An April 2006 Prediction For Your Housing Bubble?
Several readers want to hear your April 2006 predictions. “When do people expect y.o.y. declines in particular cities, and what do we suppose the subsequent excuses will be? It’s because of the World Cup!”
One reply, “April will be the first month of YOY declines in DC.”
Another said, “It seems reasonable for us now to talk more about all of those consequences/fallout, such as property taxes, etc., that will hurt everyone whether you acquired property in the past few years or not. Most people I speak with about this are still oblivious to the fact that their neighbor’s house selling for 5x more than they paid many years ago could somehow be anything other than a good thing for them…”
“I also suspect many local governments are about to be shocked by the protests they will receive later this year, and that lots of hastily-enacted increase caps will be made where none exist now.”
One reader is looking for another bubble. “What is your prediction of the next bubble. Some say interest rates will keep rising. Some say the fed will pause and start decreasing if the economy looks sluggish. If they do start decreasing, will the stock market take off again?”
A reply, “If there are any more bubbles to be blown, it’ll be in precious metals; but despite the rise to date, we’re still a long ways from bubble territory.”
“Topic suggestion: If, as some predict, the fed tried to inflate a rescue boat for those in the bubble areas (crank up prices of everything else, including wages, so as to effectively lessen household debt loads), what would be the impact for housing prices in the non-bubble areas? Would we expect to see them rise with this inflation?, or stay stagnant, along with prices in the bubble areas?”
And another, “Which will drop more, the price of lots or the homes that are later built on them? Assuming construction materials and labor costs are constant, will lower priced lots lead to smaller less fancy construction so that home prices are not out of whack with the land they are built on?”
With dozens of excellent topics suggested, I can’t dedicate a post to the ideas on the blog and comment format. But I have sent your recommendations to the sites developer and we’ll see what we can do. Wordpress is an open source program, so we depend on programmers out there to create solutions. There are preview and edit plugins, but we haven’t been able to find one that works with the existing comment plugins. We’ll keep looking and if anyone out there comes across a fix, please send it in:
thehousingbubble@gmail.com
Does WP have a categories feature? Perhaps you could put all the reader-suggested topics in one category. I’m sure some get suggested repeatedly, with slightly different wording. With a list in one place, readers could see what was the outcome of previous discussions. It would also be a good way to keep track of when to bring up a topic again, such as open house observations or Lowball! (though I think Grim has that trademarked ;).
If, as some predict, the fed tried to inflate a rescue boat for those in the bubble areas (..), what would be the impact for housing prices in the non-bubble areas?
judging from past experience in Europe: prices in non-bubble areas will rise even more than they increased previously in the hot areas (because prices in non-bubble areas are lower to start with, because the number of people/homes in the non-bubble areas is relatively small and because people will be even more convinced about a FED put for the housing market).
More garbage in the papers today about getting back to “normal”.
Anything BUT normal, at least for the last ten years. Check out these stats for North SD County. It’s pretty similar to what’s going on all over:
bubbleinfo.com
Good info, Jim. Thank you, as always, for your hard work!
My prediction: Its the beginning of the freeze. Inventory continues to rise, price appreciation stops, transaction numbers start to drop.
ONLY the homebuilders and desparate sellers will drop prices and discounting, most other sellers are going to stick to their guns.
I would actually bet that april will be Y/Y flat (not a drop), and it will be about a year before we see significant drop in prices on a Y/Y basis, probably around 5% or so.
Sellers who stick to their guns will probably have to stick to those guns a lot of years to get what they want.
As the foreclosures and the desperate sellers and the builders start bringing down comps, the appraised values for homes not sold is going to go down. It will be hard to get a mortgage for a house selling higher than the appraisal — and most people probably won’t want to pay more than the appraisal anyway.
stick to their guns: yes, that’s what many sellers in Europe have been doing the last years; of course, they are fully entitled to the high price they are asking. They simply refuse to lower their prices and as almost every body is doing that, averages keep climbing with inventory.
appraisals are not a problem at all: you just get a little more appraisal fraud. As long as real interest rates are close to zero, getting a mortgage is easier than fogging a mirror and average sales prices are not dropping significantly (more than 10-20%), I think this situation will continue.
I agree that April will show little or no increase y-o-y. And I also agree that sellers will stick to their guns. However, as those who do sell their homes get fewer and fewer $, the caliber if those guns will become smaller and smaller.
At some point, the memory of the good-time bubble fades, the prices will come down everywhere.
Naa, I think this thing will crumble faster than anyone thinks. The sellers cannot stick to their guns if they wanted to. Keep in mind that sellers, in bubble areas, consist of 70% - 80% flippers. They have to pay mega holding costs(mortgage, insurance, taxes, maintenance, etc). Prices will drop fast!
I disagree. Past bubbles have taken 3+ years to reach nominal minimum price, 5+ years to reach real minimum price. I wouldn’t expect it to be different this time, at least by that much, as even the flippers might stick to their guns for a year+ of bleeding…
bahstin and SD should go neg yoy by end of april
august for them all
April will be a flat month because its tax time . May is when the buyers start looking .
May is also when inventory typically jumps even more, at least here in Northern VA.
Boston already went negative YOY on single-family homes in February.
http://www.marealtor.com/AssetMgmt/getDocument.asp?assetid=1058
gold/steel/oil/concrete/steel/house/land everything would fall..Deflation, indeed.
I can’t see steel and concrete falling since the export market for these is stronger than the US market. Ditto with oil and gold.
it would appear so true till china growth stalls. china already is . In fact chinese will deliberately lower growth to stable 6-7% from ~10% now…that is ~30 % reduction…After monetary excesses/credit bubble, deflation is a natural outcome.
Deflation will affect most things, but not sure about gold. The price of gold was fixed by the government during the Great Depression so it didn’t change but the only stocks that rose during the first few years of it were gold mines and oil stocks. The rest fell a ton.
My bet is that gold will fare well in deflationary times. Deflation equates with lower interest rates which means holding gold will not carry the opportunity loss suffered when interest rates are high. Importantly, gold represents a safe haven and will be seen as such more widely during a depression. Banks are loaded with shaky loans and the dollar has been massively depreciated, both reasons to seek the safety of gold.
Why would you say that? If people buy gold in inflationary times as a hedge against inflation, why wouldn’t gold decrease if the opposite occured?
If there’s really serious deflation, then you’d do well to be holding cash–in your hand, not in the bank.
If there’s one thing we’re pretty sure of, though, it’s that Ben Bernanke will hyperinflate to stave off deflation. Won’t work overall, but it’ll be very good for gold.
How high does gold have to go up to have an impact on the demand from the jewelry business? Will people stop buying bling, especially if there’s a recession? Maybe folks will have to sell their family jewels to pay the mortgage.
Off the top of my head, if you look at what actually happened in the stock market crash of 1929, everything crashed, especially commodities (incl. gold) It wasn’t until after the crash was complete and the market had bottomed that the mining shares and gold took off like rockets.
At least the price of vanilla beans has finally come back down to something semi-affordable. Was almost $300/lb a year ago, under $100/lb now.
We all have our personal commodity priorities.
lol
Sounds like the Madagascar growers are coming back on line after that storm a couple of years back wiped out their vines, or maybe another country has jumped into the vanilla trade.
BUT,
For banana split fanciers like yours truly here in Australia, that welcome news is overwhelmed by the impact Larry (Cat 5 Cyclone, our version of hurricane) has had on banana prices. 80% of Australia’s plants destroyed; prices doubled in a week :(.
Not much of a bubble out here in the Washington State’s Columbia Basin where RE is roughly 6% over priced, but the construction lay-offs in the Seattle / Tacoma area will hit workers who commute over the Cascade Mountains. The first signs of trouble are already present: lots of cars, trucks, and RVs parked along side the road with For Sale signs. Reminds me of the early seventies.
Those are the first things to go……The $199./Mo payment starts to hurt when you don’t have a job or more likely, you are making far less money than the year before…
Don’t forget the bass boats, 100″ tv’s, harleys and other toys the bubble gave to people. Find some good deals soon.
Just saw a ad for Central Valley (California) homes offering 4.6% fixed rate financing….No Joe seller can compete with that, not even by lowering their price somewhat…
I have been suggesting that this would be a tactic that the builders would use other than lowering the price….Lowering the price puts the builder in a difficult (Possibly Litigious) position in that it effects the valuations of recent purchasers….
Yes, the builders are scared of the sue happy californians these days. How dare you lower the price of my home, do you know who I am?
“When do people expect y.o.y. declines in particular cities…”
Santa Barbara is seeing very, very modest gains (4 %) over February of 2005. The local SB market “peaked” at around September ‘05 with a year end total gain of 20 % for 2005.
My prediction is that if we are only 4 % price appreciation for a full year ago… it looks like by year end 2006 ALL price gains for 2005 will be wiped out (20 %).
This is a very conservative guess, as interest rates and tightened lending practices, combined with local news that the housing boom is OVER.
2006 = Prices up 20% over 2003 prices
2007 = prices up 20% over 2002 prices
2008 = prices up 20% since 2001 and so on…
I know we are impatient with this bubble thing. it went on much beyond our expectations. however, it is a good time to learn a lesson from history , esp those who are eager to jump the gun and buy now
Real Estate News Summary, Part 129, October, 1992
1016.Pacific Greystone recently purchased lots at discounts as much as 35% from
prices in the late ’80s. The transaction should make Southern California
homeowners uneasy. Some builders expect California land prices to fall as
much as 50% from their 1989 peak. [Wall Street Journal]
1017.Some people think that because home prices have come down a bit it’s time
to go up again, but they will not really go up until incomes meet prices.
Housing prices in weak markets must either fall or stagnate to reach
equilibrium with local earnings and mortgage costs. Under this theory
median prices are still 20% to 30% higher than equilibrium in such
distressed markets as Los Angeles and New York. The National Association
of Realtors disagrees, saying many sellers will pull their homes off the
market until pricing firms. [Wall Street Journal]
1020.Silicon Valley Bank announced a Q3 loss of $9.4 million, reflecting a
record $23.7 million provision for loan losses, mostly to cover bad loans
to home builders. Outstanding loans to developers grew from $41 million
in Q4 1987 to $869 million in Q4 1991. A lot of houses were rising in
value at that time. Not many people in 1988 were saying that the
residential real estate market would crash in 1992.[San Jose Mercury News]
1021.The Great California Home Rush. Kennedy-Wilson will auction 215
residential properties. Minimum selling prices from $10,000 to $740,000.
No unpublished reserve prices! These homes will be sold to the highest
bidder at or above the published minimum selling price. San Francisco,
San Mateo, Santa Clara, Alameda, Contra Costa, Sacramento, Solano, Marin,
Sonoma. [San Francisco Examiner[
1023.The average U.S. worker now has to work 6.43 years to buy a median priced
new home, nearly twice what it took 20 years ago. [Wall Street Journal]
[my comment: this is a good measure of the bubble isnt it]
1024.During a recent 3-month period, 18% of Los Angeles area homes sold for
below purchase price compared with 3% 2 years earlier. Builders have cut
prices up to 30%. Existing homes have dropped 10-15% and as much as 25%
in affluent areas. Spreading job losses foretell a surge in foreclosures.
Plunging land prices will soon further depress new-home prices. Realtor
statistics showing an average 4% median price drop lag behind reality:
Sharper declines are widespread. A UCLA economist predicts prices will
plunge a further 20% after adjustment for inflation. [Wall Street Journal]
“The National Association
of Realtors disagrees…”
D@mn those pesky Realtors… this article from 1992 proves that they have been BUBBLE CONTRARIANS for a long, long time.
Read it and weep, all you Realtor (TM) lurkers
Thanks for digging this up.
I’m beginning to think the sellers are waiting for the May-Sept sales
season to see if they can get the price they want . The buyers are waiting for the same . Could be a big stand off resulting in the reductions not occuring until August/Sept ,2006 . A lot of buyers will be pushed to purchase because of raising interest rate scare . They should wait and just get the properties cheaper down the road .
“They should wait and just get the properties cheaper down the road . ”
Housing Wizard,
Great advice… it’s actually my own personal strategy. Sold a nice home in Santa Barbara back in Fall ‘05, now renting and battening down the hatches for probably a year or more to watch this thing unfold.
Sat on the sidelines in late 80’s early 90’s (no appreciation, some price declines), ramped up with 5 projects during the golden years of 94 -05… SOLD, and now waiting for the cycle to do what it always does!
Yes my friend ,you timed it just right getting out in 2005 in the Santa Barbara peak. You know how Santa Barbara is ,they will be slow going down ,but they will go down with time.
Thanks. Yes, I believe the SB community will be about as stubborn as they come when it’s price reductions on the agenda. But, with 86 % of the loans being A.R.M.’s for the last 4 years… the patient person should be able to wait for a distressed sale. I only need 1 project, therefore willing to wait it out for a long time. Thanks for the support. And if I remember correctly, you got out fall of last year, as well??
Yep. But like a do do I repurchased in 2005.I repurchased at a third of the price I sold the other house for however . I will loose some money with the downturn , but I’m staying here long term so I might be able to sell it for what I paid 10 years from now. At least I’m not in denial about it .
Actually, we are “looking” for a distressed sale (like sounds like you got), and if we come across something that fits our long-term needs at a relatively fair price, we won’t have a problem with purchasing. It’s all about what you are trying to accomplish, and definitely the flippers (who want to make a quick buck in this market) are nuts to buy right now.
I hear you
people - i mean realtors always say there got to be a reason for the prices to fall!. like job losses. here is what history tells us
California has experienced an unprecedented decline in real estate values
in the last year, with almost a 6% decline in median home prices since
the peak in July 1989, according to the Calif. Association of Realtors.
Bay Area home prices have fallen even further, more than 8% since August
1989. What is incredible is that there is seemingly no outside cause.
Housing prices simply rose higher than most people can pay.
Joe Arsenio, an analyst with Hambrecht & Quist Inc, says that the
fuel for further home price increases is not available. “We are not
getting the explosive growth of the past, and there will be a more
extended period of flattening in real estate prices.”
First Interstate Bank chief economist Jerry Jordan expects 3 to 5
years of flat to stable home prices in California, with actual price
declines early in the decade, especially hitting the higher-end homes
–those costing $400,000 or more.
Kenneth Rosen, chairman of UC Berkeley’s Center for Real Estate and
Urban Economics says, “There are not as many people out there trying to
buy a new home. And the absolute level of home prices is so high, it
scares people. There’s risk of more pronounced home price declines
because we are at such a high level already.” Rosen expects a 15%
decline in home prices from the peak in July 1989.
“A lot of buyers who bought just last year have lost their equity,”
said Michael Rivers, National Directory of Real Estate Advisory Services
for Ernst & Young. [SF Examiner]
32. Consumers’ confidence in the economy took its steepest plunge on record
in October, hitting its lowest point since the pits of the 1982 recession.
[Washington Post]
33. This is not a typical recession. There is no glaring problem with
inventories of conventional merchandise. Instead, the system is clogged
by bad debts–most notably, real estate that nobody wants to buy or
occupy. [SF Examiner]
Coming hard times will be made even harder by the historically high debt
that American households have piled up during the past 2 decades, an
economic research group warned yesterday. If a lot of people lose their
jobs in a recession, bankruptcies, delinquencies and mortgage foreclosures
will come quicker and more often than if savings had been piling up.
[SF Chronicle]
prev one was from Real Estate News Summary, Part 4 Nov 14 1990
great article, desidude. we still don’t have a decline in consumer confidence, though i think that will change as increased minimum payments on credit cards as well as dramatically higher mortgage payments take effect.
If a lot of people lose their
jobs in a recession, bankruptcies, delinquencies and mortgage foreclosures
will come quicker and more often than if savings had been piling up.
[SF Chronicle]
Whooweee…Those foreclosure deficiency judgements combined with the new bankruptcy laws will put people in debtor servitude for the rest of their lifes.
Mortgage originators might want to start thinking about wearing body armour
sure, there doesn’t have to be an evident cause.
Around 1979, the Netherlands had a quick and steep housing crash (-40% in 1.5 years) that wiped out all the gains of the previous 5 years (which had some speculation but nothing compared to what is going on now).
Interest rates were high, unemployment was high etc. but that was also true before the crash when pricing were running up. Buyers suddenly disappeared and the bottom fell out, there was no clear cause for the steep decline.
OT although housing related.
A property I am considering buying sold a year ago. If I do buy it I will negotiate directly with the seller (no agents). How can I find out what it sold for? This is in rural MO, not on Zillow.
A related question is should I buy now if this house does go on the market — this house really is special. Or would I be better to wait a year or two when more stuff comes on the market at better prices?
I am renting now. I sold my house in Oct 2005.
Thanks for any advice.
I can’t imagine anyone on this blog advising you to buy now. Clearly the slide is just beginning and will cause home prices to drop substantially more before it ends. Why buy at today’s price and watch it fall considerably lower. Far better to wait until it hits bottom and then buy. Invest your cash that you would have used to buy the house and increase your ability to buy when the time comes. You win both ways…your cash grows and the price that you end up paying drops considerably. A win-win.
Yeah, I know, but, but, but…this house is different! And very unique. But still, I cannot overpay.
Some states, and possibly yours, have an online property tax database where you can look up a property, see what it sold for, and what the current taxes are.
Give me the address & the zip…I will get it for you…
Saratoga…Give me the address & the zip…I will get it for you…
PS…After selling in Saratoga, you should be able to buy 1/2 of MO….
Thanks. I’m not comfortable posting the exact address. But the house is in Lawrence County, Missouri, 65712. Can you tell me how to do this?
Ha, ha, re: buying half of MO with my Saratoga house sale cash :-). I’m planning to invest that money carefully and conservatively and not in a McMansion or a McFarmsion (lots of CA escapees buy “hobby farms”.)! It’s a big chunk of my retirement funding. What’s funny though is how quickly you can adapt to a new scenario. I can easily look at a house here for $85K and go, “YIKES!, it horribly overpriced, what are the sellers thinking???”. By the way, one real estate agent told me I was the first ex-Californian that didn’t just plunk down a bunch of cash and buy right away — in fact I asked for comps which is also unusual.
Saratoga…The access I have is proprietary….
You can follow the advise in a earlier blog and get the info from the county assessor or better yet, the county recorder….
OK. Thanks everyone for your help.
Ive been checking the Aliso Viejo/Laguna Niguel areas for many months. Dont know about you guys but I’ve been seeing many 100+ days on market in OC. And numerous price redux, not by much, but it is happening…25-65K redux on 600-700K ranges. Its amazing how many listings are in the same complexes. So many. Must be frustrating as a seller when you see the 10 other listings undercutting each other by a couple grand. JF
year on year declines in dc probably would be more case-by-case in dc than anything at this point. recently have heard of several transations in which the condo/single family home was on the mareket less than one week.
inventory is higher than last spring but not growing at a rapid pace…13 more listings this week on zip realty compared with last week.
http://www.dcbubble.blogspot.com
dcbubble,
NOVA inventories are rising very quickly. I think that supply is more limited in DC and many folks perfer city living but as NOVA leads the way down DC is sure to follow (NOVA actually lead the way up to if I recall correctly).
But another factor in DC is that lots of speculation on “gentrifying” areas has occurred. Look at east of 14th street around U in Northwest. It wasn’t many years ago you didn’t want to be there in the daytime, let alone at night.
Just as DC slumped when Barry came back in 1994, it could take a similar dive depending on who replaces Tony in November.
We might be there all ready.
Here is this house.
It sold for $300K June 2005. (you can believe me or check out the assesor for yourself.)
They are asking $289,900. I used to live very close to this house, & we are still friendly with some of the neighboors. Believe it or not, they are not flippers. They made a lot of money on the sale of their house in Calif. Bought this house with the idea of adding on, they were not smart enough to check with the city first. City said no. They have bought another house and had some work done to the new one & are now moved in. The house has been for sale off and on sence October 2005. They were asking $329,900
Don’t forget, the national new home median is already yoy negative and in some areas like Orange County, CA, by quite a bit.
The Phoenix peak was in May 05, I think, so by June we should see yoy negatives.
My links didn’t take.
The house
http://rgj.homescape.com/rgj/listing_details.jhtml?userId=NZXOTUWN2NHMFLAZGQOCFEY227528&filter_product_id=15317377&searchType=48&reporting_search_name=Channel+Quick+Search&sbt=N&search_by_type=resale_mls%2Cresale&onTab=1&filter_property_type=single_family_home&filter_max_price=300000&filter_open_house=N&sort_result_order=site_def_order%2Cattribute_count%2Cprice_desc%2Clisting_age&geo_area_text_lookup_id=71439&areaIdHistory=52A60563A75574A71439A71439&searchWithoutProdId=true&print=false
The assessor’s website.
http://www.carson-city.nv.us/Assessor/
Maybe equity-rich second home buyers will save the day and keep the bubble from popping. The article linked in below predicts at least another decade of the second-home boom. I will go out on a limb and predict that, given we already have falling prices in the second home markets of Miami and San Diego, the decade-long period this NAR shill forecasted will get cut nine or more years short…
(Caution — the bite of the snake shown at the top of the page to which this link connects could be deadly to your financial health!)
http://www.signonsandiego.com/uniontrib/20060402/news_1h02harney.html
‘NATION’S HOUSING KENNETH HARNEY
Equity-rich baby boomers drive growing second-home market
April 2, 2006
WASHINGTON – If you are thinking about buying a second home this spring – or you bought one in the last couple of years – you are part of a major transformation under way in the real estate market.
The annual number of second homes purchased in the United States doubled between 2000 and 2004, according to new research. The boom is being driven in part by demographics – mainly a flood tide of equity-laden baby boomers – and in part by a largely unexpected ricochet effect of tax law changes in the late 1990s.
The latter factor was explained by Keunwon Chung, a statistical economist at the National Association of Realtors, who recently studied a vast pool of federal data on hundreds of thousands of second home mortgage closings.
———————————————————————————————-
Where are boomers and others investing their second home dollars? Chung’s study found that a dozen states have attracted exceptionally high rates of purchases and cumulative growth during the past four years, whether for recreational use or investment.
In Hawaii, nearly one of every three purchases made between 2000 and 2004 was for a second home getaway or investment unit. In Florida, the proportion was nearly one in five. Arizona (18 percent) and Nevada (17 percent) also saw significant activity, as did other prime recreational getaway states such as Idaho (13 percent), New Mexico (12 percent) and Utah (10 percent). The District of Columbia – where one of 10 home mortgage closings between 2000 and 2004 was for a second home, almost certainly in the form of rental condos or town house units – was a surprise contender on the national list. The number of such units financed in D.C. grew by a stunning 187 percent during the four-year period studied by Chung.
California and Washington, both with 9 percent shares of total loan closings, Maryland (8 percent) and Virginia (8 percent) were all high-growth states for second homes or investor units.
How long can the second-home boom continue? Chung says as long as “boomers are still in their peak earning years and they can afford some homes for vacation purposes or investment,” – at least another decade – they will “continue to drive housing markets,” especially for second home units.’
———————————————————————————————–
P.S. One of those other SD Union Tribune articles I referenced today mentioned one difference between the SD condo and SFR markets is that “only” eighteen percent of the SFR market is investor-owned (as evidenced by tax bills going to a different address). By contrast, 30 percent of the buyers downtown were absentee-owners.
P.P.S. At least one of the major homebuilder’s CEO agrees with me:
“Q. Recently, KB Home said that orders fell 12 percent in the first quarter from a year ago. Is that indicative of the rest of the year, will it get better or worse?
A. My personal view is that the market is adjusting downward from a market that was very heated, generally along both coasts. The speculators, investors who were in the market, that varied from, let’s say, 10 to 15 percent of sales in any given — of the so-called hot markets — are gone.”
http://www.nytimes.com/2006/04/01/business/01interview.html?_r=1&oref=slogin
I don’t know how many of you tracking OC RE market, but I am subscribe to the OC register newspaper and I recall we had here Q&A by Jonathan Lasner telling us how things are completely separated between advertising (marketing) and “news material”. So here is an interesting observation that I have seen:
1. This newspaper has already 2 official sections for real-estate, one Home buy and one Rent
2. In the main page they tell us a story about a guy who sells a city in the north of CA on ebay, they give him a link in the main page and then following it with TWO pages describing everything, how much he spend, how much he invest and who are his potential buyers and what price he looks to get. What wrong with this story?! if it was SOLD I could see the “news” part of it. But as it in a process of selling this is just plain advertising. Is that a coincident? Is it a newspaper or real estate magazine?
3. As we approaching the hot season of RE, the past few weekends the front and back page on the Your Money section was about RE. I guess if they writing about it so much its not just a negligent part of the OC economy as they trying to pretended. Especially as thing in RE slowing down, don’t you think there are other economic topics they could interest people besides the RE market for a non RE dominant area? Is not it more clear that there are “other” people who has interest to keep publish and spin the RE market?
4. In RE report page in the Your Money section, they give an example about people who bought their house in 1950 (you read right) and sold it in 2005 for 10 times. Who that is interested to buy a house in today market conditions care about how people bought a house 50-60 years ago??? And on the bottom of the page they give dry statistics about a zip code median household income of 45,000 and what his options to buy the median house of 650,000-700,000 house. They show that required income is 140,000 for the most flexible financial arrangement (ARMS and options etc.) to close to 200,000 for 30 years fixed. They do not show “LIVE” example of how this people buying this housing at today market conditions. (From time to time they print a really glory story about young couples in the late 20’s buying 600,000 house, he is a lawyer she is manager and they are able to pay it), this is NOT the typical OC resident! Or they encourage the one that are not like the previous example to do as our first immigrants did, rent 3-4 families together a condo and save save save. How long will it take to people who make median income that save 30% of their income a year for X years in a RE market were median house appreciating 20% year to save enough to have 20% down with 30 year fixed mortgage to buy the median house? Let me give you a hint NEVER!!! So is this RE part of this section is for buyers or sellers I really could not understand this.
5. Last week they changed their financial section from Your Money to Market Place. This change is made just as we about to begin the RE season. Is that a coincident?
6. After the change in that section the main page on the new Market Place last week The day theme:” was (as you can guess) REAL ESTATE in red ink explaining how the prices in OC are supported by fundamentals etc. the RE part of this section become 4 pages (used to 1 page) including the main story and the statistics. What happen? No more economic\financial news to write about?
7. They used to have in the Your Money (the old format) on the right side of second page a big table or zip code and price\sales statistics and next to them BIG arrows showing trends. In the NEW format this table pushed to the 3rd page on the LEFT side and the arrows shrink down at located at the bottom of the same page. Are they trying to HIDE something??? This is the more important information to the buyers they have in the RE part of this 4 pages, but that part they chose to hide. Is that coincident or it is does not follow the RE market interest?
8. This weekend the Market place main page “The day Theme is:” you can guess. REAL ESTATE again! What a shock!? And again 4 pages about RE and the back page is no more or less an advertisement for houses for sale.
9. Summary: this newspaper lost its value to me, because it turned from being a newspaper to be advertisement real estate magazine. They have now main page about RE, two separate RE section (Home buy, and Rent style) and a “new” Market place section dedicated for RE too. I got more things financial topics that interest me besides the OC RE. I canceled my subscription. I got no reason to pay for RE information that I do not care about and that I can get free on every street corner.
Have a wonderful week
It all of course depends on supply, demand and psychology. Here in the Portland, ME area, I see these three components as follows:
Supply – basically flat. I believe part of this indicates people who would have been sellers in previous years are just not bothering. Demand – reasonably strong, with many equity bandits coming from “away” for a lower cost of living and a less harried lifestyle. Many are boomers who are able to work remotely. Psychology – I’d say buyers and sellers are both somewhat wary and we may be headed for a standoff this year.
As folks in places like NYC and Boston race for the exits trying to outrun the home price tsunami, Portland will benefit to the extent some of the nomads come here. If this trend continues, eventually Portland will be too inflated to attract so many migrants. Clearly home prices in Portland are overvalued when compared to salaries. But this has not been totally relevant as the money driving up prices comes from the outside. If you sell a million dollar property in NJ and pocket $500,000 in the sale, you can buy a bigger and better house in Portland for the $500,000 and probably less. With no mortgage or a small mortgage, salary lacks relevance.
To those of you predicting the demise of gold based upon a deflationary cycle:
1. There has not been a deflationary cycle since the US dollar has been removed from the gold standard in the early 70s.
2. Deflation is defined as an overall reduction in aggregate demand generally caused by a reduction in the supply of money and credit; and while a reduction in credit seems feasible, a reduction in money supply seems very unlikely based upon the Fed’s predisposition to the printing press.
3. Gold is both a hedge against inflation AND a weak dollar, both of which are prominent concerns in the world economy.
Not selling gold, just want to present food for thought…
“1. There has not been a deflationary cycle since the US dollar has been removed from the gold standard in the early 70s.”
Ask the Japanese if they agree with you.
Next ask the Germans.
For the US dollar, of course…
I’m amazed at how quickly the tone of the bubble question has changed. Just a month ago people were suspicious of bubble skeptics. A few weeks ago the New Hampshire Union Leader ran an article called “Bubble Schmubble”, basically saying that there’s no bubble.
Fast forward a month and now it seems like every major newspaper is talking about “the changing rules of real estate”. They all seem to think that prices are going to stay flat for a while. I predict that with rising inventories and more sellers slashing prices the media tone is going to change to “how far can prices fall?” by the end of April.
I think you had better check your dictionary. Deflation is simply a reduction in the supply of money. Demand is something else indeed.
The coming decline in the price of stocks and real estate will destroy huge amounts of wealth. And on its own greatly reduce the money supply.
Yor second error is in indicating that the FED “prints” money. This statement may be unintended or used too make a point. All the FED can do is to attempt too provide an invironment in which banks and people are willing to expand credit. The obvious is to reduce the cost of money. All of this requires a healthy banking system and a lack of fear regarding the people left that can qualify for a loan. Roosevelt was brilliant when he said that “All we have too fear is fear itself”. Supper booms cause supper fear in their aftermath. The depression of the 30’s did not end until massive amounts of debt were liquidated off the books. This then allowed central governments too spend money on infrastucture and eventually war making pursuits as a new debt cycle commenced.
The USA is in the same position as Japan in the 1990’s and Southeast Asia in th 1997. In fact all the nations in the world are going through the same process. The strongest tend too be the last to feel its affects. Don’t assume growth in China if they can not sell to America. The problem for America and the world is that; unlike Japan, East Asia, or China, if America is struck by deflation who will we export too? Who will they export too?
In the early 1930’s Hoover’s treasurer (I think a may have been Morgantheu..not sure on that) was quoted as saying that he just wished the debt spiral of destruction would hurry up and end. He apparently knew that once started a deflation must destroy as much debt as possible too set the stage for the next debt cycle build up.
What we are facing is far more dangerous then just gaming on buying a house for 40% off. Be careful what you wish for.
deflation
One entry found for deflation.
Main Entry: de·fla·tion
Pronunciation: di-’flA-sh&n, “dE-
Function: noun
1 : an act or instance of deflating : the state of being deflated
2 : a contraction in the volume of available money or credit that results in a general decline in prices
——————————————————————————————–
The dictionary pretty much agrees with you, but lexicographers are not economists by training. I suggest anyone interested have a look at the eponymously titled book which Paul Farrell has written on the subject. He points out that the change in the balance of trade wrought by globalization of the labor market, and the onlining of competitive Indian and Chinese workers at a fraction of the world price, helps a great deal to explain deflationary pressures facing the world economy.
http://www.amazon.com/gp/product/0060576456/102-0486178-2206520?v=glance&n=283155
I agree with the defination of deflation as a contraction of the money/credit supply (probably M3).
However, in discussions in Europe I find that most investors and economists don’t accept this at all and define deflation simply as a general decline in prices (and similar definitions for inflation of course).
Apart from suggesting a wrong cause-effect relation, these definitions based on price level do not work in practice, because in the current economy for some goods prices keep increasing while for other goods prices keep declining.
My definition of deflation was largely gleaned from Alan Greenspan in a speech he made in 2002 regarding historical instances of deflation and the Fed’s appropriate responses…
Also, aren’t you familiar with the demand curve and its relation to price with elastic goods? As demand fades, price does as well.
Another prediction:
1) Job losses related to GM tottering on the brink of BK will prove contagious. (Some folks at CBS news agree with me:
http://www.cbsnews.com/stories/2006/03/30/60minutes/main1458483.shtml)
2) The housing bubble will pop.
3) The media will blame the situation on job losses, missing the fact that the global credit bubble gave us both the housing ATM, which artificially inflated SUV demand, and high oil prices, which is helping to end SUV demand (along with the breakdown of the housing ATM).
So what do you forcast will happen to your locale in terms of sales price. I live in Portland, OR and it is a similiar situation. I would like to buy but I don’t know how long it will take for the California migration to run out of steam. Wondering if it makes sense to buy now or continue to rent and wait?
I foresee positive year-over-year appreciation of 5 to 10% for most areas of California for all of 2006. In other words, I don’t think we’ll see negative territory for 2006.
We will continue to see a decline in the number of transactions with respect to sales of existing homes and a growing inventory–what has been described as a buyer-seller standoff.
But the real estate mania is still strong, and there’s still plenty of easy, no-doc money available. Many buyers will still bite.
With respect to new construction, builders will push interest rate buydowns and other other types of non-price concessions.
Any significant downturn here in Cali (which I interpret as going negative with respect to year-over-year appreciation) is still a couple of years away, imho. Prices are very sticky.
But who? Who who doesn’t own a home in CA would move into the CA market?
People like me look at the numbers an go “I’m a couple sigma above median salary and I can’t afford the median home” and think “I should sit out and keep renting and saving $3k/month instead”
Spring selling season is here. The buyer’s are gone. Summer will be a period of denial where people will go off and vacation and get drunk or whatever to forget about it all.
The real panic will start in Sept. when the fall market fails to materialize. Interest rates continue upward as the dollar falls.
Wholescale hysteria sets in when fuel oil contracts for the upcoming winter indicate $3.00+ per gallon when the cold winds of winter come in Oct. Chavez in Venezula says no oil for the gringos.
Winter ‘07 will be a bloodbath of foreclosures as everybody capitulates. Hedge and derivative funds start busting.
Gold goes to $600.00, and a 1000 rounds of Russian 7.62cal. is $250.00.
gold to $600??
it will be there this week probably, just 2% to go; I think this is a far too conservative bet …
Was driving a lot today in Northern Virginia, saw several things:
1. Many “for sale” signs clustered on street corners, conspicuous open houses with balloons, streamers, etc., no cars from interested buyers in front.
2. Ryland Homes is offering $60,000.00 discount in Gunston Cove.
3. Many of the “for sale” signs are FSBO. I’d guess one in five that I saw today were not associated with any brokerage. I think the owners are close enough to the margins that a 6% broker’s fee will mean they need to take money to the settlement table so they’re toughing it out themselves. This should be extremely unsettling for realtors and those who have a considering mind.
4. Based on the foregoing, I looked at Craigslist and saw a LOT of FSBO, high-dollar listings in the D.C. area.
5. Extrapolation: the “official” inventory numbers, sale numbers and price numbers are waaaaayyyyy off. The crash will occur and be reported after the fact once the “official” data catches up. This will compound the problem because once the bad news becomes “official” a second wave of selling will occur.
6. If history is any guide, there will be a secondary boom as people take their cash out of real estate and look for a place to park it. This will cause a jump, probably in metals or commodities, possible in bonds, before a final collapse occurs. The South Sea boom of 1926-27 broke a lot of people, but it also funded a lot of people who took their wealth to Wall Street and funded the run-up to 1929. History repeats because people never learn.
I predict many months of negative 5% to positive 5% in San Diego until October, 2006. Every time it goes positive, the Realtors will claim that things are getting better, and the slow market is over…better jump in now or be priced out FOREVER!!!
In October 2006, we will see a significant YOY decline in San Diego. LA and SF will be relatively flat. The east coast will show similar trends with Boston showing rather significant YOY declines by October/November. As we move through the fall/winter, sales will FREEZE as inventory declines (seasonal — and sellers will try for that “hot” springhopemania once again).
Geopolitical events unfold as the year progresses with another declaration of war (Iran or NORTH KOREA) by spring 2007. At this point, there is a definite recession (with much talk about a depression beginning fall 2007). Credit markets freeze, mid 2007, amid revelations of tremendous fraud and questions abound, “How did THEY let this happen?” Fingers will be pointing all around: lenders, Realtors, appraisers, and hedgefunds (which will be in very bad shape — many closing down amid much regulatory pressure).
Depression begins in 2008.
IMHO.
Gee Ca Renter………You forgot the Eboli outbreak accross america….
Well…since you mentioned an outbreak, how about bird flu?
Gasoline hits $3.00 a gallon this summer and does not retreat. Home prices flat in the midwest; significant declines in the bubble markets. If a hurricane hits FL, up to 40% declines in Gulf Coast real estate prices. Homeowners insurance coverage will see huge price increases.
“Depression begins in 2008.” I think I will go w/a severe recession starting mid/late 2007. Depending on oil and energy issues, possibility of depression by 2008.
My friend rents a 2BR condo in the Tyson’s Corner area in the DC area (VA). She rents from an investor/ mortgage broker who bought the place for $300k in March 2005 (they were selling for $100k in 2000). (Some can be in pretty dire shape since it’s an 80s conversion from poor stock but it is a good test bed because the units are identical). Her place was a dump and he allegedly spent $15k on relatively shoddy renovation including the requisite granite countertops.
The peak asking price last summer peaked at $419k but the units started to sell below asking last June and a check of the data shows 3 units went for 375k. Now it has gone full circle as she received a postcard in the mailbox with a unit for 300k. So people who bought at the peak are -20% if this price is indicative of the market. Also, units currently sell with a subsidy like 5k for closing costs from seller.