers that pay for the TV show or newspaper .
x is unknown, spurt is a drip under pressure
Thus, an expert is an unknown drip under pressure
–
“Kenneth Heebner, manager of the top-ranked real estate fund in the United States, has sold stakes in New York property owners, saying he believes prices will decline as banks, hedge funds and buyout firms fire workers.”
There goes another pillar of support for the econ – non-res construction, which generally lags.
Feeling better and better about my call of economy being in recession already.
Jas
I always mention to people I talk to that we are in a recession, and everyone else agrees. I am surprised by that since I work in a Land Development company. Or maybe people here realize you can only dress this economy up so much. We need a 600 basis point rate cut!!! Then we can start getting paid out of thin air!! Who is with me?
Ditech.com “People are stupid”
My husband noticed that everyone at his office knows the economy is going downhill and then he comes home to a town with deep pockets (which is admittedly a very closed environment) and no one knows what he’s talking about.
“Excluding charges, gross margins fell to 13.9% from 23.3%.”
If only stakeholders could suspend disbelief for another quarter….
This is like a FB being forced to lower price, selling at a loss, then going to the lender and saying, “If only prices were at 2005 levels, then I would not have to sell at a loss.” It’s wishfull thinking. It’s a bogus claim. Land prices are falling and they will continue to fall.
No sympathy for these stupid @$$@#.
They caused houses to sky rocket to phoney artificially high prices because they cannot value anything. You work hard for your money so it would make sense to get the most for your money. No these dopes have nothing and want more.
Kick their #@$$ out into the streets.
I’m relatively new to the blog, so maybe this site has been referenced before, but look at the percentage drops on these California listings! Wow!
nice ta meetcha! Hey, have you seen this chart:
http://www.smugmug.com/photos/136440158-O.png
Can you explain this graph to me a little please?
Starting at the beginning of 2007, this is a chart showing the volume of loans that are set to adjust for the first time by month.
If you believe that the adjustment of these loans is a significant source of the pain, then the pain will continue through 2011.
http://flippersintrouble.blogspot.com/
Example:
Total Loss: $324,600 Percent Loss: 28.9%
Asking Price: $799,900
Bedrooms:5 Baths: 3 Sq. feet:4400
Listing History:
Down 40.7% from $1,350,000 On 2006-07-22
Down 39.6% from $1,325,000 On 2006-09-02
Down 38.4% from $1,299,000 On 2006-09-23
Down 27.2% from $1,099,000 On 2007-03-17
Down 10.6% from $895,000 On 2007-05-12
Down 5.9% from $849,900 On 2007-06-09
Days on market: 427
# of Times Listed: 4
Previous Sales:
Sold on 2006-04-04 for $1,124,500
The owner of that blog occasionally posts here. Most bubble blogs have some level of involvement.
With link… http://flippersintrouble.blogspot.com/
(So what is the URl field for?)
Ah .. it links my Name. I’m slow but I eventually catch on.
Love the site Ben.
New-home sales plunge 8.3% to seven-year low
Median sales price down 7.5% in past year, biggest drop in 37 years
By Rex Nutting, MarketWatch
Last Update: 11:30 AM ET Sep 27, 2007
We need drops of 40-50% in bubble markets to get prices down to reality and affordability.
Who are the morons buying at 10-15% off? You’ll lose the day you sign the contract.
Kind of like driving a new car off the lot. Value plummets.
“Who are the morons buying at 10-15% off? ”
This is something we don’t talk about much. Some people are going to be buying on the way down - who are they? It’s easy to say they’re being foolish, but it can’t be that simple.
They could include:
People who just got a big bump in income, and want a house NOW, and can afford the payments.
People who bought low and sold high with their last house, and are buying sideways or down now.
People who are truly wealthy and a downturn in the value of one of their properties really doesn’t affect their lifestyle.
Well-off older retirees who aren’t interested waiting for a bottom to make money they don’t have time to spend anyway.
In short, people who have considerable net worth and don’t want to be renters.
i might bet that about 75% of those currently shopping for a home think the market is good.. or maybe normal.. up until the moment their loan application is turned down.
But some do qualify, and those people do buy, and only learn about the market at some time after the purchase.
Or, like two of my friends who bought in the last six months:
Newly married who wives insisted they buy a house since they are now “adults” and shouldn’t rent anymore. The husbands were too spineless to say ‘no.’
I don’t see a problem if they can afford it and they plan to stay awhile. Not every purchase is an awful one.
It depends on your market. Some areas are just flat, and if a buyer can afford the property and plans to stay more than a few years, it’s not necessarily a horrible financial mistake.
The competion: in New York, buyers and sellers turn to blogs created by real estate brokers for real estate advice.
http://www.nysun.com/article/63478
“Mr. Czepiel is among a class of worried buyers and sellers who have turned during an uncertain period not to economists but to their brokers. Throughout the industry, brokers have created files of articles that talk up New York City’s “bulletproof” or “insulated” real estate economy; they also have begun posting on their professional Web sites information to diffuse the panic brought on by ominous headlines.”
“‘The blog is my way of providing clients with real-time information,’ Mr. Czepiel’s broker and the principal of A Fine Company, Andrew Fine, said. Fifteen minutes after the Federal Reserve slashed interest rates last week, Mr. Fine put a post up describing how the move was good for the city’s real estate economy.”
Perhaps Mr. Czepiel can find out what kind of loan to take out from a mortgage broker blog.
“Mr. Ruiz has a checklist of reasons why the city, especially Manhattan, won’t go the way of the suburbs in Florida and Georgia. He tells clients that foreign buyers are still flocking to the city in large numbers, sales and rental data show no wane in demand generally, inventory is low, and people looking to live in the city are wealthy and less likely to be affected by the credit crunch.”
We are the last refuge of bubble denial. It’s contained to the whole rest of the world other than here!
It’s like turning to your crack dealer for advice on how to quit.
I like that. or….. Bartender! How do I quit drinking?
Paint it black HBB’ers. These numbers are fugly. They don’t include cancellations or incentives. What’s more, they are going to be revised down further. If KB did not sell its European asset, its loss would have been greater than 6 dollars per share. The housing industry is in a death spiral. It has entered the black hole. Paint it Black:
http://www.youtube.com/watch?v=1kl3GeOPKsg
The sales of high price toys begins:
http://lasvegas.craigslist.org/car/400889095.html
Everyone who feels bad for this Realtor…..Awwwwwwwwwww !
It must be painful for him to part with his phallus.
Why is it that agents feel the need to drive these cars? It doesn’t impress me one bit. After all, it’s just four wheels and a motor.
I have no problem admitting I have a weakness for luxury sports cars, Audi and Infiniti being my current favorites. Not everyone wants to drive an economy car like a Corolla or Elantra… to each his/her own.
Of course, he could have paid $37K for a fully loaded Infiniti G35x with better reliability than the German brands and only a second slower in the 0-60… His money to spend.
I don’t think anybody wants to drive an economy car. But some do because they realize that’s all they can really afford.
I love to drive an economy car, because it suits my self-image. Got a Saturn, but only because they stopped making the Plymouth Horizon.
When looking at used cars, it’s pretty important to take a look at the tires. The ad mentions new Falken Azeni tires. While certainly not bad tires, they are nowhere near the cost of the tires that should be on a car of this level. This is perhaps the most easily noticeable area of an owner skimping on the ownership costs of the car. It should immediately raise a red flag - “What else did the owner cheap out on???”
Oil is pretty expensive these days.
Statsman good point. The car looks nice. I drive an old 1992 low low low price car. Believe me I could afford nearly any car. But like the low key approach. It’s funny that people buy these performance cars for bumper to bumper traffic that is in most areas now.
I had the car bug bad, in younger days. Ironically, it started to wane after I took a course at Bondurant performance driving: found out that the capabilities of most any modern vehicle far exceed what can be practiced on a public road (i.e., 0-60, 1/4 mile times, cornering adhesion, what’s the point, really?). If you’re not on the track, you’re playing with peoples’ lives.
That said, spend your money how you please. The sooner we get all this oil used up, the sooner we’ll get on with the next phase. How many watts d’ya have under that hood?
In Colorado wrote…”I don’t think anybody wants to drive an economy car. But some do because they realize that’s all they can really afford.”
Wrong.
I think it can be argued that gasoline is NOT very expensive, relative to earnings and inflation. There’s a good exposition at
http://tinyurl.com/yqmdcn
an arguement based on expensive has a lot to do with DEPENDENCE and WILLINGNESS to indulge in the EXCERSISE.
Don’t they currently make an RS?? How is 2003 the only year Audi sold that in the US? Come on, don’t lie about everything, especially to people who would actually be interested in that style of car. This car is quick but nothing special looks wise. I like that. But if i was spending lots of money on a car, I would want something that looks fast and is fast. Otherwise just go buy a Camry or Accord and get an awesome car for a good price.
They currently make an RS4. That’s an RS6. I’ve seen them at the track and the performance is very underwhelming for a turbo V8. I think that’s part of the reason they only imported them for a year…they just didn’t live up to the hype IMO.
Next up: Sometime next month, we should see the numbers for the foreclosures for the people hit with loan resets in Q1 and getting foreclosed on in Q3…bets are that the number will be between huge and really huge.
Got seatbelt?
“Sales of new homes in the U.S. dropped more than forecast in August and prices plunged by the most since 1970.
I thought this was interesting. So now we’ve skipped over the early 80’s and 90’s and gone right for the 70’s.
“I thought this was interesting. So now we’ve skipped over the early 80’s and 90’s and gone right for the 70’s. ”
Ah yes, free love just around the corner. PEACE
‘I can’t even tell you the last time I even went shopping,’ she said.”
Oh the horror! I had no idea things gotten THAT bad.
I too can’t tell you the last time I went shopping. As a result, I have a health savings account and no debt.
Last week I read where consumers account for a now-whopping 72% of the economy. Considering this woman’s position and many more like her, it won’t be long before we can officially pack it in as an economy.
Third world here we come!
This is a little off topic. Has anyone been watching the downtown Los Angeles condo boom? It seems as if they are still getting sold out or close to before they are completed. There are still plans for hundreds of units to be built in the next year. At the same time when I look at MLS, I see long days on market and a decent number of 50k-100k reduction in asking prices. So why are developers claiming that their buildings are sold out without reducing asking prices?
If I understand correctly, “sold” means “we have a contract to sell to someone, and a deposit to ensure that they make good on it”. In other words, it’s not really “sold” until the unit is completed, the purchase money changes hands, and the deed is recorded. This is the same concept of “sold” that is used for new housing tracts.
The home builders have that same definition of “sold”…and it’s *very* interesting to note that they are getting cancellation rates of 30%-50%. If the condos are looking at that same cancellation rate, then a completely “sold” building might ultimately come up with 30%-50% vacancy when its completed.
If I understand correctly, “sold” means “we have a contract to sell to someone, and a deposit to ….’
- Sorry, the housing machine does not work that way. It is like a ‘Time Share’ sales office - they ring the bell everytime another sucker signs up! Of course, this has nothing to do with a completed sale!
How does this apply to new condo developments? I can see how sold mean in contract and that could turn into unsold when financing falls through. How approved are loans when a deposit is given and a contract is signed? It must be different with new condos as there wouldn’t be comps and an inspection. Do the developers and their preferred lender check buyers credit, verify income and assets, and lock in loan terms before there is officially a sale, so financing would be a sure thing? Or do the developers just take a deposit and wait till the a month before the move in date to underwrite the loan? So them the buyer might not be approved or backs out because the interest rate is higher than expected.
When walking in front of new condos in my city I make sure never to pause to tie a shoelace - lest my momentary lack of movement be interpreted as showing interest - and thus counted as sale.
Yeah, my neighbor is still bullish on the condos built near Staples Arena. Just bought two of them, and insists that the “L.A. Live” development project will increase their value when it takes off. Not sure what to make of it.
My favorite greasy spoon in the city of angles, the Pantry…
Isn’t far away
“‘Now I know it was too good to be true,’ she said last week.”
“Her new payment was lower than her old one, but higher than expected, and she didn’t realize it added $1,100 a month to her principal because it was less than the interest charge. With her payment set to jump in October, Sawyer would like to refinance.”
This is why so many people have bad credit. They’re too stupid to figure out that an ARM can raise their payments. They can’t figure the interest to know that what they’re paying is not the whole amount due, and it’ll be added onto the principle. I’m beginning to think we have a whole nation of idiots.
Being a professor, I can generally attest to that last comment.
“I’m beginning to think we have a whole nation of idiots.”
“Being a professor, I can generally attest to that last comment.”
Statsman, not all my professors were idiots.
From MSNBC:
“Stocks were searching for direction Thursday, as some investors bet that a steep decline in August new home sales will give the Federal Reserve another reason to cut interest rates.”
Already? What, didn’t the last one work? “I’m turning Japanese, I think I’m turning Japanese, I really think so, think so, think so.”
The Wall Street bulls me of the alcoholic who can find a new reason to celebrate every day of the year.
I’ll toast to that ! Hic !
Happy New Year!!!
How sad. BB could drop rates back to 0 and it wouldn’t matter. Millions are stuck in their homes, no one is buying, inventory is piling up geometrically, and people are quickly realizing that RE is not the get-rich quick scheme Carlton Sheets and his ilk advertise to be.
As an aside, I went to visit my SIL this past Sunday because it was her b’day. I had an interesting discussion with her husband. If you recall, they bout our home for 400K two years ago. Well, Einstein now wants to sell. He is concerned about the state of RE. As far as I know they don’t have an ARM. However, his concern is that he is going to lose all his equity that he put in from the sale of his previous home. If that isn’t enough, he wants to sell, sit on the cash, and then buy bigger when this mess is over. Did I forget to mention they have 2 kids, she works (at a nice job), and him…. Well, let’s just say he rents one of those carts at the mall and sells doggie toys. WTF? I just listen like many of you do and offer subtle help when I can. Don’t want to upset the family you know!
We COULD go negative on the interest rates:
I’ll borrow $500K from you right now to buy a house, and then pay you back $400K in a few years … wait a minute … we are already doing that via short sales.
If you recall, they bout our home for 400K two years ago.
Well, let’s just say he rents one of those carts at the mall and sells doggie toys.
Don’t want to upset the family you know!
You already did.
So the stock market is about to break 14,000 and we need a rate cut? I dont get it anymore. Though I am still going with my 600 basis point cut so we get it over faster and I get money out of thin air. I really need a Ferrari and free gas and then I can get bailed out right after I buy it with monopoly money.
I don’t believe it. Everyone knows real estate never goes down. Besides, Yun just said a few days ago that the NAR numbers prove “all real estate is local”. When the data don’t fit my worldview, I question the data, not my theory. That way, I’m always right!
Not just local, hyper-local! (This is starting to get used in the Bay Area and Seattle as the outlying and more marginal areas start to slide…)
I am new to this blog too. We are planning to buy at some point, but are just “waiting on the sidelines” and not in a rush. BUT my question is….how the **** do I know when I am getting a good deal and buying at the bottom, not on the way to the bottom? Help!
when you’re the only one at the auction
easy. You wait until prices just start to edge up again and buy at the beggining . Nobody can call the bottom, but you can call the start. you’ll be closer to the bottom at the start of appreciation.
What if it’s a false bottom/beginning? Also, national and even citywide medians have proven difficult to rely on due to fluctuations from neighborhood to neighborhood.
One benchmark that I like that’s been suggested here in the past is finding comps for 1998 prices, adding appreciation per year as .5% above inflation (or 1-2% for more desirable locations), and lopping 10% off of that final number. For my area, that’s a number I’m comfortable with.
If your offers are continually laughed at and you can afford more (based on 30yr fixed, 20% down), adjust as needed. As opposed to trying to time the market, this process discounts the BS that’s occurred recently but provides a comfortable basis to start with, without ignoring the historical returns on housing.
(not investment advice)
You just described a bear trap.
Stick around here a while and you’ll learn how yourself from everybody here.
Roughly speaking, someone here the other day said when something happens like 2 straight quarters of price and/or sales increases, then it might be headed up again. Since that likely won’t happen anytime soon, you have plenty of time to learn.
in the area where you want to buy, go on zillow and find the 1999 sale price for a home, add inflation –>should give a good idea about how much that home is worth.
I use this method in OC cali and let me tell, it aint pretty, we have a long way to go
I was thinking about this as well
- 1997 prices + 3.5% annual increase
- not a single Flip House show on TV
- people have an adverse reaction to granite
- you hear about more ex-mortgage brokers and ex-real estate agents than current ones.
Others …
We need a blog FAQ.
My rules:
1. 18 months after foreclosures peak. (That was the bottom in the nineties). Plus
2. 2Q’s of YOY rise in prices. (mrincomestream or ex-nnv’ s rule, that I like so much I added it to my list.)
3. When the cover of Time has the story “Property is dead forever!”
When the sellers agree to sign a sales contract which includes them feeding the squirrels at their new home. (In the trailer park)
a bottom is unknowable, except in hindsight.. however, imo the coming market bottom will last for a long time, and anyone willing and able to buy it could do so at their leisure.
Wait for prices to stop going down… then wait 2 more years. If prices have still stopped going down, then you’re golden.
Put another couple of ways -
- I can *guarantee* you that when the bottom does come, there won’t be some sudden upturn in prices at the beginning of the recovery. It will be very long and very slow. You’ll have *years* to get a good price on a place, not months. (See Japan - which has had a stagnant bottom for about 10 years now)
- A wise person (not sure who - maybe Buffet?) said something like - “The way to make money in the market is to buy low and sell high. The problem with most people is that they try to buy lowest and sell highest.” Same principle applies to the housing market.
Everyone above are right: hindsight is the only way to know bottom. You can know when a property is generally undervalued by looking at rental costs.
Figure out generally what it would cost per month to rent the equivalent property. Things are cheap when the monthly rent multipled by less than 100 is the purchase price. 100-120 is the break evenish depending on the property and anything over 120 times monthly rental is when it’s much better bet to rent. So a home that costs $1000 per month to rent should cost $100K or less. $80K would be a very good deal, anything over $120K is probably paying too much.
Another way is when the price is below 3x your income (or 6x-9x in Cal. and other tight markets). Also very affordable.
I like this equation (100-120x rent) but is there any version of it that takes taxes into consideration (since we’re in an ubertax state)?
Try This link
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html
volume in the market is so thin that an ant fart could plunge the DOW 100 pts down.
Pissmire on Wall Street…
Good one jungle. End of quarter statements need to be made and mailed. Every turd must be saved and polished at all cost. Put away the potpurri. The big flush is coming.
Thank you for all of the advice. We are in California, so it is very difficult because there are so many overpriced houses - I mean outhouses. JP - I’m sure that many have asked and many have responded to this question. Thanks to all for taking the time. It is time for me to do some research - I guess I have quite a bit of time to do it!
here’s a naughty bit of conjecture:
VOLATILITY RETURNS WITH VENGANCE COME MONDAY.