‘There Is Still A Disparity’ Between Sellers And Buyers
The Associated Press reports on pricing in the housing bubble. “Spring is typically the busiest time of the year for home sales. But with mortgage rates rising and sales slowing, sellers find they have to work harder to get a sale. In February, there were 3.03 million previously owned homes for sale, a level not seen since 1991, when 1.91 million homes were up for sale.”
“‘Business is tough. The inventory of available properties has increased,’ said Martin Bouma, an Ann Arbor real estate agent. ‘You are looking at (the number of) buyers going down, and inventory is going up.’ Pete Montero first listed his Ann Arbor, Mich., nearly a year ago at $379,000. The 2,600-square-foot home didn’t attract buyers so Montero dropped the price in $10,000 increments, he’s now asking $329,900, and he’s even considered remodeling the kitchen.”
“Some incentives offered by sellers include a year’s worth of free landscaping or lawn care, free snow removal for a year or a year’s worth of alarm service. And, that’s just from the owners of existing homes, builders sitting on a mound of inventory have also had to come up with new ways of wooing buyers.”
“The first signs of an ebbing in demand appeared last summer and have continued into this year. Applications for home loans, a gauge of future home sales, are down 20 percent from last year. ‘I have seen it transition from a seller’s market to a buyer’s market,’ said Bob Moulton, a mortgage broker based in Manhassett, N.Y. ‘Buyers are putting in bids but they are not counter offering.’”
“While some homes can be taken off the market place by their owners, home builders cannot afford to hold on to empty homes. So, some have offered their own incentives, such as helping to pay mortgage closing costs or upgrading kitchen appliances. ‘This year we’re being a little more aggressive from the advertising and incentive standpoint,’ said Paris Reese, CFO of MDC Corp., a Denver-based builder. ‘Incentives are an important part of our business,’ but Reese is quick to note, ‘we’re not doing any fire sales.’”
“Dallas-based Centex Corp., meanwhile, has kicked off a series of 12-hour sales in Seattle, Las Vegas, Houston and Denver, among other markets. In Sacramento, Calif., Centex lopped off $100,000 from some multimillion dollar homes.”
“Toll Brothers’ marketing involves staging Easter egg hunts, Halloween parades as well as charity events or PTA meetingsBut aside from special events and upgrades to kitchen appliances, the single factor determining whether a home attracts buyers likely will be its price. ‘You can have the biggest circus on the street, but it comes down to price and having the right price,’ said Bouma.”
“Maria Janeidas, an information technology consultant based in Manhattan, looked at about 24 homes in six weeks on the north shore of New York’s Long Island, but didn’t find any bargains. ‘There is still a disparity between what a seller believes their home is worth and what buyers are willing to spend,’ Janeidas said.”
Thanks to the reader who sent this in.
I’M MAD AS HELL AND I’M NOT GOING TO TAKE THIS ANY LONGER.
“In February, there were 3.03 million previously owned homes for sale, a level not seen since 1991, when 1.91 million homes were up for sale.”
how is 3.03 million the same as 1.91 million? it should say that its *worse* now than it was in 1991. maybe they are adjusting for population increase though.
You are probably right. It is adjusted for a population increase. The key correlation is 1991, back when the RE market was starting to really inravel. There are many similarities between now and 1990. But hey, it’s different this time.
Make that unravel. Sorry for the typo.
uh, nope, not population. Cause that would be a 50% increase in 15 years.
Probably as far back as they were willing to show.
good point
population is up many times that
I think that they’re comparing the inventory / sales ratio. The population hasn’t gone up by 50% since 1991.
Could it be that there have never been more homes for sale at any time in history, than there are now? What would have been worse than 1991? Go back into say the 70’s and population might indeed put a ceiling of sorts on the absolute level.
remodel the kitchen to help sell the place? that’s throwing good money after bad.
Hey, anything to stop the bleeding. There’s going to be a lot of dealing as these builders who were making huge margins adjust to making smaller margins. The builders will keep building. The people who will be mad are the people who paid top dollar to the builder six months ago.
Denial
Anger
Bargaining– We are here.
Depression– Summertime: Panic sales, foreclosures, BK
Acceptance
“Bargaining - We are here.”
Not really, many places are still in the Denial phase. Prices are still rising or flat in most bubble areas. The decline will likely be in force during ‘07-’09, with the aftermath lasting perhaps significantly longer.
Great analogy, but I don’t think we’ve seen any real anger yet. I think the herd is still in major denial, that’s why there is this “If I can’t get my price I’m going to take my house off the market”, mentality.
i would suppose some markets are just about to break through to bargaining. anger of course is not a standalone step. it accompanies all the others.
Mr. Montero isn’t really trying to gauge here, though I don’t know if he’s HELOCed to hell. He just bought too high, and did the all-too-common buying a new house before selling the old one. I see that in 2000 he paid 302K for a 2060 (not 2600 as reported) SF house someone bought in 1997 for 250K. This home is in a new sub in one of the closer beyond-the-highway-ringing-town-proper subs, with an allegedly good reputation. I’ve looked there, and the construction varies widely (different builders), but its that smallscale mcmansiony kind deal, some lots near the highway and thusly noisy, but the big block for me (I
ve actually looked semi-seriously at some places there) is that there is a gravel quarry within a 10 min walk, and it gets chalkiness in the air. People are in a bit of denial about it I think. It’s gravel and asphalt plant…maybe gets smelly in warm weather. There’s also a couple blocks away the Pall Sciences plant, a maker of medical filters who years ago under different corp (Gelman sciences) dumped dioxane (not dioxin, but still a suspected carcinogen and a definite affector of endocrine systems I believe) into the ground water, contaminating a city well that had to go offline. Supposedly it doesn’t affect air quality, just water…but the groundwater in those parts is contaminated, the city is now drilling other wells and contamination is spreading to the town proper. I’ve noticed a new slew of homes for sale in this one area where they are doing more drilling to monitor the spread..this is in an old established classic neighborhood in town, one of the most desirable (walking distance to downtown, neighborhood city pool and softball field, quaint), and I can’t help but think that people are finding the whole happy little midwestern-but-sophisticated scene a little less idyllic when the city is drilling holes in your frontyard to see how the dioxane spill is doing! they are desperately hoping that it doesn’t spread to the huron river, which is the main source of water for the town, and hoping too that more city wells don’t have to go offline, but that’s a distinct possibility. They are also hoping that the Pall Sciences “fix”,of bringing the groundwater up and ‘venting’ it, i.e. letting it evaporate, is an okay fix. I don’t like the sound of it, I wouldn’t want to live near a toxin venting site, but that’s what’s happening in the far (and moving nearer!) west side of town!
Mr. Montero did a seemingly inexplicable move from the house in the article, that he is now trying to sell for 329 ( i might have visited it) to another house in the same township, just 10% bigger in SF, and 18 years older….hmm…I wonder if the dust or the dioxane bugged him in the first house. He bought that second house at 380K in summer 2005, which might explain the initial asking price for the first house of 379, and this he might have considered a bargain too good to pass up since the last sale is registered at 215 in 1989…
in ann arbor there is an interesting mix of issues. downtown area and campus area has little old houses with folks expecting bubblicious appreciation the last 5 years, along with the old and longstanding wisdom that ann arbor homes appreciate at a much higher steady rate than elsewhere (i think we had years of steady 10% during the good economy of the 90s). So we have a couple neighborhoods where folks like to pretend they’re living in SanFrancisco, and then the rest of the town and area where you can’t really pretend like that and not get prescribed anti-psychotics by all the psychologists who live here.
The outlying new house tracts have been a haven for people who just want a bigger place without a moldy “michigan basement” (essentially dirt and stones) and more SF, and after the initial frenzy for them when they first started going up en masse in the late 90s they have suffered from the too-many-choices-in-the-category problem for a while now, even those not near quarries. For years now it feels like, the realtors have been claiming that it’s very very hard to sell anything in the 400-500K range because that entry-level upscale has waay too much inventory all alike. I think it’s Toll Bros that just started their parties for a 600-800K sub near my kids’ school. That relatively unsaturated market had been expected to fly away when the project started…i’ll keep an eye on it. I never get people wanting to have 4000SF places with small lots and near cargo train lines and the highway. I’ve been in one, and palatial as it feels inside, you get out on your lawn and greet your neighbor over the alleged white noise of whirring traffic, the ocassional clunk of trucks on potholes, and the intermitten train horns in the distance. I wouldn’t want to have even a mansion with the ambient noise of a truckstop..
cheers!
In a recent episode of “Buy Me” on HGTV, a house was sitting for months, and the realtor suggested the owner turn the basement into an apartment (add a kitchen and bathroom) to help sell the house. The owner agreed!
At the end of the show, and two price drops later, the house still hadn’t sold.
it’s really hard to earn a good return on your investment with big renovations. You should only embark on big remodeling projects if you plan on enjoying them for yourself.
keep in mind this guy is talking about remodeling a kitchen that was brand new in 1997! i’m so curious now maybe i’ll go next time his place is open and see how bad it is…some of those houses had cheapie builders and the kitchens kinda look like crap after a couple years.
In any case, given the competition i know of in the sub he’s in, it would have had to have been a seriously killer renovation to come close to getting anything near his initial asking price of 379k in this market!
remodel the kitchen to help sell the place? that’s throwing good money after bad.
Nah not necessarily. These days in Silicon Valley at least two or three companies are advertising a kitchen remodel for no more than like seven grand, vs the going rate of 15-20K.
In fact, one did a great job for me last summer — all new counters, granite countertops (of course!), new sink, new faucet, re-install garbage disposal and dishwasher, install a new gas range and microwave/fan that I bought myself, and all the random hoses &c. It took less than a week from start to finish.
Note that the labor was all illegals, and they weren’t a licensed contractor — caveat emptor . We didn’t move any plumbing/gas/outlets/walls/doors/windows so we were clean permit-wise at least.
Then I called a painter to do the walls and ceiling for a couple of hundred bucks, found a tile guy on craigslist for like $5/sf, and it was no more than eight grand start-to-finish, and like I said I was cooking in the new kitchen within a week of starting the demolition of the old one.
BTW this was the original very-early-70’s kitchen, and there was floor damage from a dishwasher leak. The demolition was unavoidable in my case, so it was the ultimate no-brainer.
Yikes, cabinbound, the shape of things to come. These posts are so informative.
Halloween parades in april???? whats next, christmas in july?
i think they’ve made the move to easter egg hunts now…I believe I saw one advertised last week at the new toll bros dev here. do they do this in non mid-western markets? here i’ve assumed it was a play to get buyers to believe they’ll still have that hometown feel in the outsidetown newsub
and don’t have to instead wait til a “suitable” house comes on the market in the quaint neighborhoods round here known for their precious halloween parades. seriously, that’s something that justifies ridiculous prices in this town. it’s so fascinating really, alll these people chasing a quaint oldfashioned lifestyle with huge mortgages on overpriced houses needing new basements but with charming old woodwork trimming the little rooms. It’s all about lifestyle
in one particularly quaint neighborhood, there is a lovely oldfashioned ice cream shop where the old folk drink coffee and talk all day and the little ‘uns and their parents walk from their
old homes for the biggest icecream bargain in town. Which is convenient since
the houses in that area have doubled in (asking) price since 5 years ago so if you bought recently you wouldn’t be able to afford going out for icecream!
the irony has kinda ruined the scene for me…
I was wondering about the Easter egg hunts.
Are a few chocolate chickies going to make Joe Homebuyer overlook the fact that he’s overpaying for his house by at least 50%?
Well, I guess anything is possible, if the market has gotten to the level it has without chocolate duckies.
‘You can have the biggest circus on the street, but it comes down to price and having the right price.”
These diversion strategies really fascinate me. One years worth of landscaping, $2,000 gift certificates to furniture stores, balloon animals for the kids. “Gee Honey, maybe we should stretch to buy this home, they are throwing in a Weber Bar-B-Q.” I wouldn’t be surprised that it works either considering the average financial IQ of home-seekers. “Look at the squeaky toy, Look at the squeaky toy, NO! don’t look at the price, look at the squeaky toy, Who’s a good homebuyer? You are!”
Homebuilders can keep up the magic tricks for only so long. The price will end the party sooner or later.
“‘There Is Still A Disparity’ Between Sellers And Buyers”
Not surprising, given that there is still a disparity between prices and reality.
This is so silly . There are no buyers left to come even close to creating a market that can absorb the inventory .The investor /flipper is out of it now in large part so that 50% demand gone right there . The first time buyers can’t afford it anymore .The rest of the potential buyers for move up purchases or move down purchases ,(baby boomers), can’t sell their houses .
Buyers would buy if they could but they can’t .Its done ….Last year was the last wave .
“disparity” should be replaced w/ “gaping chasm”.
“Paris Reese, CFO of MDC Corp., a Denver-based builder. ‘Incentives are an important part of our business,’ but Reese is quick to note, ‘we’re not doing any fire sales.’”
apparently the general house-buying population in Denver is unaware of the mile high inventory.
Good news is that builders are still building. They overbuilt last few years with excess supply taken by speculators. Now they’re still overbuilding (just not by as much) and speculators homes are now coming on the market too. Soon foreclosed negative arm people who can’t afford full IO payments and can’t refinance as their collateral has sunk will be on the market too.
Just hope the homebuilders keep building. They need to monetize lots by putting houses on them and it’s still very profitable to do so even if prices are down 10-15%. I hope they gun the prices down…just start taking 20-25% off, then that is the new market.
Sayonara housing wealth.
I just wish I could have some numbers to know how much housing was absorbed by speculators (1M?, 2M? more). I did read that in Sacramento 20% of people are negative ARM loans. I want the OCC of OTS to say that such loans need to be collateralized by assets held at the bank, like a stock fund or something. Otherwise the bank has to put up 2x the amount of neg. amort as capital to safeguard the system. These are INSURED deposits they are lending in negative amort. loans.
That’s exactly what I’m talking about. Where are those numbers?
Following this train of thought, how many homeowners are actually at risk of foreclosure should prices decline by say 30%?
To guess that you’d have to know, for starters, how many people are not going to be able to afford their ARMs when their rates reset, and are unable to sell or refi their way out of it. Nobody really knows what that number is—but various estimates seem to indicate around 10-20% of recent buyers are at this risk.
Then you’ve got to count in the RE-related job losses, and the drag effect on consumer spending—again, unknowns we can only guess at the magnitude of.
I wish I’d kept an article from about 2 months ago in the local paper…it told the tale of a local homeowner who was busily doing repairs to his house himself, because he couldn’t afford to pay someone to do it, as he was getting ready to put his house on the market. He was highlighted as one of the people whose ARMs were about to reset, and he couldn’t afford the 200bucks more per month it was going to cost him. 200 a month! can you imagine living that close to your margin of error?! That’s the increase in heating costs per month people experienced here in most cases. They probably gave some ballpark on the numbers locally in his boat, but I don’t recall….
It’s not (usually) a question of prices dropping after you’ve bought — the bank typically does not call you up one fine day and ask to re-appraise your house — but more of an issue of what happens when payments rise.
That said, I think I’ve read here from multiple articles that 1/8 of the loans made in the past two years will end quickly and badly when the payment goes up by multiple hundreds of dollars per month.
Look for the real deluge in foreclosures to start by late September. I figure that a higher proportion of loans are made in late-March to late-June; give them three months of missed payments aftger the one-year anniversary when their loan adjusts dramatically upward before the bank issues the Notice Of Default, and another three months until the foreclosure sale proper. That’s late-September to late-December.
Note that late December does not indicate the end to the foreclosure sales. That’s just the very latest that we would see the high point of the ramp up. We then have a *cough* “permanently high plateau” from that point forward for the foreseeable future.
If I remember right, the “annual household formation” number was something like 1.4M, whereas new construction was running upwards of 2.2M.
I would really like to see that things were beginning to drop like that here in Florida instead of just a mere “leveling off”. I’ve really been hoping for an outright crash.
IMO - we’re only in the first inning of the downturn. Grab a beer and a bag of peanuts and relax.
I’d say were still tailgating out in the parking lot. The sausage is nearly done cooking.
Usually volume goes down first (or so I’ve read), then as people get desperate they start cutting prices and that forms the new “market” level. But it takes a while. Buyers are accustomed to rising prices it takes a while for stagnant prices to fall….or so I’ve read.
Don’t you worry.
It’s coming.
Another thing to watch here in Central Florida is the British and Irish economies. Many of them tapped out their home equity overseas to buy thousands those cheap chipboard and stucco $hitboxes in Four Corners ( Polk County ) and even further south down around Port St. Lucie.
Most thought they could rent do seasonal rentals to provide positive cash flow…..but they are finding out quickly that not everybody wants to spend $2,000 /wk to rent a 3bdr/2ba that is 20 miles from the theme parks…you can get a couple of KILLER hotel suite(s) right next to Disney for that price and they make the beds for you and curry to your every fancy.
There are HUNDREDS of empty, British owned houses for rent here in Polk County……HUNDREDS….. And, mind you, not a mention of this mess at all in the local newspapers and media.
Not far from the parks last year, I saw a storefront specializing in getting mortgages on FL property for UK owners. I thought it interesting that was a big enough business for somebody to specialize in it.
No worries, the Chinese will buy them off with the dollars they can’t find any other use for, and they’ll get soaked just like the Japanese did with Rockefeller Center…
One thing I’ve wondered about an outright crash:
Posters here have insisted that renters that have been waiting on the sidelines will be waiting to swoop in as prices drop. I suppose that’s true for investors but if the numbers are as bad as some here state, and if the economical carnage is as bad as some say, I’d think any mortgage (or even primary home ownership) would feel like a noose around someone’s neck.
I know if I sell this home I’m not gonna move so quickly into another. My reasoning: even if we can pay cash we’re not living off of trusts….we still need to be flexible enough to be where the jobs are. And in a downturning environment a home could be like a prison ball tying us to a community where there is no job.
I agree…and think that there will be fewer renters waiting on the sidelines ready to swoop in many of those states hurt by job loss. it’ll be more of a bounce from people in states where its easier to pretend the economy is doing fine…
once the endless appreciation fallacy ends the whole fear factor impetus for renters is diluted I think.
So, some have offered their own incentives, such as helping to pay mortgage closing costs or upgrading kitchen appliances.
Ah, the classic move of putting lipstick on a pig. Spare us the “incentives” and drop the price.
>>Spare us the “incentives” and drop the price.
They can’t, or the people they sold to previously will come at them with torches and pitchforks.
I posted a story on my blog that builders have openly stated that they would rather offer incentives rather than lower the prices for a variety of reasons. But we know why already now don’t we?
What a crock of crap. Easter egg hunts. Snow removal.
CUT THE G***DAMM PRICE! How hard is this? All that BS is not going to make me pay too much for an overpriced house!
hey txchick57,
A few days ago you said your broker will naked short sell stocks to you.
I have for a few months been discussing this issue with various people and I’d like to know exactly what evidence you have of naked shorting and who the broker is. Please email me at abra4565@yahoo.com
I’ll bet you would. LOL No can do.
ok so basically txchick57, if i understand correctly, your broker is doing something illegal and you don’t wanna rat on them, to your own benefit?
There was evidence in the Wall Street Journal or Barrons a week ago. Didn’t pinpoint the brokers, but showed the numbers. Said that basically there’s only so much the regulators can do. They go after the most obvious offenders.
Shorting is part of the system. Without it, bubbles are more likely to happen. I think they ought to get rid of the stupid uptick rule.
The only people they should go after are the buyers who pay for hit pieces on stocks. But they should also go after the buy-siders who pay for disgustingly glossy favorable reports on stocks. And I bet there’s tons more of that.
If the company is a good company, shorts can’t hold it down.
>>The only people they should go after are the buyers who pay for hit pieces on stocks.
Sorry. I meant shorters there.
‘You can have the biggest circus on the street, but it comes down to price and having the right price,’ said Bouma.”
That is a good analogy of the artificial run up in the price of housing and the realtors are the clowns.
indeed! this bouma guy is one of the most aggressive advertisers here. He has ads on local stations, is a big condo guy, has condobuyers hotlines, a moving truck with his name on it, etc
It is significant though I think that his highvolume status has lately been accompanied by more ’softer market’ rhetoric than his brethren. I’ve noticed lately that his listings are very slyly priced. He has been coming in at the low end of the range for a while now, realizing that this is the only way to actualy make a sale. *I* look at his most ‘reasonable’ listing prices and say, oh sure, you didn’t tack on the extra 15% over last year, but I’ve been at this looking gig long enough to feel that there is no damned reason anything at last years levels is the ‘right price’.
Off topic but WSJ’s Hagerty posted review of David Bach’s Automatic Millionaire book. It was a nice pan of the book, but yoo hoo — it was originally written in 2003 guys!! The paperback just came out but hardcover is dusty already - I expect better from WSJ.
The Automatic Millionaire : A Powerful One-Step Plan to Live and Finish Rich by David Bach (Hardcover - Dec 30, 2003)
These people that say you can get rich off houses. Well, given the leverage, of course you can. But only when they are going up.
I like their pitch — all you have to do is buy a house at 30% below value. It’s just like saying you can be a millionaire in a year, all you have to do is find a stock that is undervalued by 50%.
OT - Has the realestateabc.com site been discussed on this blog? The prices I’ve looked up there are way inflated. I know of a house that just sold in Laguna Hills for $2.2M and that site says it sold for $3.2M The house across the street from me was recently purchased for $1.4M and this site says $2.1M Any comments?
What exactly is the point of staging egg hunts, upgrading kitchens, fashion shows, etc.? Don’t they just lose even more money doing that?
maybe that cuts into their profits a tiny bit, but not as much as having no foot traffic at their sales weekends!
’round here you gotta put on a show to get people to your open house..
then maybe everyone at the egg hunt will have had such a nice time with their kids playing so well together, they can exchange cell numbers and buy right next door to each other!
Have you ever heard stories about hikers that get their hand caught in some shifting rocks or something? After they try everything to extract themselves from their predicament they sit there for days waiting for rescue but realize that no help is coming. Now desperate enough, they’ll take a pocketknife and sever their own arm to free themselves.
To Builders, cutting the sales price is like cutting your own arm off. It’s gonna have to get to a point when nothing else works and survival is questionable.
So, we are basically, in the beginning of the great Bargaining stage?
More disparity here: Rental Markets Heat Up
“In Chittenden County, prices are up 11 percent compared with this time last year, said Tom Heney, vice president of operations at Lang Associates in South Burlington. Sales are down 9 percent”
I wish he had been asked about percentage increase in inventory YTD compared to last year.
The houses for sale # is interesting. What would be good to know is how many are empty. Why? Because it’s a little daisy chain like. 3 houses are for sale and I buy yours then you can buy someone else’s and that someone else can buy the 3rd. If houses are empty then it is truly “excess supply” that must be taken off either through population growth over time or less housing starts or some combination.
“For example, a refrigerator magnet in a Toll Brothers home may have a message to a fictitious family member about a relative that has to be picked up at a train station, demonstrating that mass transit is nearby. Or, a school jersey hung in a bedroom of the model home serves as a reminder of a good school district”.
The sellers are not going to get away with just hanging jerseys. They will have to drop their pants.
and “For example, the buyer may wear a Mr Housing Bubble T-shirt demonstrating that the seller is screwed.”
Anybody doing the T-shirt idea above, let us know the results.