‘Don’t Watch Prices, Watch The Volume’
The alarm bells keep ringing for the US housing bubble. “Forty-eight of the nation’s 50 largest metropolitan statistical areas face a greater risk of declining home prices this quarter, an industry report found today. House-price appreciation has slowed in nearly half of the metropolitan statistical areas compared with last quarter, according to PMI Mortgage Insurance Co.’s latest risk index.”
“Fourteen of the top 50 metro areas now have risk scores above 500, meaning they face a 50 percent or greater risk of home-price declines in the next two years, up from 11 metro areas last quarter.”
“In addition to Minneapolis, metro areas that saw significant increases in risk were Virginia Beach, Va. (+65 points to 274); Baltimore, Md. (+62 to 279); Newark, N.J. (+61 to 427); New York (+58 to 506); and Washington, D.C. (+56 to 401).”
“The San Jose area, which includes Sunnyvale and Santa Clara, ranks No. 11 among the 50 metropolitan areas that PMI analyzed using data from the fourth quarter of 2005. It was the third consecutive quarter that San Jose’s risk rating rose, climbing from 53 percent and 47 percent in the previous two quarters.”
“The risk of a downturn is slightly higher elsewhere in the Bay Area, with a 58 percent chance of a decline in the Oakland-Fremont-Hayward area and a 55 percent risk in San Francisco-San Mateo-Redwood City area. ‘You really can’t have a situation where something as basic as home prices gets that far away from economic fundamentals for that long a period of time,’ said Beth Haiken, a spokeswoman for PMI Group. ‘It’s just not sustainable.’”
“Eight of the top 11 areas are in California, led by San Diego with a 60 percent chance of a decline. Areas near Boston and New York round out the list of 14 places where there’s at least a 50-50 chance of a price decline.”
“When the end of the Cold War caused consolidation of the defense industry, the number of home sales in the Los Angeles area peaked in November 1988, but home prices didn’t top out for nearly 2 1/2 years. ‘Then the prices began this gradual, painful, slow deterioration’ of about 5 percent a year, Edward E. Leamer, director of the UCLA Anderson Forecast said. ‘Don’t watch the prices,’ he said. ‘Watch the volume.’”
“In Santa Clara County, sales of new and existing houses and condos dropped 14 percent from the record mark set the previous February. It was the slowest February since 2001, according to DataQuick.”
‘Leamer said. “It’s a little bit of pain every year. If you try to sell, you can’t find anybody to buy, and the price is eating into your equity little by little’
A soft landing doesn’t sound like much fun. Here is a link where you can size up your city.
Did you see the 81% jump in Houston sfh building permits? If anyone knows, what is going there?
The escapees from NOL.
It apparently is the next hot spot. But they will soon be hit with a major hurricane and things will slow down. But where do you go. The midwest gets slammed with tornadoes, North gets blasted with snowstorms and blizzards, west gets out of control fires, floods and earthquakes that you get no warning. At least here in Florida you have time to prepare for a hurricane. In most cases you have weeks notice. And we still have the best weather around.
As for this crazy real estate market…keep reading all the negativity and you will begin to believe all of it!
Did you see the 81% jump in Houston sfh building permits? If anyone knows, what is going there?
Cheap housing and rock-bottom interest rates means that a couple with Walmart salaries can afford a house with a fixed-rate loan. With interest rates going up that will no longer be the case. The question is will the builders turn off the spigot now?
Santa Clara has lost 17% of it’s workforce since 2000, yet those who remain have bid up the price of residential real estate by more that 100%; I thought engineers were supposed to be “smart,” guess not!
Smart doesn’t mean they know about every topic. They know about calculus and physics, but not necessarily financial topics. Doctors are smart, too. But they’re notoriously lousy investors. With doctors it’s like a perfect storm — once their careers are in full-swing they have a lot of money, but no clue what to do with it, and worse, no clue what NOT to do with it.
And absolutely no time to do any reading to educate themselves. Yes, doctors make the best suckers.
Engineers and Doctors both work in fields where liars are not tolerated long and everything can be “proven” by logic or expirementation. That leaves us vulnerable to frauds and charlatans until we’ve been burned enough to figure out that most of the world does not think in a rational manner.
True.
Abso-frickin-lutely.
The other problem is that we are used to being smarter than most people. This is often true, but the attitude is deadly when investing.
Isaac Newton lost a good sum of money in the South Sea Bubble, he got caught up in the mania and let the limbic system of his brain take over the rational part of his brain, like all human beings do. He was in once, saw a profit, got out, saw it keep running up, and jumped back in, then lost it.
This happens with me and craps. Of course, I only bring a hundred or two to the table - with no regrets if I lose every penny (happened once in maybe ten total times at the game).
If you’re talking FIVE HUNDRED THOUSAND dollars… I’m much cooler-headed. That makes me smart, and the last few years’ buyers stupid.
Isaac Newton was notorious for his unworldliness. He was the original absent-minded professor. I believe his initial profit from the South Sea bubble came largely by chance.
Limited inventory Sam…..Historicaly we have 150-175 houses available in Santa Clara…After the 90’s recession it went over 500…Over the past two years we have fluctuated between 50 and 70….
dave - I think Sam is perhaps talking SC County, whereas you are talking SC City.
Big difference.
Got It SF…I don’t follow the county data….I watch SC City with a micro scope….
Ah.. so the “sc” is for Santa Clara.
Any moves with inventory very recently?
Up “Slightly”….Went to 92 over the weekend and back down as few as of today….No more multiple offers…More price reductions “sooner rather than later”…
I am watching closely…As you know we have been having terrible weather….Will know where we are headed in a few weeks I believe…
re: low inventory in some big-time hotspots. I’ve noticed here in Santa Barbara, that people are taking their houses off the market because they’re not selling at their super-inflated prices. They think, falsely, that the prices will bounce back next year. In my opinion, they are only making their situations worse by delisting.
I’m on your bandwagon Bookish Betty. You go girl!!!
SB BB
Harrumph on behalf of the engineers. They aren’t the ones bidding up the houses because there are fewer engineers in Silicon Valley now than there were in 1998. That comparison goes back further in time with each passing month.
By the time the median price is moving down, the decline is WELL under way. I can tell you for a fact, the prices of individual properties were declining beginning in late ‘89 early ‘90.
The median price is a lagging indicator. It is also just the median price of the homes that are selling. That number can trend up or down for reasons other than the value of individual properties rising or falling.
excellent insights as always. thanks!
“Fourteen of the top 50 metro areas now have risk scores above 500, meaning they face a 50 percent or greater risk of home-price declines in the next two years, up from 11 metro areas last quarter.”
“In addition to Minneapolis, metro areas that saw significant increases in risk were Virginia Beach, Va. (+65 points to 274); Baltimore, Md. (+62 to 279); Newark, N.J. (+61 to 427); New York (+58 to 506); and Washington, D.C. (+56 to 401).”
These numbers are low. Washington, DC number should be much higher then 401, it should be at about 930.
David
Bubble Meter Blog
Like Washington, D.C., I find the numbers for Miami to be remarkably low. Affordability is close to worse in nation, inventory is up more than 20% in the past two months, average prices have fallen two months in a row, and at least 10,000 new residential units are under actual construction.
The whole exercise is somewhat dubious, IMHO. They’re trying too hard to measure things, with formulas. That is valuable, but not at the expense of common sense. When everyone and his brother, his barber and his cab driver is all of a sudden an “investor” in the theme du jour (housing), Time Magazine is running cover stories and I’m hearing about all the “winnings” in the supermarket checkout line, I don’t need no stinking formula to tell me something’s wrong. Game over.
Agreed. Lately, I often have more than one “shoe-shine moment” on any given day.
I’m finding this “watch the volume” advice quite helpful in a way. In my bubble area, I’ve been taking a a single or doubly smooth moving average of most of the zip codes around me of monthly number of sales multiplied by average sales price to get a better sense of what is going on. Call it “volume of real estate dollars”. The moving average is necessary because the data is so choppy month to month. Total transacted dollars are starting to obviously soften for the first time, even though home prices are still rising in most cases. If I had relied strictly on number of sales, the YOY would not revealed that. A few years ago there was a good YOY decline in number of sales, but prices and sales went on to zoom up again.
Surely realtors must feel like they are scrambling for a smaller piece of the pie.
By the way, I hope to get graphs for March up this weekend.
Anyone who hopes the housing mania will come to a quick end should offer their personal thanks to Marco Van Akkeren (PMI economist) for reporting the truth about the likelihood that prices will fall…
P.S. Having grown up in the Netherlands, I would guess Marco has more familiarity with folklore about price manias than most of us.
Do you have a reference for this? Thanks.
http://are.berkeley.edu/Alumsalpha.html
Fall 2005 PMI Group Economic Report
http://www.pmigroup.com/lenders/media_lenders/pmi_eret05v4s.pdf
hmm … maybe he can report as well about the likelihood that prices in the Netherlands will fall
They didn’t have Albuquerque included in the 30 metro areas. Or also Salt Lake City. Any info on these areas?
You need to read click on some of the links and read further to find any info an Albuquerque and Salt Lake. New Mexico and Utah are in the bottom 10 when it come to risk of decling prices.
they don’t have sonoma county listed either. Temptation is to lump north bay into SF metro, but it is a mistake when talking economy as it is not nearly as diversified as the rest of the bay area. any info on how to get this information from them?
I’m really enjoying renting right now in Santa Clara County. I’ve embraced it. I’m very happy. I love saving so much money and watching it grow. My relief at not buying a condo in our building is only heightened when I read our HOA newsletter. Apparently, people on the second floor or higher are no longer allowed to use their treadmills during certain times and one of the dogs in the building will undergo “bark” surgery in order to keep it from disturbing the neighbors. Ah the joys of “home ownership” - being told when you can exercise and being forced to make your pet undergo exotic and cruel surgical procedures.
Btw, the two units in my building that are up for sale remain so. Open house traffic has slowed to a crawl. Maybe it is this bad weather, or maybe it is something far more.
We tried to sell to potential buyers with 4 dogs and they noticed HOA restriction of 2. We tried to get a waiver. However, HOA already forced an owner who got caught with 3 dogs to get rid of one of the 3. Since HOA didn’t want to get sued, they turned us down.
So much for “rights” of ownership….
So much for the value of condos.
I really do not understand why someone who is willing to live in a condo would ever buy one. Especially in this market.
I don’t think a lot of condo purchasers realize what they are signing up for when they buy.
Condo associations are just one more form of government; and, another set of rules/laws. When a dispute arises it can turn into a legal proceeding, which can cost the condo association many thousands of dollars in lawyer’s fees; which, as an owner, you get to help pay for.
I’m not crazy about the condo concept myself.
I grew up in a condo and it was pretty sweet. I still have never had to mow a lawn.
I think you never really know about a condo complex until you live there for a while. Last year, we lived in a nice little place but there was a parking Nazi. No guest parking after 6 pm. When are guests supposed to come??? There were garage inspections to make sure you could fit a car in your garage.
Now, we live in a complex around the corner (las brisas II) and there are dedicated guest parking spots, everyone seems to get along and have enough room to breathe.
I guess we could have seen the parking situation coming, but we never expected enforcement (towing) to be at such a high level. If you’re thinking about moving to a condo complex–talk to your neighbors first.
I guess I’m biased because I own one but condo living really isn’t that bad. Plus, in SoCal, with everything so pricey, people have to start somewhere. Can’t start with the 3000 sq. ft. ranch unless you are rich…
Yeah, the HOAs can be a pain in the ass but many here in Irvine have great pools, spas and you don’t have to do much maintenance. Many single professionals and the elderly don’t feel like dealing with that and they don’t need all the space of a SFR. Condos fill a market niche just like the SFRs do.
Plus, in SoCal, with everything so pricey, people have to start somewhere. Can’t start with the 3000 sq. ft. ranch unless you are rich…
I’ve really never understood that sentiment. With prices being so out of whack, it’s cheaper to rent a SFH vs. buy a condo. The money I’m saving by renting a SFH up is to buy a SFH, not a condo, even though I’d be a first-time buyer. I guess condos make sense for singles and real young couples, but not me…
I agree. I have been opposed to the idea of renting for the simple fact that I felt I was throwing money away (this idea was developed when rent and mortgage prices were at least on the same playing field).
But now I see, that in todays market, it is much smarter to rent and save more money for a down payment on the home I want, rather than settling for a condo now.
Not to mention the fact that this makes a lot of sense given the current evidence of a looming downturn.
Patience is my mantra.
You know, HOA’s really ARE another layer of government. In order for them to function properly, the constituents need to participate. If the rule Nazis have imposed their will on the majority, it’s just because the majority did not intervene effectively.
“Rights of ownership” are always restricted by their impact to “innocent bystanders,” and condo ownership is no different. Owning a car does not give me the right to drive it at 100mph through a school zone, and owning a condo does not give me the right to run a meth lab in it.
Nothing is too exotic or cruel for dogs that bark and bark (or for their owners). It’s noise pollution of the worst kind. If it were a person yelling “Hey YOU!” over and over, hour after hour, you can bet something would give pretty quickly.
Amen. Dog owners always think everyone is enamored with their obnoxious pets, and that the sheer pleasure of living next door to a dog must outweigh the annoyance of having to hear constant barking, and watch out for feces with every footstep.
Yeah, dogs may bark but their not nearly as annoying as you and your children.
Fatsacca….Are you in Sacramento ??
No, my hounds and I roam the southeast looking for NIMBY do gooders to harrass.
I think we sent you a few from California….
Yes. Yes they are. Dogs are far more annoying.
I’ve lived next to both.
We have two wonderful dogs on either side. They barely bark. A new one just moved in (two months ago) behind.
Every fucking night. Constant from 8-10pm. Only intermittent the rest of the time. It’s just getting worse.
Yes we’re filing a complaint.
The neighbors kids, now 6 and 8 (we moved there three years ago) were once a week with the crying, usually in the morning, and it sure didn’t last long.
I also purchased an anti-bark device just today (makes an irritating noise in response to barking). Hope it works. Returnable if it doesn’t.
Now if they could only perfect an anti-self-righteousness device.
Very funny, you two…
[NIMBY do-gooding is a way of life for many in the San Francisco Bay Area]
I think you need to look up NIMBY. My guess? Your dogs are home alone all day, bored out of their skulls while you and your spouse work. You probably keep them in cage or keep them tied up all the time, too. Imagine if one did that to their kids…and dogs are supposed to be man’s best friend!
Touched a nerve, eh? Me and my dogs don’t like you and your kids are brats.
Having lived in close quarters next to dogs whose barks have reverberated around the complex and woken me up at all hours - I think bark surgery sounds pretty humane. The alternative is that the owners can get rid of the pets. There is a choice. In my case, there was no choice since the dogs were next door, not in my complex. I got out of that situation years ago and vowed never in my life to live in such close quarters next to animals (both the canine and human kind) again.
Bark surgery humane? Come on, name one “human” subject to such surgery. Barbaric.
Dogs are wonderful, kids just slightly less so.
Truthfully, problems with dogs and kids have to do with their owners/parents. Complaining about their noise is a futile attempt at addressing the symptoms, not the disease. The only true cure is to force the bad neighbors out or move away.
p.s.: Susan, denying yourself the company of animals is to deprive yourself of one of life’s great pleasures.
this exchange about dogs and kids demonstrates why buying in a down market is so scary for us potential buyers. I love my kids and would want to move from a neighborhood filled with people who treat them like less-than-humans, and I can’t stand barking dogs and would want to move from a neighborhood filled with their abhorent noise…but unless you’re lucky enough to catch the barkers at home and out(it has kept me from pursuing homes when I hear/see them!) or actually have the human-hating assholes out sneering at your children while you’re checking out properties, you don’t know til later and if prices are declining then the idea of “well; you can always move” doesn’t work very nicely…
cheers!
Bad weather ??? We will find out shortly….
My relief at not buying a condo in our building is only heightened when I read our HOA newsletter. Apparently, people on the second floor or higher are no longer allowed to use their treadmills during certain times…
IMHO, treadmills just should not be used in apartment-type dwellings unless the sound insulation is very good (and it seldom is.) They create a lot of noise and vibration that’s extremely obnoxious to downstairs neighbors.
I can understand the low-mainenance appeal, but it’s always seemed counter-intuitive to me to “own” a condo where you have to follow at least as many rules as you would if you were renting. I’m always a little astonished to see ads for condos for sale where there are no pets allowed, for example. If I’m paying a mortgage, I want more control over my environment.
“http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20060404005995&newsLang=en”
More bubble concensus.
Good article…thanks
O/T, but well worth the read:
http://finance.yahoo.com/columnist/article/richricher/3413
I guess this guy is in the same camp as we are afterall.
I would say we are at stage 4 of the bubble according to the article.
That’s why Kiyosaki is pitching books and tapes instead of buying property. He’s smart enough to know that this is the time to sell picks and shovels to the greater fools.
Kiyoski won’t be so sanguine when the shootin’ starts.
This ain’t no ‘90/’91, ‘94 bust.
Didn’t you know, he’s been buying gold since 1998. If you don’t believe me, just ask him.
The old stock market saying:
“Volume before Price” applies to housing too.
Volume is a leading indicator. I’ve been trying to beat
that into the heads of my RE investing friends.
I’d estimate that about 90-95% of sellers/buyers don’t even have a clue about the nuclear reaction about to take place. If they’d only found Ben 1 1/2 years ago they wouldn’t be a AFB. I over heard a RE agent talking to another agent. They were commenting on how they haven’t even been to the office in 2 weeks. They were stroking one another on how it was going to pick up. LOL…LOL>>>LOL.. ROFL!!!!
stroking is a good thing, nowadays. whatever it takes to get over the loss of a job, income, etc.
A twelve step program for realtors?
A few more 20 something’s with big debts now out of work - per Mortgage News:
Subprime lender Mandalay Mortgage, Woodland Hills, Calif., trimmed its workforce by at least 70 positions on Monday, industry sources have told MortgageWire.
Yeah, it is all SUPPLY now and not so much demand. New development near me in OC is 25 houses packed into about an acre lot. when they were building, sign said “Starting from the Low $800s!” then it went to 900s, then from the low $1,000,000s! for last few months—and today on way to work I see it is back to 900s again. I don’t think any of them have sold yet. Hello, for the same money and less there are suddenly a bunch of very nice SFRs with big yards built in the 50s. Hello….
Catspit, where do you live? I’m currently in Irvine and they are building the same crap across the street from me at the old Tustin Air Base. Right next to a dump and a concrete facility. What a deal.
costa mesa, east side. i think development is called sea cove or something cove, corner 23d and Orange.
I know of two flippers who bought in this tract at >$1m. Both houses are currently vacant and the purchase contact does not permit them to sell or rent the houses for 12 months. Yikes!
I’ve seen those. They are very nicely built houses — but you’re right, they’re packed close together East Coast-style. I did notice the little edit to the price on the billboard.
I don’t know where the jobs to buy $600k houses are, but they sure the h*ll aren’t in here in New England. Even the lower rung of retail has lost over 1000 jobs on the northshore alone with the closing of Filene’s and Lord & Taylor department stores.
Add Fidelity downsizing; Fleet Bank absorbed by BofA; Gillette bought out; GM goin’ down the toilet, the implosion in the real estate and it’s like the carnage never ceases.
I think the contemporary Depression era example of selling apples, is opening a coffee shop. Around my neighborhood there’s now 4 for every block.
MA legislature just past a surcharge to employers who don’t provide health insurance coverage, to pay for the legions of immigrants who are using hosptial ER’s as outpatient clinics. So there’s your political solution to the problem.
The US citizen has been sold out by NAFTA and GATT.
Big crash is just around the corner.
In my neck of the woods there are several stores that just simply disappeared from malls that have been full for ages. Same with the outlets. There are actually available spots.
Malls are managed by simon and that could explain a lot.
more anecdotal stuff, but telling, I think: we’ve been on vacation in San Diego during spring break and the hotels are all showing “vacancy” signs. That was definately not the case two year ago when we visited.
I apologize for the rain. Really, it’s not usually like this.
That is what I ask myself every time I look around in my neighborhood - what the h&%* are these people doing for a living that they can buy $1.2 mil bubbleminiums and drive hummers (SUV? — Puuhleez!) Maybe sell real estate to each other - the classic Ponzi trap.
Good luck when Kennedy’s amigos start coming into town. They will depress the wages even more as well as bankrupting the hospitals and screwels. Oh, by the way, you idiot libs will have to pay for it (me too). Load up on guns and ammo to protect yourself and family.
Looking at the provided link, Column 10 shows San Jose is the Neg-Am capital of America, with 27% of loans allowing for possible negative amortization (SF is 2nd at 25%, SD 3rd at 22%). But they’re all savy investors, right??? Oops, wait a minute, column 8 shows SJ & SF have a relatively low investment purchase percentage. Could it be…? Are people simply streeeeeeeeeetching to get in??? With all the stretching, It’s bound to be a killer snap.
Interesting observation….
I think you are on the right track. Hibernate for 2 years & you’ll wake up to lots of fun floating around…
The San Franciso Bay Area:
“Proud home of the financially self-delusional.”
[Athena - perhaps led locally by the residents of Sonoma...]
Sorry folks but I feel that this must be said…..
Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory Inventory
‘Nuff said….
yep
Inventory Inventory Inventory Inventory Inventory Inventory
No Buyer No Buyer No Buyer No Buyer No Buyer No Buyer
No Buyer No Buyer No Buyer No Buyer No Buyer No Buyer
No Buyer No Buyer No Buyer No Buyer No Buyer No Buyer
No Buyer No Buyer No Buyer No Buyer No Buyer No Buyer
No Buyer No Buyer No Buyer No Buyer No Buyer No Buyer
‘Nuff said….
nm
No, dont you know that inventory only works to influence prices when there is a shortage, now that inventory is sky rocketing the RE bulls say it still doesnt matter, RE never goes down! Ha, Ha!
One of the big flaws I found in the PMI report was the risk index for Phoenix being in the lower 50% (RI = 146, rank = 30/50). This means to say houses are at greater risk of depreciation in Atlanta (147), even Detroit (336)?
Phoenix experienced a late stage runup (after Vegas and Central CA) in summer 2005, and now has the largest inventory per capita in the US. This puts them in the top 5 riskiest metros in my book.
Don’t know for sure but, maybe its due to the fact that Arizona is a 2nd home destination for “Flush”retiree’s….PMI mortgage insurance is not used on most of these deals is my guess…
I humbly suggest that the risk factor of market saturation is 100%. Oversupply WILL occur because of the aforementioned problems of insufficient wage increases, rising costs of living and rising interest rates. In some transient areas like Washington D.C. this will cause great pain and fairly dramatic declines in relatively short order.
If volume is the key, orange county may be a leading indicator. although average prices are still going up (very slightly), sales volume (resales per MLS) have fallen quite a bit:
March 2006 sales: 2,541 sales (sales volume down approx. 39%)
March 2005 sales: 4,174 sales
Feb 2006 sales: 1,920 sales (sales volume down approx. 23.5%)
Feb 2005 sales: 2,510 sales
Jan 2006 sales: 1,812 sales (sales volume down approx. 31.3%)
Jan 2005 sales: 2,638 sales
The year over year comparisons are going to get harder. If you look at home sales last year they started ramping in March and crested in July/August.
Lots of Santa Clara County homeowners here have not seen price declines. Much of what we do here is deflationary. The business model of emloyers be they young or old companies declines year over year. Both products and services in hardware and software have become a commodity. The watering hole is getting dried up…
Column 10 shows San Jose is the Neg-Am capital of America, with 27% of loans allowing for possible negative amortization (SF is 2nd at 25%, SD 3rd at 22%).
———————————————————————-
This is correct. Its gone crazy… Its going to be a feeding frenzy here in 2 years with the resets. 10 cents on the dollar.
No one will want to touch these homes…
“I don’t think a lot of condo purchasers realize what they are signing up for when they buy.”
The ones in Santa Clara come now days with a Hangman’s Noose. Condos were the worst home you could have purchased in SC in 1988. They dropped by 35-40%. History is ready to repeat itself.
TOGO….You are probibly correct on the condo perspective even though your 10 cents on the dollar is way over the top……Its going to be all about jobs….
Real Estate News Summary, Part 86
667. A dozen of Fremont’s most expensive new homes went on auction. With the
housing market bleak, builders in the Mission San Jose hills have been
trying to unload homes above the $800,000 level by slashing prices tens or
even hundreds of thousands of dollars. Contractors are ready to give it
up, and sell them for what they cost. One house appraised at $1 million
last year now has a minimum bid of $745,000. Others appraised for $1.2
million could go for $800,000. [San Jose Mercury News]
669. Real estate investors are feeling their share of pain. In many parts of
the country, the value of income properties has fallen, sales are
sluggish, rents are soft and foreclosures and bankruptcies are up. In
areas such as Silicon Valley where thousands of jobs have been lost due to
high tech and defense-related cutbacks, smart landlords will keep the
rents 5 to 10% under market. [San Francisco Examiner]
670. Mortgage refinancing soared in November as homeowners moved to capitalize
on the lowest interest rates in 14 years. But falling rates have not yet
sparked substantial increases in borrowing for home purchases, because
consumer confidence remains so low. [Wall Street Journal]
672. About 2 dozen lenders around the country offer adjustable mortgages with
interest rates of 5% or less for the first year. There’s at least one
lender offering a 4.25% rate. Rates have not been this low since the ’50s
or the early ’60s. Rates on fixed mortgages are also down, averaging a
14-year low 8.75% on a 30-year loan. But many economists and lenders think
rates could move even lower before they turn up. [Wall Street Journal]
Real Estate News Summary Mon, Jan 27 1992
708. In November 1991 19% of Bay Area residents could afford the median-priced
house, up from 13% a year earlier. But despite the lowest interest rates
in 17 years, home sales have not taken off. Cornish & Carey predicts
another 10% drop on top of the 20% drop since the peak of the market in
July ‘89. Fox & Carskadon expects flat prices in ‘92 and ‘93, with 5-7%
gains in some markets. Contempo Realty predicts fairly flat prices. The
Menlo Park-Atherton Board of Realtors reports no big rise in sales, and an
increase in inventory. [San Jose Mercury News]
709. The lowest interest rates since the mid-70s have triggered a nationwide
rush to refinance mortgages, making refinancing unusually aggravating and
time-consuming. This is likely to worsen when rates turn up significantly.
Moreover, many in the recession-ravaged Northeast find they don’t qualify
to refinance unless they ante up more equity to compensate for falling
home values. [Wall Street Journal]
714. In this market, if you can sell your home at all, you’ll likely take a
loss. But renting it out until the economy picks up may be hazardous. As
the economy worsens, the danger of renters skipping town increases, and
it’s rarely worth the time and effort to go after them. But at a time
when many homes sit on the market for close to a year, and Manhattan
co-ops sometimes take twice that long to sell, renting may be the only
option. [New York Daily News]
Real Estate News Summary Mon, Feb 10 1992
719. When people say they can’t sell their house, they are unwilling to accept
the market’s opinion of what their house is actually worth. Every house
WILL sell at the right price. The value of a house is based on the sale
price of houses of comparable size, age, and condition that have SOLD in
the neighborhood in the past 6 months. Home prices have declined since
they peaked in 1988-89; if you had the misfortune to buy then, accept the
fact that today’s market is much different. [San Francisco Examiner]
Don’t watch the prices… watch the volume.
Where have I heard that before?
BTW, stock traders take note: Do not try to short PMI. There is absolutely no technical suggestion that it is shortable, and, fundamentally, rapid turnover helps them. When they write the policy, they don’t consider the entire premium to be income at that time. If one of their customers sells the house for whatever reason, including bankruptcy, then the contract is complete / expired and they can then claim the original income. They’ll be doing great on paper for months.
Dire warnings about the outlook for price declines ought to enable them to hike premiums, as well…
Edward E. Leamer, director of the UCLA Anderson Forecast said. ‘Don’t watch the prices,’ he said. ‘Watch the volume.’”
Sorry but I need help understanding this. Can somebody walk me through why decrease in sales volume is a leading indicator to price declines?
Suppose inventory (as in houses for sale) is at or near all time high, but the sales volume (houses sold in some time, say month) is at all time low. The supply (indicator: inventory) and demand (indicator: sales volume) are no longer at equilibrium. Something has to give - price.
Thanks Finnishguy,
Makes sense when you add the high inventory component.