Potential Buyers Don’t Care How Low The Prices Are
Some housing bubble news from Wall Street and Washington. Associated Press, “The Commerce Department reported Friday that new-home sales tumbled by 9 percent in November from October to a seasonally adjusted annual rate of 647,000. That was the worst showing since April 1995, when the pace of sales was 621,000.”
From Bloomberg. “Sales of new homes were down 34 percent from the same time last year, the biggest 12-month drop since January 1991. The number of homes for sale at the end of November decreased 1.8 percent to 505,000, the fewest in two years. Still, because sales dropped even more, the inventory of unsold homes at the current sales pace jumped to 9.3 months from 8.8 months in October.”
“Sales of new homes in November were 53 percent down from their July 2005 peak. Housing starts are near a 14-year low and have fallen 48 percent since their January 2006 peak.”
From Realty Check. “I logged onto each of the top 10 builders’ Web sites. Eight out of the 10 sites’ home pages made no reference whatsoever to the holiday season. I have to wonder why the builders aren’t jumping on the holiday season bandwagon. Lackluster sales everywhere else are spurring massive price cuts.”
“All I can surmise is: perhaps it’s not about price anymore. A mid-sized home builder, speaking off the record to a friend of mine, said that potential buyers right now don’t care how low the prices are, they simply can’t bring themselves to make the deal.”
“Unlike previous housing recessions…the builders are now finding that the main barrier to sale is not price or budget. Instead, it is an overwhelming sense among consumers that homes are fundamentally a bad investment right now.”
The Street.com. “Builders are heading into 2008 facing a perfect storm of rising homeowner foreclosures, tightened credit markets and record housing inventories.”
“Many of these dangers are already well known, but there are also hidden issues that have yet to play out. Don’t be surprised if there are some big negative headlines in the first half of 2008, such as the first public homebuilder going bankrupt or a couple of joint venture investments blowing up.”
“Industry watchers say that it’s problems within joint ventures that could tip some builders over the edge next year. These joint ventures, whose financials are largely opaque to investors, are in danger of causing big losses for builders and potentially creating liquidity crises.”
“Already, Standard Pacific has been forced in recent quarters to supply capital to weak joint ventures in California. That was particularly bad news for a company already facing liquidity problems.”
“‘Joint ventures allowed [builders] to adhere to off-balance-sheet accounting rules and not have to consolidate all of the venture debt and the asset base on their books, so it made them look a lot leaner from a net asset base and have better debt-to-equity ratios than what was really out there,’ says Patrick Starley, president of Buffington Capital Holdings.”
“‘These big public homebuilders are in a pretty substantial cash crunch, part of which is a result of all this unconsolidated debt now causing big problems for them,’ Starley says.”
“ACA Capital Holdings Inc., the bond insurer that lost its investment-grade credit rating last week, agreed to give control to regulators to avert bankruptcy.”
“S&P sliced ACA’s rating 12 levels to CCC, casting doubt on more than $75 billion of debt the company guarantees, including $69 billion of securities such as collateralized debt obligations. ACA reached agreements to avoid posting collateral until Jan. 18 against credit derivatives it uses to insure the debt. The regulator held off filing delinquency proceedings while ACA seeks ways to raise capital.”
“‘ACA is still in deep trouble,” said Donald Light, senior analyst a financial research and consulting firm. ‘Unless it gets a capital infusion quickly, these recent moves are only delaying the inevitable.’”
“If ACA is downgraded below BBB+ and is unable to obtain long term forbearance agreements on its swap contracts resulting in ‘insufficient protection of ACA’s policyholders and creditors or to the general public,’ regulators may request ACA be placed under conservation, rehabilitation or liquidation, according to a consent order signed by Maryland Insurance Commissioner Ralph Tyler and dated Dec. 19.”
“Canadian Imperial Bank of Commerce said last week that it may write down the value of subprime securities it holds by $2 billion because they were insured by ACA. CIBC, Canada’s fifth-biggest bank said ACA insures about $3.5 billion of the bank’s U.S. subprime investments.”
“ACA has $1.1 billion to cover potential losses on $7.1 billion of bonds it’s insured, according to data on claims- paying resources or capital posted on its Web site.”
“‘It’s given them breathing room and a month to stave off bankruptcy,’ said Nigel Sillis, director of fixed income and currency research at Baring Asset Management in London, which oversees $15 billion of fixed income. ‘It still looks like bankruptcy is inevitable.’”
“When home sales soared this decade, bond insurers increased their guarantees of securities created from mortgages, including subprime loans to people with poor credit.”
“They guaranteed almost $100 billion of CDOs backed by subprime-mortgage securities as of June 30, according to an Aug. 2 report by Fitch. Most of those guarantees are in the form of derivative contracts. Unlike insurance, those contracts are required to be valued at market rates at the end of each quarter.”
The Wall Street Journal. “Even good banks foul up. That is the emerging consensus among analysts and investors now that Wells Fargo & Co. has been forced to write down the value of a chunk of home-equity loans and is battling falling home prices in some of its top markets.”
“The bank loans are concentrated - both geographically, in states such as California, Nevada and Arizona, and in lines of business, including home-equity and construction loans - in areas likely to see more problems, says Fred Cannon, an analyst with Keefe Bruyette & Woods.”
“And the bank does have subprime exposure, although it likes to downplay the risks. On Dec. 11, Richard Kovacevich, who stepped down in June as the bank’s CEO but remains chairman, told the Wall Street Journal that Wells held no subprime loans on its books.”
‘He then clarified, however, that he wasn’t counting about $24 billion in ‘debt consolidation’ loans - about 6 percent of the bank’s overall portfolio at the end of September - made to borrowers with lower-tier credit by the bank’s consumer-finance unit, because he doesn’t consider them as risky as many other subprime loans.”
“Competition during the height of the housing market caused even level-headed players like Wells to make risky bets. During the mortgage boom, Wells heavily promoted its home-equity loans as a way to add rooms to a house or redo a kitchen.”
“As more aggressive rivals cut into Wells’ markets the past several years, Wells adopted a riskier approach of making home-equity loans through brokers whose customers didn’t have any prior relationship with the bank.”
“That turned out to be a mistake, Kovacevich admits. The loans have gone bad at a much higher rate than similar loans made to Wells’ own clients. Wells no longer makes home-equity loans through brokers.”
“‘We should have known better,’ the chairman said in a recent interview with the Journal.’
From MarketWatch. “As a brutal year in the financial-services industry comes to a close, Ken Thompson believes Wachovia Corp. is prepared to weather the storm in the nation’s housing and credit markets. But the CEO of the nation’s fourth-largest bank admits his industry is in for another rough year.”
“‘I’m expecting a slower growth year than we’ve experienced anytime over the last five or six years, Thompson said Thursday in an interview. We’re still in the midst of a housing correction, which is impacting the real economy, but I do not expect a recession.’”
“Few foresaw the devastation inflicted on the nation’s financial markets in 2007 by the subprime-mortgage crisis, which has rippled across the globe and, Thompson said, will continue to exact a toll in 2008.”
“‘There’s plenty of blame to go around,’ Thompson said. ‘I think lenders made loans to people who should have not received loans. I think that brokers were scrambling to put business on the books that should not have been done.’”
“And in the capital markets, where many of the mortgages were packaged and sold as investments, ‘I think the rating agencies did a very poor job in rating those mortgage-backed securities,’ Thompson said.”
“Thompson admitted Thursday that the timing of the $24 billion Golden West deal ‘was not the best, because the mortgage market has been more troubled I think that anyone could have projected at the time we did the deal.’”
“‘I think, in general, the challenge is we are in a relatively early stage of a credit cycle,’ Cannon said. ‘We really have to get to a point where home prices will stabilize.’”
The Sacramento Bee. “For households mired in mortgage troubles, there’s one less worry this year. That’s the nasty tax consequence of avoiding foreclosure by selling a home through a ’short sale’ or other loan rearrangements.”
“A bill signed by President Bush last week lets homeowners off the hook for a little-known tax bite that occurs when mortgage debts are forgiven. The reprieve applies to households that use short sales or other mortgage relief efforts during 2007, 2008 and 2009.”
“It’s a temporary measure during this real estate slowdown and is only for loans involving a primary residence. It does not apply to investor-owned properties.”
“In the capital region, one short-sale specialist praised the move but said it won’t really bring much debt relief. ‘Many of these people weren’t going to pay the tax, anyway,’ said Scott Thompson, a partner in Mortgage Resolution Services in Carmichael. ‘There was a part of the tax code that granted them immunity if they were insolvent.’”
“The events of 2007 have made the U.S. much more affordable for international home buyers. Severe dollar declines against the euro and pound have made U.S. homes much cheaper for Europeans.”
“Despite the news waves of foreign buyers in many U.S. markets, few suggest international investors by themselves can entirely offset the nation‘s housing crisis, brought on by the failure of many subprime mortgage loans made to home buyers with weak credit histories.”
“Constantine Valhouli, a principal with Boston’s Hammersmith Group, stressed that the fact that international investors are helping to prop up some troubled housing markets only emphasizes the level of stress in residential real estate.”
“‘Relying on foreign real estate investors is fundamentally as risky as relying on subprime mortgages,’ he said, noting that both phenomena distort demand and can conceal the depths of the problem U.S. home buyers and sellers face. ‘Foreign buyers aren‘t going to save the U.S. housing market. They‘re just a temporary fix like a finger in the dike. Fundamentals matter.’”
From CNN Money. “Before you put much hope in forecasts for a 2008 rebound in the battered housing market, consider this: A year ago at this time many top economists were looking for that recovery to begin in 2007.”
“Instead, the year saw historic declines in nearly every measure of housing strength and home building, and left a trail of predictions from some of the nation’s top economists that look - at best - foolish.”
“‘It may be too soon to say that it’s over. It may not be too soon to say that the worst is over,’ said Former Federal Reserve Chairman Alan Greenspan in an October 2006 speech in Richmond, according to press reports.”
“In a November 2006 speech, his successor Ben Bernanke said he saw some ‘encouraging’ signs in recent housing reports.”
“‘Although residential construction continues to sag, some indications suggest that the rate of home purchase may be stabilizing, perhaps in response to modest declines in mortgage interest rates over the past few months and lower prices in some markets,’ Bernanke said.”
“Many other economists freely admit their year-ago forecasts missed the mark. And while many of those economists are again hoping the year ahead will bring a modest recovery, they are far from certain. ‘A lot can go wrong here,’ said David Wyss, chief economist at Standard & Poor’s.”
“‘I thought we’d have problems, but I thought it’d be a smoother adjustment,’ Wyss said about the problems that developed in mortgage-backed securities. ‘The financial side was much worse than I thought it was going to be.’”
“A year ago Wyss was forecasting a 7 percent drop in home prices from peak levels. Instead prices fell nearly 10 percent from the July 2006 record.”
“‘Everyone thought I was nuts. Now it turns out I was an optimist,’ he said.”
“The National Association of Realtors made a forecast a year ago that was far more optimistic than those by Wyss and many other economists. The Realtors expected only a 1 percent drop in the pace of existing home sales, and a 1 percent gain in median prices.”
“The group’s current forecast for 2008 calls for a 0.5 percent increase in the pace of sales, and a 0.3 percent rebound in prices. But Lawrence Yun, chief economist for the trade group, said that making forecasts is even tougher this year than it was a year ago.”
“‘I would not be surprised if home sales improves in 2008,’ he said. ‘At the same time I can also foresee a circumstance where buyers continue to pull back, the inventory sitting on the market continues to build and it causes prices to go down further.’”
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In case this has not been posted…
http://www.latimes.com/business/la-oe-housingdenial28dec28,1,7942735.story?coll=la-mininav-business
Realty reality: Housing prices are headed way down
Southland house prices have risen past sustainable levels for most homeowners.
By BY CHRISTOPHER THORNBERG
December 28, 2007
In 2002, the median price of a single-family home in Los Angeles was $270,000 and the median homeowner’s income was $65,000. With a $50,000 down payment, the annual cost of that house (taxes, insurance and payment on a 30-year fixed-rate conventional mortgage) would add up to about 33% of the median household’s income — just under the 35% mark that the Federal Housing Administration calls the upper limit of “affordable.”
By 2006, the cost of that same house doubled, to $540,000 — pushed by unbridled speculation fueled by unparalleled access to mortgage capital. But median income rose a paltry 15%. So today that same set of costs come to 60% of gross income.
That might be a manageable burden when home prices are rising at double-digit rates, creating new equity that can be accessed to support spending — but not when prices are flat and the home-equity ATM is closed.
There are “experts” out there who once preached that there was no bubble; they now preach that all real estate is local and that prices in your neighborhood won’t be affected by foreclosures and price declines elsewhere.
The cold, hard truth is that foreclosures are serving only to hasten the painful process of shifting housing prices back to a level the market can sustain. Prices must and will fall. Everywhere. Probably 25% to 30% from their peak.
2008 is the year when gravity will reassert itself. You should be adjusting your expectations of your home’s value so that it’s correctly aligned with market realities. And when making important financial decisions today, be realistic and factor those declines in.
Christopher Thornberg is a founding partner with Beacon Economics.
If the house is overpriced by 100% and there is a 15% discount, the house is STILL overpriced. We could care less what is owe on the house. I think the formula for fair market value is or should be
- 2000 price with 4-5% increase for inflation.
Generally yes, though in some areas the bubble started in about 1998, fed by the tech boom. In particular all of CA, Denver, and Boston come to mind (at least looking at OFHEO and Case/Shiller data).
It really looks like 1997 to me, in the composite Case-Schiller. Note that the Composite-20 only dates back to 2000.
1997 is what I have been saying all along, but keep in mind that I am talking about the more expensive parts of Cali: Coastal LA, Southern Marin, SF, and Palo Alto/San Jose, because those are the areas that I am familiar with. Other areas probably had different timing. The “national” effect kicked in a bit later, after the most desirable areas took off. This bubble seems to have spread outward from the more desirable places to the less desirable places as the easy money kicked in. Now it seems to be running in reverse, which explains why the really expensive stuff is not correcting as much as places like Fontucky and the rest of the IE. I’m waiting for the better stuff to correct before I strap on my vulture beak and go looking for carrion.
outside of detroit and the more blighted areas of the IE I doubt many houses are overpriced 100%, in other words have market value of 0.
Which your statement implies.
Sigh. Now I see how shrub got elected twice….
I think he means that the price is 100% over the true value - i.e. the value is 50% of the price.
E.g. a house worth 200k, that’s being offered for 400k.
Price = 200% of value, which is 100% “over” the value.
Your math is wrong. Overpriced by 100% means that price needs to fall 50%, not 100%, to be back where it belongs (ex, you believe a house is worth 100k, but is for sale for 200k; it would be deemed 100% overpriced, and need to fall 50% to get back to where it should be).
Guess Badger Boy was for math, before he was against it.
And what would you call a house whose asking price was double it’s real value? 50% overpriced? 200% overpriced?
See your point about W, though he did lost Wisconsin by 1%.
Bush got elected twice because of the ongoing migration of our young, educated and professional population from the Rust Belt into Florida, Georgia, Texas and Arizona.
The Republicans failed to carry California twice and it didn’t matter. If they end up nominating another southerner, they’ll win again. No one has ever won the presidency without carrying five southern states…something Hillary will never do.
Abraham Lincoln won the Presidency carrying ZERO southern states.
Don’t forget that the Strom Thurmond, Harry Byrd, and George Wallace all ran as 3rd party candidates in the 40’s-60’s and carried most of the Southern states on states rights platforms.
Even Eisenhower couldn’t carry all of the south in either of his elections.
I dont think a particular year can be used for the nation as the boom started at different times for different areas.
The statement that price is irrelevant is just ignorant. As soon as prices fall back to historical ratios (which in most areas means about a 50% drop) me and many others will be ready to buy.
qt,
You have NO IDEA how long I’ve been trying to get that point across! Early on it just seemed ridiculous, well how about now? Agreed, some markets started their “hockey stick” chart departure sooner so whatever suits your local market.
This is what homes have typically appreciated (CPI + a point or two). It’s really not that damn difficult to estimate just how much your area is overvalued. (Of course in 2005 during the “Permanently New High Plateau” sellers didn’t want to hear THAT!) I can’t imagine they’re any more receptive NOW, but that be the facts.
2000 price with 4-5% increase for inflation.
If that’s the formula, then it’s extremely hard for me to understand why that wouldn’t also be the formula for commercial property, docks, churches, bridges, lighthouses (things occupying the earth), not to mention, with perhaps a slight adjustment for the value of land, all durable goods and personal property as well, including boats, airplanes, cranes, machine tools; not to mention all the components of houses, such as roofing materials, doors, windows, fasteners, cheap plywood, drywall, molding 2 X 4s, and the like.
Houses don’t appreciate; they depreciate. They can only hold their value or “appreciate” due to replacement of component parts, upgrades, improvements, scarcity of materials and labor which form a large part of the structure (e.g., rocks and rockmasons or clever architects), and scarcity value of location.
Otherwise it’s just a rotting piece of junk.
Where was it this week ,(I believe it was a lumber yard in Vancouver, Washington at $1.23 for a 2 x 4 and was at 1983 price level.). OUCH!! I guess houses do depreciate.
2000 prices with 4% for inflation. sounds right to me.
4% inflation???? Go by the gov’t #s and I call 2%-2.5%. And I agree with packman, Denver started with a techmo-bubble in 97/98.
Here in San Diego, the bubble got started in 1998-1999. Even 2000 prices which stood at $230K do not have a lot of room to move with relation to incomes, which did increase a lot during the 90’s, but have been virtually stagnant since 2001. So if it is pegged in any way to incomes, then we would need adjust almost 50%.
But salaries have not increased since 2000 in fact for a lot of people they have declined so purchasing power has declined esp if you consider inflation. Real housing prices should closely follow purchasing power and should have been in a slow decline since 2000. Only games with interest rates prevented this. So todays prices should be 10-20% under 2000 to match incomes. Which means we need up to a 80% drop in prices in some areas.
Prices will drop well below 50%. Why? I’ll tell you.
The savings rate for the average person is -.2% = no savings.
Average person is $7,000 in debt. ( credit, car, school, etc.)
Now,to buy a house, you have to have 20% down before any bank will even talk to you. So let’s say I make $37,000 yr.( national average) I can buy a house worth $110,000 ( about 3x’s salary) so at closing I would need $ 22,000 just to sit down at the table plus any other extra costs. The average person does not save anymore. Going from $0 down to $22,000 is a HUGE difference. That’s why homedebtership went from 50% to 70% is just 5-6 years.
Now this is a fact- Home Prices will drop to the point people will have a 20% down payment.. PERIOD.
I will tell you folks this is going to last 10+ years and prices will drop 80% +. We will not get out of this mess till we start saving again as a nation. People are stuck in homes and have lost there savings ( through price drops ) so even if they saved for a downpayment it is now lost. It will take years for this to correct itself.
Final = EAT SOUP
PWM
4-5% for inflation? Many people posting on this blog believe that inflation is 10% per year. 2000 prices + 10% inflation for 7 years = 195% of 2000 prices. That’s not too far off.
Or if we choose 4% inflation, it’s 131% of 2000 prices. Houses are currently well above this.
And it does depend on the region - Silicon Valley had a huge run up in 2000, then a run down in 01-02, then up since then. The rest of the US did not have as bad of a recession in 01 so didn’t see as much (if any) run down in 01-02.
Pardon my ignorance is this is a dumb question, but how do you figure out what the price of the property was in 2000?
“how do you figure out what the price of the property was in 2000?”
You would have to go back in the real estate transaction records and look at the comps in the area the house is in. The real estate taxes might also give you a clue depending on how the state calculates them. K
This to me speaks volumes. The builders have hit the desert, and it’s a long way to the next oasis. They’re just going to have to live off their fat for a while - and those that don’t have enough fat will perish.
From my surface view this will probably be from about 50-80% of all builders, when all is said and done.
“Unlike previous housing recessions…the builders are now finding that the main barrier to sale is not price or budget. Instead, it is an overwhelming sense among consumers that homes are fundamentally a bad investment right now.”
I am not sure it’s “overwhelming” just yet, at least not in my neck of the woods. I do think this coming spring is going to be a good smack in the face to many who have yet to understand what’s going on.
Right, it will take a third silent spring to really affect sentiment nationwide. A lots of playas didn’t even start to feel the effects until August so the importance of the first two silent springs were missed by that crowd.
they simply can’t bring themselves to make the deal.”
Does anybody else get the impression that builders and realtors are trying to DARE us into buying their crap by calling us out as “cowards” who “can’t commit” because we got scared off by “negative press?”
They think I’m going to cave in, like the husband in the Suzanne commercial.
Nice try.
The NYTimes tried this bogus commitment PsyOps on buyers a few years back. Didn’t work then, will not work now. I get a sense that the builders may be trying to push the time line here by saying that “… overwhelming sense among consumers that homes are fundamentally a bad investment right now.” which is very close to one of the bottom indicators we have listed on this site numerous times. That being “When Real Estate is seen as the worst investment one can make”. By saying this at the same time that they say price does not matter I do believe they may be trying to manipulate the public perception. Where they are wrong is that price does matter to potential buyers right now, but the wishing prices are still far too high to elicit even a shred of interest in the buyer camp.
I believe in the strong possibility that box builders monitor/read this blog and would stop at nothing to manipulate sentiment based on what they read here. What better place could one learn of the sentiment of potential customers than here. Ben could confirm or deny but it’s likely his trade secret right now.
For me,
It has always been price, price, price and budget. If the price comes down buying a house will fall within my budget. Otherwise right now my budget dictates I rent.
Who cares if builders go out of business? At this point in history, they should be run as virtual businesses anyway.
Builders’ main asset is an intellectual [sic!] system that enables them to buy land, apply for permits and hire subcontractors to do the work, then hire more contractors to do marketing and sales.
Most equipment can be leased, and with the exception of truss and other type of parts manufacturing, it’s not like they have to shut down auto plants with thousands of unionized workers. And they don’t need a place to store their inventory, as that would be redundant.
If they bought buildings or built headquarters [with multiple water features], it was out of hubris, not necessity. I think most of the builders will disappear and no one will notice, except the workers. If I’m wrong, book me a flight on Eastern Airlines.
I 100% agree. They are virtual corporations with unusually large overhead. They’ll downsize. Any large offices will become the campus for the next ‘great business.’
And as your allusion to the loss of what was the largest airline in the world not even mattering to today’s society, its so true. New builders will pop up by the hundreds as soon as they can make a buck.
There are 505,000 homes in surplus inventory. Plus… another 100,000 that were sold but then canceled on (per calculated risk). This is about one year’s requirements! But… builders are building at a rate that should add another 250,000 homes into that surplus inventory! Whiskey Tango Foxtrot? High inventory is killing business so let’s stuff the channel?!?
It will be ugly when the builders finally downsize to their needed capacity. When it happens a million to two million workers will be thrown out on the streets. So anyone predicting a rebound before 2010 is insane (I think it will go back up in 2012… but that’s an argument for another year.)
Got popcorn?
Neil
The last paragraph doesn’t make sense. Of course its to do with budget and price. It always has been. Drop the price to one that will fit in my budget. Simple!
““Unlike previous housing recessions…the builders are now finding that the main barrier to sale is not price or budget. Instead, it is an overwhelming sense among consumers that homes are fundamentally a bad investment right now.”
Sorry Di, sufficient price drops will still move houses.
“Sorry Di, sufficient price drops will still move houses. “
But it might not bring the flippers and infestors back since they want appreciation so they can make money quickly. The true homeowners might come back but to many in the RE industry they think of a house as an investment not as somewhere to live.
“Unlike previous housing recessions…the builders are now finding that the main barrier to sale is not price or budget. Instead, it is an overwhelming sense among consumers that homes are fundamentally a bad investment right now.”
They may *think* they’re finding that, but the real situation is that their product has not reached the market-clearing price. It’s just more denial - the builders refuse to admit that the value of their product is now below their cost - by a lot. Remember, builder’s costs for land and materials were bid *way* up during the boom. And now they’re holding the bag.
“‘ACA is still in deep trouble,’’ said Donald Light, senior analyst a financial research and consulting firm. ‘Unless it gets a capital infusion quickly, these recent moves are only delaying the inevitable.’”
How ironic that bond insurers are heading towards junk status. That fact alone is going to increase the uncertainty factor in the credit markets. It’s clear we are in for a long, bumpy ride, so strap on those seat belts and keep your arms and legs inside the vehicle at all times.
Exactly, it’s like going to your accountant’s office and finding FBI tape across the front door! And this guy has been doing my taxes for HOW LONG?
‘Unless it gets a capital infusion quickly…’
i just read a post at iTulip that emphasised how these CASH infusions are really capital extractions. the big banks are selling ownership to foreign govts, that’s equity they’ll never get back and cash was just the medium of exchange.
here’s a fun theory: as long as Congress doesn’t have a problem w/ this type of capital extraction, China/Japan/Dubai/Abu Dhabi/et al will continue to p3wn our banks, utils, possibly agri-business… and the TIC data will look favorable. but once Congress rallies behind some uber-nationalist policy that gives the SWFs only one option for FDI (boring US Treasuries), then the TIC data will drop off a cliff.
Believe it was Jim Willie yesterday who said the SWFs in total possess enuf cash to purchase 10% of the U.S. in ins entirety. Now there’s a comforting thought….
Buffett will snuff out what ever income stream they still have. Who is going to insure bonds with a company that is going out of business. Buffett will make billions on this.
Especially when you can have the Oracle of Omaha standing behind your bond’s insurance. I agree, this move is genius on Buffet’s part.
“Unlike previous housing recessions…the builders are now finding that the main barrier to sale is not price or budget. Instead, it is an overwhelming sense among consumers that homes are fundamentally a bad investment right now.”
The Crowd always does this after bubbles pop, be it the tulip bubble or silver bubble…
Not interested at any price, sorry.
It’s not price, it’s whether its a good investment. Last I heard whether something was a good investment was a function of price and expected return thereon. But what do i know, I’m not smart like these builders.
“Not interested at any price, sorry.”
Actually, if the price was low enough there would be interest. It’s just that the prices are still too high by a considerable amount, which makes them a bad investment.
I’m not sure the tulip bubble is a fair comparison in this sense because the price of a tulip bulb was far, far higher in comparison to what it should have been during the tulip mania than housing has been during this bubble. Some tulips were selling for probably 10 thousand times their real value, for instance 7 times a usual yearly income for a common person. Homes now are AT MOST about 2 or 3 times their real value, but probably not more than 2 times their real value in general and often less than 2 times. That said, I agree that like in the tulip bubble, we will probably eventually see prices fall below what I would consider their real value as a reaction to the deflating bubble.
“S&P sliced ACA’s rating 12 levels to CCC, casting doubt on more than $75 billion of debt the company guarantees, including $69 billion of securities such as collateralized debt obligations. ACA reached agreements to avoid posting collateral until Jan. 18 against credit derivatives it uses to insure the debt. The regulator held off filing delinquency proceedings while ACA seeks ways to raise capital.”
In the movies, didja ever hear the sound an elevator makes when when it drops 12 floors without the safety brakes engaging, and crushes upon impact?
That’s what just happened here.
A complete wreck, a Major Domino toppling over onto multiple Majordomos…
More wishful thinking. If it’s about perception then that can be manipulated, which apparently the builders find preferable to price correction.
Price at 2000 prices + reasonable rate of appreciation and then we’ll see if it’s about price or not.
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“Unlike previous housing recessions…the builders are now finding that the main barrier to sale is not price or budget. Instead, it is an overwhelming sense among consumers that homes are fundamentally a bad investment right now.”
I think a better post-bubble estimate for a median house price in a neighborhood is meidan wage for that area * 3.5%
thats median wage * 3.5
(I typed a % sign by mistake)
I think builders trying to convince everyone that they are done lowering prices. They are hoping that there are enough clueless souls out there who will say to themselves: “this is it - the bottom of the prices, the best time to get it”.
of course this strategy will mostly fail. but any little straw helps.
This hope for foreign investors ’saving’ the US real estate market in various areas seems ridiculous. First, even though US properties may look cheap to them, air transportation to get over here is costing more for Europeans. Most European countries have very tight statutes about landlord responsibilities, tenant rights, etc., which make being a landlord in Europe no fun….they’re not going to see cheap prices in the US and think “joy, joy, we can be landlords for tenants 3000 miles away!” I can see Miami benefiting from this like it always has, since South and Central Americans with $$ buy Miami-area condos, used for shopping getaways now, and to live in if their home governments get weird.
Don’t forget currency risk; if the house depreciates and the dollar depreciates you lose on both ends. If the house appreciates less than the dollar depreciates you still lose. So two out of three possibilities mean foreigners lose money. It’s only a winner if house appreciation > USD depreciation.
Why would a foreigner be any more interested in buying a depreciating asset than anyone else? Dumb.
qt,
You would be paying WAY too much.
Remember corrections overshoot on the way down as well.
Fair price would be 2000 prices MINUS 30 %.
Nutz!
House price always goes up. You must be a poor renter. LOL
I wasn’t positing that as the price I’d pay, but as a price that might move some inventory.
can you say housing pricing 1985?
places in Texas, like Dallas, are still lower than 1986 adjusted for inflation. 21 years and waiting for the rebound. With the US jobs losses in recent years, who’s to say there should ever be a rebound in real estate. Texas never did, the rust belt/northeast must not have if some houses there are $1k or less, Japan didn’t. With globalization keeping wages low there is no reason for the bubble to reinflate any time, let alone any time soon.
“With globalization keeping wages low there is no reason for the bubble to reinflate any time, let alone any time soon.”
Can we get this on a T-Shirt? or a billboard? or maybe a 30 second spot during the Souper Bowl?
What is with calling the year? It’s not about the year, it’s about price relative to incomes, rents and credit conditions. Year? I dunno, but direction, I think we can all agree.
That’s correct, DC. We can call the price at 50% below peak, adjusted for inflation. It’s harder to call the year, but with Ivy Zelman’s famous reset chart, we can have high confidence that prices will bottom somewhere between 2010 and 2012.
Can somebody loan me $6 Billion, for a week or 2?
I’m good for it, I promise.
“ACA has $1.1 billion to cover potential losses on $7.1 billion of bonds it’s insured, according to data on claims- paying resources or capital posted on its Web site.”
Sure, aladinsane. What are friends for?
Of course, I’ll need you to post $12 billion in collateral. And none of that toxic stuff, either.
What’s that? You only have toxic stuff? Oh, sorry. No can do, then.
Maybe if you start up a banking subsidiary, Mr. Bernanke can help you out. He lends on much better terms. Or you could try the FHLB like our good friend Mr. Mozillo.
Interesting to watch Standard and Poors and Moody’s starting to toe the line and downgrade some of the companies which should have been put on a close watch list 2 years ago. Something has happened to make them toe the line. Probably they’ve woken up to the fact that, like the NAR - their credibility is in shambles and unless they start reporting the obvious, nobody will trust them or believe them in the future. Trust in most of these institutions is really taking a beating these days. Gee, I wonder why?
I think there is so much bad debt out there, that if the ratings agencies were to give everything and every company’s bonds an honest credit rating it would cause a massive correction throughout the markets, as different funds/banks would have to re-allocate assets to get back in line with their investment parameters/capital requirements.
Lots of people trying to unload the same bad bonds with few buyers willing to pay anything close to face value.
I would have to imagine that right now the ratings agencies have the full blessings of the FED, Treasury and Wall Street to keep the Emperor fully Clothed for a while longer. As much as some people ask for transparency, I think at the moment we as an economy as a whole just can’t handle the truth.
The simple fact that some of the worlds largest banks are so hard up for capital, that they are willing to borrow billions at 11%, should be more disconcerting than it appears to be in the MSM.
These are precarious times. Hopefully, the country will pull through it without destroying too many innocent bystanders.
The simple fact that some of the worlds largest banks are so hard up for capital, that they are willing to borrow billions at 11%…
What I don’t understand is why CD rates
are falling. Shouldn’t rates be increasing
in this sceanario?
short term CD rates are higher than longer term, kind of inverted as the banks expect lower rates in a few months.
Buffett should sweep in on S and P and Moody’s business as well. It’s pretty obvious no one trusts them.
Mike:
It was explained to me by another poster on this blog a while back that ratings are always backward-looking, which makes them a bit of a joke. Just as one would not drive with their gaze fixed upon the rear-view mirror, one should also not buy stocks based on S&P and Moody’s ratings.
The other day, just for fun, I pulled some S&P reports on the stock of a few companies whose business I thoroughly understand, because I am an insider. I was stunned at how backward-looking and generally clueless the reporting was. If the bond ratings are as sloppy as the stock analysis, then all of this trouble suddenly makes a lot of sense to me.
Wachovia CEO - ANALysis by me:
How can this guy say this - “We’re still in the midst of a housing correction, which is impacting the real economy, but I do not expect a recession.’”
Then say this - “Thompson admitted Thursday that the timing of the $24 billion Golden West deal ‘was not the best, because the mortgage market has been more troubled I think that anyone could have projected at the time we did the deal.’”
______________________________
How can his statements mean anything when he could not see the mortgage mess? Now he sees no recession?
You must realize by now, that CEOs are just overpaid liars. Never believe anythng they say.
I you sure Earl? I’ve been hearing for years now that CEO’s know best and have their employees best interests high on the priority list.
Yes, they do know what is best for us, our only failure is that we do not trust their wisdom enough.
Now is great time to buy!
Ever wonder why Richard Branson, er I mean Sir Richard Branson, is so eager to develop space flight? Once that’s accomplished there will be “space estates” for sale , and all the richy rich will have their golden escape hatch for that moment when all the gated communities on earth can’t hold back 99.9% of the world’s rabble, I mean us regular folk…
Space, they’re not making any more of it. Buy now or be priced out forever.
Sounds like Blade Runner to me.
Golden West deal ‘was not the best, because the mortgage market has been more troubled I think than anyone could have projected at the time we did the deal.’”
Hmmm…nobody could have projected….really? My question; what were the guys on the other side of the deal thinking
With agribusiness saying they can’t get people to pick vegetables, these CEOs should have a new career field. Just until they recover the money they bungled away.
RE: “The National Association of Realtors made a forecast a year ago that was far more optimistic than those by Wyss and many other economists. The Realtors expected only a 1 percent drop in the pace of existing home sales, and a 1 percent gain in median prices.”
“The group’s current forecast for 2008 calls for a 0.5 percent increase in the pace of sales, and a 0.3 percent rebound in prices. But Lawrence Yun, chief economist for the trade group, said that making forecasts is even tougher this year than it was a year ago.”
What are these guys smoking?… Whatever it is I want some when I get bummed out, cause it definitely seems to change your perception of REALITY.
Their job, is to lie.
These absurd estimates are worth the laugh to revisit. 0.5%, 0.3% ?! lol
One year ago, there was considerable doubt and skepticism when I theorized that this could be a half-trillion dollar problem. So far in 2007, Bloomberg reports that over $100bn of write-offs have occurred.
Try $4T to $40T depending on the derivative exposure.
Just the overvaluation will get you in the $3-4T range.
What are you smoking? Don’t bogart it; pass it on.
17 minutes ago
NEW YORK (Reuters) - U.S. retailer Macy’s Inc (M.N) said on Friday it would close nine underperforming stores in Indiana, Ohio, Louisiana, Oklahoma, Utah and Texas.
HAPPY HOLIDAYS…….stocks up a full percentage point…
Everythings fine, people are still buying, CRE is all good.
My wife went shopping in a Macy’s on Monday, 20 minutes later she came out and had re-gifted a gift card! Nothing she wanted. I was floored, and should have called the newspapers. “Woman turns down more clothes!!??”……..
The wife and I needed to replace some items of cookware, and the newspaper said Macy’s had some of their All-Clad on sale. I went in there after work last night and the girl at the counter was so insolent and so clueless that I turned around and walked out.
We ended up buying a piece from EBay, and we bought Calphalon…not All-Clad. I’ll bet the local All-Clad rep would love to hear that.
Yeah but only if her closet looks like mine. 30+ years of buying Brooks Brothers, Talbots, clothes and sweaters from Ireland and England, and Ferragamo shoes which is the stuff that never seems to wear out and never changes styles….. well, it gets a little crowded in there. I didn’t think I had that much until I was doing the ‘I have nothing to wear’ lament and my husband ask ‘how many winter sweaters are on those shelves?” I hit 80 (winter wool and cashmere only) and got bored with counting - and I decided I had plenty to wear. Anymore, I simply replace something that wears out rather than adding to it.
If you handed me a $1000 bill and told me to go shopping, I really and truly can’t think of anything I want to buy or need to buy - be it clothes or anything else (except more perennials for my gardens.)
You guys should see the huge amount of retail space being vacated by Levitz furniture. When you see a retailer that has been around since childhood close up shop you know there is trouble brewing
Montgomery Wards? Grants? GT?
Gemco?
“And the bank does have subprime exposure, although it likes to downplay the risks. On Dec. 11, Richard Kovacevich, who stepped down in June as the bank’s CEO but remains chairman, told the Wall Street Journal that Wells held no subprime loans on its books.”
‘He then clarified, however, that he wasn’t counting about $24 billion in ‘debt consolidation’ loans - about 6 percent of the bank’s overall portfolio at the end of September - made to borrowers with lower-tier credit by the bank’s consumer-finance unit, because he doesn’t consider them as risky as many other subprime loans.”
That $24 Billion in ‘debt consolidation’ loans, aren’t subprime loans…
Just what sort of a bank do you thing we are, anyway?
1st National Bank of Orwell
Or would that be…
OrWells Fargo?
I’m not seeing how debt consolidation loans can be less risky. Has anyone, anywhere analyzed the default rate on debt consolidation loans??
From the comments section in the SacBee article”
“My family is very thankful this Law has passed. We bought our first home in November of 2005 for $287,000. We did refinance once and it brought our total owing to $311,000. That money that we refinanced to pay off credit cards, after all the fees we didn’t get any cash. December 2006 our ARM adjusted and kept increasing our mortage to $2800 a month from $1500. We tried to keep our home and make it work, i called the mortgage companies for any sort of help or rate adjustment and they said there was nothing they could do. We felt our only choice was a short sale, we did not walk away and just leave it.I feel we were responsible and we kept our home up until the day it sold. We were able to sell it in September 2007 for $230,000. It hurts that we have lost our home & the memories we had there for 2 years with our children. With us having to claim an additional $80,000 on our taxes we would have been paying back the IRS for the next 20 years. We are grateful.”
Umm that refi pushed them into the recourse section and if I’m reading the correctly, recourse mortgage losses are not forgiven. Methinks someone is going to be getting an interesting letter from the IRS in a year or two.
Paying off credit cards, that’s kinda like a cash infusion, ain’t it? What he really means is that he was forced to pay off his CC debt as part of the loan, so there wasn’t any more left to buy stuff… or help subsidize the monthly mortgage. 2 years and they have already accumulated hurtful memories? Bet they didn’t even know the names of their neighbors.
We were able to sell it in September 2007 for $230,000
It’s not the sellers I feel sorry for, but this guy.
Assuming these low-paid people are in the 20% tax bracket, that $81,000 in extra income would have amounted to a $16,200 tax bill. If it’s going to take you 20 years to pay off 16 k, then you have no business taking on a $311,000 mortgage.
“Responsible. You keep using that word. I do not think that word means what you think it means.”
“I told you that black and white television I sold you is a color tv”.
“‘I would not be surprised if home sales improves in 2008,’ he said. ‘At the same time I can also foresee a circumstance where buyers continue to pull back, the inventory sitting on the market continues to build and it causes prices to go down further.’”
Ok, which is it? Market good? Or market bad?
“At the same I can also foresee”….
Criminy. The carnival psychic does better than this.
Yeah, they could pay ME to say that! Somebody doesn’t want their words repeated back to them at the end of ‘08, do they?
but home sales [could] improve in 2008 if prices, in fact, get real.
home sales could improve if all for-sale housing is caught up in the rapture
“All I can surmise is: perhaps it’s not about price anymore. A mid-sized home builder, speaking off the record to a friend of mine, said that potential buyers right now don’t care how low the prices are, they simply can’t bring themselves to make the deal.”
Of course it is all about price. Right now prices are still WAY to high and sellers - not buyers cannot bring themselves to make the deal. Buyers are there waiting silently for the right time, and you had better believe it is ALL about price, especially now that you have to actually qualify to get a loan.
Absolutely. When people cannot get conforming loans at 20% down, then it isn’t about the price. Until then the problem is prices are too high for people to save up 20% and get a conforming loan.
Very well said, GH!
Here’s a quote from todays news.
“The housing market plunged deeper into despair last month, with sales of new homes plummeting to their lowest level in more than 12 years.”
“The median sales price of a new home dipped to $239,100 in November. That is 0.4 percent lower than a year ago. The median price is where half sell for more and half for less.”
Are builders really not cutting their prices? A 0.4 percent median sales price cut from a year ago is pretty much nothing.
As stated here numerous times -
these numbers do not include incentives, they do not include cancellations (which are running @20-50% and they are counting “signed sales”, not actual closings), these numbers are also supplied by the builders, these numbers also have been revised down month after month…
I know about extra incentives being offered. But prices and qualifying for loans are the biggest issues. I just can’t believe that people would pay the same price as last year, simply because they are getting granite or whatever thrown in if they pay last years price.
Some of the incentives are cash-back offers or payment of interest and taxes for a few years. That adds up to a lot of $$.
You know, if a builder paid down 2 points for me and tossed in all the hardwaregranitelandscapingcrowmolding and paid down my mellos roos and prepaid my HOAs and taxes for 7 yrs, I might be tempted to by a house near me that’s already reduced from last year by 29%.
But nahhhhh, I just can’t bring myself to buy anything with HOA. I’d rather have colon cancer.
This seams very hard to believe. I work with the development industry in the Cincinnati area and every builder I know has dropped prices, many significantly. I also know that many builders in the TC area of Florida has dropped prices like a rock. Something smells with this data.
Prices of new homes have not dropped dramatically because they were built on land purchased in 2005-2006. However, now that land prices are dropping, we will soon see lower prices for new homes. My guess is that prices will go back to 2000 levels.
“Prices of new homes have not dropped dramatically”
LMFAO!!
That’s what I was meaning to say. The numbers don’t seem right. Besides incentives not being factored in, the numbers have to be meaningless. I don’t know how much of it is that they are national numbers. I thought it was the builders who would be cutting prices the most. These numbers suggest that they are holding out more than resale sellers.
Then you “really” have not been out shopping
Could the geographical components have changed (ie. high coast west increased slightly whereas midwest dropped significantly on the basis of units sold)? This would moderate a drop in average price.
The more I think about it, the more I believe that we are in a period in which those who cannot sell at market price without facing insolvency, whether banks, builders or FBs, do not yet have to. They aren’t cutting the price because they can’t.
Thus it isn’t a buyer’s or seller’s market. It’s a holding on and hoping market.
I completely agree with your “Hold On and Hope Market” and will be using this at work going forward. I’m in the recruiting business, and relocation naturally comes with this. I am feeling the pinch of candidates who can’t get a house sold to take a job elsewhere every day.
Re-phrase:
feeling the pinch of candidates who “WON”T” get their house sold to take a job elsewhere because they hold on and hope.
Why in sam hail can’t they rent instead of buy?
Many do rent and leave the family behind. Company wants debt servitude and pressures employees to buy a house or condo, then severs them in not to distant future. And the wheel goes round n’ round.
“Unlike previous housing recessions…the builders are now finding that the main barrier to sale is not price or budget. Instead, it is an overwhelming sense among consumers that homes are fundamentally a bad investment right now.”
We’ve just had our first taste of “real estate, yuk!” from the sheeple. Just wait ’til next year. The pool of buyers will be that much smaller.
We’ve just had our first taste of “real estate, yuk!”
And therein lies the seed of the eventual recovery. But as another poster said above, not enough people are saying “Yuk” yet.
“And therein lies the seed of the eventual recovery. But as another poster said above, not enough people are saying “Yuk” yet.”
Absolutely. We’ve got a long, long way to go. But after all the hoopla about RE never goes down, it’s the best investment, blah, blah, a newspaper actually printed a “yuk” statement.
Tighter lending standards in 2008 and more squealing in the MSM should just continue to shrink the buyer pool.
“In the Midwest, new-home sales plunged 27.6 percent in November from October. Sales dropped 19.3 percent in the Northeast and fell 6.4 percent in the South. In the West, however, sales rose 4 percent.”
Maybe because in the West, they did a better job of lowering prices?
“In the Midwest, new-home sales plunged 27.6 percent in November from October.”
How’s the heartland holding up Larry? It’s winter you say? I dunno Lar, those numbers would reflect shopping way back in our mild fall this year.
Remember those of you vouching for the goodness of (Or)Wells Fargo, and how they were such a responsible banking concern?
“As more aggressive rivals cut into Wells’ markets the past several years, Wells adopted a riskier approach of making home-equity loans through brokers whose customers didn’t have any prior relationship with the bank.”
“That turned out to be a mistake, Kovacevich admits. The loans have gone bad at a much higher rate than similar loans made to Wells’ own clients. Wells no longer makes home-equity loans through brokers.”
“‘We should have known better,’ the chairman said in a recent interview with the Journal.’
One problem with having a bank stock listed on Wall Street is that short term thinking takes over. As soon as the other banks started giving out loans to anyone then they grabbed the market share and those banks which did not looked bad since they were not “hitting the numbers” and were downgraded. So even if the bank did not want to jump into the give a loan to anyone who could fog a mirror program they had to or stock prices would drop and out goes the management. The fact that it was bad long term means little on Wall Street where stocks are bought and sold based on the shortest of short term thinking.
“In the capital region, one short-sale specialist praised the move but said it won’t really bring much debt relief. ‘Many of these people weren’t going to pay the tax, anyway,’ said Scott Thompson, a partner in Mortgage Resolution Services in Carmichael. ‘There was a part of the tax code that granted them immunity if they were insolvent.’”
This has been my point all along. This so-called “relief” is just gov’t. acting like it’s doing something to “help” when it really isn’t doing anything. Galbreath in his book about the ‘29 Crash refers to gov’t. meetings where nothing actually gets done. “Non-business business meetings” or something like that. This is similar.
Short sellers have always been able to avoid the tax on debt relief if they can prove insolvency. This is nothing new.
“‘It may be too soon to say that it’s over. It may not be too soon to say that the worst is over,’ said Former Federal Reserve Chairman Alan Greenspan in an October 2006 speech in Richmond, according to press reports.”
This pithy analysis came from the “genius” that was our Fed Chariman? geez…
I hate to be mean but I wish Greenspan would have a mild stroke that would stop his ability to speak.
I don’t hate to be mean, especially to old fools that rip me off. F-him.
do you recall 60 minutes interview when Greenspan said he did not see subprime coming?
Ben did. I did. We did. Mr so called genious didn’t. Not much of a genius if you ask me.
He’s no genius. He’s a maestro.
NPR had a real softball interview with greenslime. I would have confronted the bastard and asked “what about the core inflation soviet style number that no one seriously believes? Take out the price increases of food, gas, medical coverage,taxes… the cost of actually living.. Mister effing Greenslime… What planet are you on?”
Your comment about him not “seeing” only makes sense because you make the very BIG assumption that he is speaking the truth.
The chances that a smart person like him didn’t see are close to minimal. The chances that he did see, and is spinning the truth are very high.
I would reexamine the assumption you are making that they speak the truth.
There were two major dips in the housing prices - one in the fall of 1998 with the LTCM scandals and the “Asian Flu” that had spread to Brazil, Russia, etc. and immediately post 9/11 where the event added up to the collapsing tech bubble.
However, I think that post-9/11 lull was very brief and prices were still above of the fall of 1998 because they had made a long upward run during the tech bubble.
So, much like with the equities, you have to go back to 1998 and maybe lower because based on the supply vs. demand criteria, the prices may have to be halved off their 1998 lows.
What’s the best way to track home sales (and homes for sale) in one’s area?
I know about Zillow and consider it somewhat reliable, but are there county or state databases that have up-to-date and comprehensive figures?
Zillow is utterly useless unless you are in a metropolitan area. In PA that would mean Philly, Pittsburgh and maybe, maybe Erie.
Let’s repeat the lesson very slowly for all the builders and realtors out there:
1. It never stopped being about the price.
2. It was about the price before.
3. It is still about the price now.
4. It will continue to be about the price in the future.
5. It is ALWAYS ABOUT THE PRICE.
Buyers care about the price, the true price, and nothing but the price. If your buildings do not sell, it is because your price REMAINS TOO HIGH.
If you do not believe me, Mr. mid-sized home builder, then try selling a house for a hundred bucks. I guarantee you will find an eager buyer. Feel free to raise the price upward from that hundred-dollar level to the true market price. It will be less than what you WANT, but the house will sell.
This “I can’t sell my house at ‘any’ price” is horsecr@p.
True, but the point about psychology is also valid.
During speculative bubbles, the normal supply-demand dynamic is broken. When prices increase, demand also increases, and that’s what drives the whole bubble. Once the bubble pops, you get the reverse: When prices decrease, demand also decreases.
So in this respect, the statement is quite astute. Once the bubble has burst, dropping prices will not increase demand. Only after the bubble psychology has subsided will a normal supply-demand dynamic return.
It’s called momentum buying.
Now it’s momentum selling.
Unfortunately, when there’s momentum selling, there ain’t no buying of any kind.
In general I take your point. Right now that builder could drop his prices 5% or 10% and see little uptick in demand (whereas in a normal market he would).
But what he fails to see is that his price cuts are too small. If he were to get SERIOUS about price cuts - and I am talking 20%, 30%, maybe 40% or more - then he would find that demand remarkably reawakens. The cuts we see now are piddly little nothings that interest few, if any, buyers. And the prices remain too high even after the cuts. That is the core problem.
There is always a price at which a buyer will say “yes”. But that price lower than this builder wants. Too bad for him.
Ya, I reckon you’re correct.
The price elasticity around the”average” is poor. Drop the price another 30% and you may see the increasing correlation.
Still, who wants to buy property that’s declining in value? This isn’t a financial instrument where you can make money by shorting it.
If you’re legitimately advising someone about making a voluntary purchase, you’d tell them to wait until the inventory levels drop below 6 months, which is still a recessionary number. (With ~ 3 months being flat and anything shorter than that tending upward) And, with the market in bubble areas having 2-5 years worth of inventory on books, with the unfinished construction, foreclosures and expiring ARM’s still to enter the market, you’re not going to see the inventory going down any time soon.
If anything, it’s exploding through the roof.
So, to wait for the supply shrinkage, you have to wait it out until these levels stabilize and subsequently go down to less than 8-12 months. At that point, you would be able to make a purchase without fear that the property value will plummet drastically again.
I have to call BS. If a home was priced correctly and made financial sense, I’d buy it in a texas minute, regardless of what I think the market will do later.
True.
But remember, that individually, each participant in a bubble thinks he is acting rationally. It’s only in the collective sense that the market is acting irrationally.
Huge drops in prices may speed up the end of bubble psychology. The end of that psychology will restart a normal market.
I would also Def Jane.
If a home was priced correctly and made financial sense, I’d buy it in a texas minute,
What if you were in New York? Would you buy any faster?
Perhaps the sellers need to see this video:
“How to sell your home in black and white”
http://www.youtube.com/watch?v=hOrKLs0QJkA
“Instead, it is an overwhelming sense among consumers that homes are fundamentally a bad investment right now.”
Two weeks ago the REIC was claiming no one could buy because people can’t get mortgages. Now its “buyers can’t bring themselves to make the deal”.
Say it… say the “P” word… come on… p-p-p-price.
“The median prices are up .4%”
I can give you an example on incentives. I love in a condo complex that is 50% sold. The units in ‘05 went for about $315,000. They are now offering $30,000 to cover all closing costs and then with the rest of the balance you can use to pay your $400 HOA for so many years or you can use the money to buy points on the mortgage.
Now they just came out with free upgrades plus $7500 store credit at any store in the area. Like a Best Buy etc. So the price is no longer 315k but it is in the statistics. 4 years and these suckers still aren’t sold. I am starting to wonder if they will ever be sold. Glad I am just renting one!!
“The units in ‘05 went for about $315,000. They are now offering $30,000 to cover all closing costs and then with the rest of the balance you can use to pay your $400 HOA for so many years or you can use the money to buy points on the mortgage.”
It will be a watershed moment when we see a backlash against this kind of fraud - which is what it is, *even* if it’s all accounted for as reported income. Right now, we are light years from any tipping point sentiment against “keeping up the comps”, which I believe can be taken also as a general indicator of just how far away a RE bottom is.
bearman wrote
I love in a condo complex
Well I love in my Phoenix apartment every two weekends I’m there. There’s this young woman, well, sometimes a different young woman…
Things are getting rather compslicated…
Hi Aladinsane:
I was just out near your homestead (Yosemite), and I could NOT BELIEVE how many houses were for sale. From Gilroy all the way out to the park, it looked to me like every other house/lot was decorated with a pretty sign in the front yard. And the police were out raising ticket money like mad. One cop trailed my poor mom for about 15 minutes before finally giving up on the prospect of ticketing an over-cautious old lady.
I was given a sob story by the waiter at the Wawona about his 4 kids and 6-acre property. I had a hard time feeling sorry for him, so he quickly skipped over to the next table full of gullible-looking women. I didn’t tell him, but I gave the crew at Carl’s Jr. a $40 tip on Christmas. I don’t think waiters should be tipped based on their lack of business prowess (or ability to beg), but rather on their level of service. Have you been noticing the same thing?
Big V:
I’ve noticed many more properties for sale lately, as I think a lot of them are 2nd homes and if money is tight, you keep home # 1.
Giving tickets, either parking or moving, is one of the dead sure source of income for strapped law enforcement agencies.
On our recent trip to Tucson, we noticed a stopped vehicle every mile to 2 miles, from Indio to Blythe on the 10.
Instead of a correction ticket for my headlights (both)going out on the freeway (didn’t realize it right away), close to my exit, I got a moving violation. Sheriff was in a pissy mood, and said I didn’t pull over quick enough, so he punished me. The ticket will run me around $200 total. Yeah, the local municipalities are hungry for revenue. Beware, the ‘revenue enhancement program’ is in full thruttle. Everyone be careful.
Ventura County- So Ca
Realty reality: Housing prices are headed way down.
There are “experts” out there who once preached that there was no bubble; they now preach that all real estate is local and that prices in your neighborhood won’t be affected by foreclosures and price declines elsewhere.
The cold, hard truth is that foreclosures are serving only to hasten the painful process of shifting housing prices back to a level the market can sustain. Prices must and will fall. Everywhere. Probably 25% to 30% from their peak.
2008 is the year when gravity will reassert itself. You should be adjusting your expectations of your home’s value so that it’s correctly aligned with market realities. And when making important financial decisions today, be realistic and factor those declines in.
http://www.latimes.com/business/la-oe-housingdenial28dec28,1,7942735.story?coll=la-mininav-business&ctrack=1&cset=true
2008 will be to real estate like a surgeon open the obsese carcass of a sick man and saying “look at all these tumors… look at all the dreck. Its way too late. Sow him back up….”
RE is a lousy investment.
“‘I thought we’d have problems, but I thought it’d be a smoother adjustment,’ Wyss said about the problems that developed in mortgage-backed securities. ‘The financial side was much worse than I thought it was going to be.’”
They misspelled slide.