What A Buyers Market Really Is’
Several readers are interested in what makes a ‘buyers market.’ “Can we have a thread on what a ‘buyer’s market’ really is. There seems to be a misconception going around that a ‘buyer’s market’ is when the price only goes up 5%, or maybe even if the price is flat.”
“I don’t agree. A ‘buyer’s market’ is when an asset trades beneath its intrinsic value. Just because buyer’s right now can get some small concessions from a seller that they couldn’t get a year ago doesn’t mean that it’s a ‘buyer’s market.’ In the bubble areas, prices will have to go down 40% or more for it to be a ‘buyer’s market.’”
Another added, “Exactly, this market is far from being a true buyers market.”
And another, “Substantially BELOW asset value AFTER inefficiencies and transaction costs and lost opportunity costs are subtracted. That means markets like Buffalo. Zip or Zill or Real the Buffalo area for thousands of houses for sale below the cost of demolition.”
Last night I had a local broker tell me in a hushed voice, ‘It’s a buyers market, but the sellers don’t know it yet.’
That sounds more like a transition phase. A buyers market would be more likely when buyers and sellers agree on the fact, and prices for renting and buying are much more equal or inverted.
Ben you are so right about what your analysis is of a true “buyers market” . I have been getting so mad at the current realtor
spin that it’s a” buyers market .”
Americans accustomed to instant gratification and 24-hour news wrongly assume that the slight retreats to the insane housing prices of mid-to-late 2005 signal a “buyers market” — a fiction the R/E industry is desperately attempting to perpetuate. To the far-sighted few (well represented in here) who take the long view, however, will recognize that the market trajectory is just coming down from its apex, and in all probability the 2nd half of the year will see an accelerating, possibly sickening (for FBs and overleveraged homeowners) decline fueled by panic and distress selling.
To quote Ronnie Reagan: You ain’t seen nothing yet. When Congress convenes hearings to assign (pointless) blame for the collapse of the housing bubble, that’ll be a signal the REAL buyers’ market has commenced.
Yes. Nicely put. It’s like the people who thought you could buy the dip in April of 2000 and got their heads chopped off.
The inability to delay gratification is exacerbated also, the younger a person gets. I’m still astounded when I see stories of people under 30 (much less under 50!) “buying” houses >300K. Unless they are rock stars, professional athletes or best selling authors, they have no business in debt like that.
I think that because of this buy-the-dip mentality that the downslide in housing will take MUCH longer than most people imagine.
It will take many years to permanently cure people from their insane thoughts about housing as a prime market for speculation, a reliable source of income or just a good investment. Historically, housing is at best a store of value (with some yearly cost attached).
Yep. This intermittent reinforcement thing is well documented in psychology texts (the rat hitting the lever which dispenses a food pellet one out of 20 times)
Maybe that’s the reason that LV is one of the bubbliest markets.
the rat hitting the lever which dispenses a food pellet one out of 20 times
Hi Texas Chick, you’ve described a Skinner Box (designed by B.F. Skinner) and it’s amazing how you can get that little rat to string learned behavior. I’d like to analyse how that’s been done to the public sometime. Then we can go into Species Specific (frustration) Behavior which I think we’ll be observing en mass quite shortly. That term describes what happens when the rat does not get his expected reward.
We also need a good recession before we have truly hit a buyer’s market, just like the ones that took place during virtually every other housing bust on record (1929-?, 1980-?, 1990-?, to name three).
It’s the RE equivalent of October 2002 in the stock market, when companies’ stocks were selling for 1/2 and less of their cash balances, i.e., you were getting the businesses for free.
Total disgust for the asset. A feeling that there is no chance there will ever be any appreciation.
Maybe that’s a bottom more than a buyer’s market.
Right now it’s late February 2000 on the NASDAQ. A few stocks are faultering but it’s different this time.
And let’s not discount the efficiency of the stock market, a vastly more liquid arena, in facilitating price discovery in light of changing fundamentals. This is discussed nicely on the Itulip essays on the difference between the stock bubble and the RE bubble. The stock market was able to dismantle an historic bubble in 3 years. This will take much much longer.
I keep arguing against stickyness. Remember, this is not an asset bubble, this is a financial bubble. As you note the financial markets are swift and merciless. It isn’t the houses that are going to collapse, it is the loans. The Neutron Bomb equivalent for the mortgage industry. The people and the loans will be all dead and the buildings will remain.
I think both can be accurate arguments above:
Can we not expect to see rapid drops of significant size in the short term, with a long, slow descent following? I think that’s what Japan’s slide looked like.
Yeah, I think so. Maybe the first 15% or so comes off pretty fast and then people think it’s “safe” (think Nasdaq 2800 or August of 2000). Then the real hammer comes down. The drop from August 2000 to October 2002 is what wiped out a lot of long only traders I knew, not the first crash.
You have successfully reinforced my claim of a 20% plunge followed by indefinite 7%/yr declines.
Gee, I guess my life is complete and I can die happy now.
I think we can agree that houses are assets. Or maybe not — perhaps you have a different theory of finance than the finance departments at all of the country’s major universities?
We might already be down by 15%, but we cannot see it because the latent market values are for the most part hidden in the growing pile of unsold inventory. Whether the average price of homes which actually sell will fall rapidly depends on how many FBs wise up and stop burning their household assets on negative cash flow, and also on how many truly FBs have to sell whether they would rather do so or not. My guess is that the large number of individuals in the latter category (due to the astonishing prevalence of suicide lending in bubble zones) will result in an avalanche of sales sooner rather than later.
Houses can be -investments- and -can- be assets. Without going technical instead just an old axiom; you got to live somewhere. Your primary home just isn’t the same as other assets unless you are willing to liquidate.
What about this idea we’ve kicked around that Bernanke will defend housing prices, probably allow them to stagnate for a good 5-6 years, and use inflation to catch up?
How are you fantasizing that he will do this? Are you expecting the Fed to purchase houses in order to keep the prices aloft?
Don’t kid yourself — Bernanke cannot do much to support housing prices. Even if he stops tightening now, the effect of monetary policy operates with at least a 9 month lag, and 9 months from now, the housing market will be dropping so fast that nothing will be able to save it.
We need to keep in mind that housing is effected largely by long term 30 - year interest rates. Bernake and US Fed has very little (no) power on what long term rates do. Long term rates are set by the global markets. US policy and desire is only a very small part of the pie of influence in the global picture. The Fed however can and does 100% set the prime rates, which are very short term rates. As we have seen, short term rates can sometimes be irrelevant with respect to what long term rates do.
You are right, and if you take a look at the 30-year bond yield since Gentle Ben took over at the Fed, you can see that, like real estate prices, bond yields always go up…
I like that “February 2000″ analogy. “Silent Spring” is maybe halfway through; the full terror of knowing that the last sands of the hourglass, and for some people the last thousand dollars of their accumulated home equity, are spilling down the drain isn’t yet in the broad consciousness of the selling community, but it is inevitable.
Stock-wise, we’re starting to see downgrades, missed estimates, many anectodal stories, new 52-week lows, &c. Plenty more of that to come IMO.
Seller-wise we’re starting to see some panic on craigslist postings here and there but no general panic yet.
My aunt closed on house in a Buffalo suburb $130K for a 4 bdr 2000 sft home in nice area. The home is less than 2 times her salary of about 70K/year. I live around boston and pay more for rent on a studio than she pays for her home.
If there were jobs left in Buffalo I would move back in heart beat only after leaving do see how nice is was there. Boston is nice too, but every one I know is buying housing and having kids back home, the quality of life here sucks. I only have 5K of 100K downpayment saved up.
I live in Boston, but I’m also from Boston, so back home is Boston. I agree with your quality life here sucks comment, but it’s only for those who struggle with housing costs. Many people I know bought when the price was normal (not speculating). They got married, saved a down payment and bought a house. They are not struggling. They are happy because they feel insulated from poverty and their quality of life is good because of greater disposable income than home buyers of the last few years. Now my question is: What do I do about it? Where do I move to increase the quality of life for my family? Where is the next job boom and what are the home prices relative to incomes?
My definition: A buyer’s market is when (Interest, property tax, hoa, insurance, -tax savings) is ~= or
My definition: A buyer’s market is when (Interest, property tax, hoa, insurance, -tax savings) is ~= or less than rent, using a reasonable loan term (30 year fixed, 10-20% down). The buyer will still be paying more per month (paying off principle), but assuming prices don’t decline further, will see that money back if he ever sells.
AKA, the market of 6 years ago.
It will take a good 30-40% drop in the Bay Area to reach that point. So patience.
(repost, I keep forgetting that this post doesn’t like less-than)
Used to be that 15 years was a reasonable time frame for a mortgage. Do you suppose that might be within reach when all is said and done?
I don’t remember when 15 year mortgages were common. Did they rival rents? If so, that’d be one affordable market!
Hey, I refinanced to a 15 year in ‘03 about when interest rates hit their nadir. This after 4 years paying on a 30 year. There were, I think a fair number of owners who refinanced to 15s in the summers of 03 or 04. We just didn’t get the attention of the tsk-tsk ers that those idiots getting ARMs when interest rates were at historic lows.
It has been said before here many times, but, I agree that the best time to buy is when EVERYONE who was previously a RE bull finally comes around to proclaim that buying a house as an investment is the best way to lose money. Don’t just wait until some (or even many) people are merely doubting RE - wait until faith in the market is completely wiped out. We’re talking to the point of hearing people say “Real estate? Hell no, that’s for suckers.”
Yes, if your goal is to acquire it as an investment or are trying to get the lowest possible price as a house for yourself. If a person is just buying something to live in and can prudently afford it, I don’t see any particularly good reason to hold out for rock bottom.
100% agree. My wife and I will buy under two conditions, and two conditions only: a) we’re damn well good and ready, and b) WE believe that the total cost of owning a home is reasonable to US. (BTW, it’s cheaper to live in suburban JAPAN than San Diego now!)
Of course, it goes without saying to the good people here (this doesn’t include that dork in vegas) that I couldn’t care less about future selling prices around the neighborhood AFTER I move in. Nor do we pay much attention to the howmuchamonth crap. This “How much home can I afford?” nonsense has got to go. We’ll buy the house that WE like - not the biggest POS we can manage to afford. It will be of reasonable size and will most certainly NOT have more than two bathrooms. Told that car dealer to shove it when he tried that on me. I wanted to know what the LOAN is costing me - I already could see the price of the CAR.
Again, 100% agree, Ms. 57. When will we buy a home? When the above two conditions are met. Thank you for clearing that up. After rereading my original post, I also noticed that it seemed to be advice fit for people looking to invest.
I think it’s particularly sad that these once in a lifetime interest rates were not used as they should have been - to make the cost of owning the home you can prudently afford - jackpot lucky low. Instead, they were used to leverage as much debt as possible, to encourage and embolden the stupid, greedy or uneducated to take needless risk. IOW, if your income supported a 250K house, that’s what you should have bought, regardless of the interest rate. Not an 800K house because you could “afford” the payments.
My 4.99% 30yr fixed doesn’t count? Point being a lot of people did do the right thing but we don’t focus on them.
and the trouble is, if every body acts like that it keeps pushing prices up.
In my country, every time that the ceiling for a government insured mortgage is raised you can bet that within a short time, every decent home will sell for a price that is above that new ceiling. The government insured mortgage (a bit similar to Fanny in the US) is available to almost anyone, so for that price you cannot expect to buy any ‘value’.
And you won’t be reading about them either in the “poor me” stories. And some people DID sell their tech stocks in early 2000. I took a 40 bagger out of MSFT in January of 2000. But people who did get out are a small percentage while most of the funny money has departed for money heaven.
Couldn’t agree more txchick.
I’m the only person I’m aware of who actually refinanced to an ultra-low rate *without* taking out any cash. My goal of course was/is to pay down debt, rather than to build it up. Currently on a 15yr mortgage at 4.00%. The payments suck, but I saved $150k in interest.
Funny ain’t it, how nobody cares about how much borrowing money costs anymore…
You are my hero. That is, if you weren’t from Idaho.
Four percent? Wow, and I thought my 5.3 rate was pretty good!
TxChic57 - As Robert said, at lof of people did take advantage of the rates afew years ago - either by chance, or by recognizing that it was a once in a lifetime, unsustainable, interest rate environment. For the most part, those people are staying quiet all the way to the bank.
I seem to recall Scott Burns writing in his DMN column back then that those mortgages would become “family jewels” in yearsa to come - that people would be less inclined to move (if not forced to) in the years ahead due to their cheap current mortgages; sorta like an old Prop 13 tax rate.
4.875% 15-year for new purchase here. About 4 more payments to pass the 1/3rd paid off mark.
Idaho_Spud - that rate is exceptional; I’m guessing you bought around ~8/2003 and bought down about 1 point. You say the payments ’suck’ –remeber that the years (assuming you refied from a 30) of payments that you won’t be making will more than make up for it. And thumbs up for not cashing out.
Some of the new home builder’s are now advertising a 4.99 30 year fixed loan if you buy their home and use their Lender . That rate costs a pretty penny to buy down by the builder . Buyer beware that they might of inflated the price of the home to cover the buy down rate .
That’s scary. Still more fuel to the fire. Hope it ends soon.
Where is that “systemic event” some of us are waiting for? Can’t happen soon enough, IMO.
Idaho_Spud –gee, I took out ~35k out when I refinanced to a 4.875 15 year fixed, but I used it to repay the 401(k) loan that I used for most of my downpayment in ‘99. Does that count? The wonderful net effect is that I took money OUT of the stockmarket when I bought and put it in housing. Of course before I start sounding like I’ll sprain my wrist patting myself on the back, I’d point out that I had refinanced once before in ‘01 because of lower interest rates. With closing costs I suspect that turned out to be a waste o money since I refinanced a mere two years later. And of course had I known interest rates would shrink to almost nothing, I would have bought a nicer house in ‘99. So if I had been gutsier when I bought I would have been in better shape. All told though, being risk averse has been good to me.
howmuchamonth!!! LMAO…… Is that kind of like “gotmilk”?
Yep
It will be over when “Newsweek” or “Time” have a cover story describing how awful the realestate market is.
Unfortunately for most, the buyer’s market will occur when credit is very restricted and interest rates are very high. Many of the sellers will be the financial institutions that have the properties through foreclosures. Much of the attraction in today’s market is the known recent trend in housing values but just as importantly the very favorable interest rates (fixed, that is). A home isn’t the only leveraged position that one can take in fixed instruments. It would behoove buyers to explore alternatives.
The buyers market will be found during the extreme work-out phase when the Congress is holding hearings to find out how such disastrous lending decisions were made and what new regulations and laws need to be passed to prevent future disasters.
The recently hottest markets will probably experience the biggest decline in values, but IMO every market will be affected to some extent. Most of the houses going on the market through foreclosure will probably need extensive repairs. Deadbeats don’t do a lot of upkeep. It’s hard to forecast when this market develops. It could be a year or two and I suppose it could be longer. With 30 year rates still under 6.5%, I would describe the market as soft but still a sellers market (unless he has bought recently at absurd prices).
Good luck to the prudent shoppers.
In about 2-3 year’s time, when my wife and I are getting ready to settle down in a home, we’ll have saved enough to probably buy a 3/2 home outright. Screw mortgages - why should the bank get a cut of my money when we’re perfectly capable of saving 40-45k a year living in a 780sq foot one bedroom apt. in Rancho Bernardo, San Diego? They can charge whatever rate they want - I don’t plan on using their services. We borrowed to buy the cars (2 Scion xA’s at 13+ a piece) because we had just gotten married and were starting to put together some scratch - and 4.1% on 10k (times 2) over five years is not an unreasonable sum.
6.5% on 600k over 30 years? Yougottabekiddingme.
I would say the “line in the sand” for a buyer’s mkt starts when supply becomes greater than demand. There are, of course, many “degrees” of a buyer’s advantage on the continuum.
The shift has really just happened in the last few months in that the supply/demand “teeter totter” has barely shifted in favor of buyers.
Eventually, the extreme will be reached when one end of the seesaw is seemingly held down permanently by a hostile 600 lb buyer-gorilla and the seller will be the anorexic waif stranded high in the air, limbs flailing and pleading , “Save me, won’t anybody save me!”
If you look at the Phoenix stats. you can see people are still buying regardless of flooding inventory:
3/31: 39,852___3/06 sold: 7,265___3/05 sold: 10,035
So what constitutes a “buyer’s market”?
These days it seem a “buyer’s market” is when you can get a home for 5-10 grand under the asking price.
Never mind the fact that the asking price is often slightly under the peak highs of last year. If people would just wait but alas everyone knows it’s a “buyer’s market” right now and they’d better get in while they still have the upper hand. The continuous flood of inventory means little as long as the media underplays it. Sure it’s nice to have housing blogs such as this but it mainly preaches to the choir.
Contrary to most views on this board, I think that a “buyers” market is one in which prices are appreciating, and stand a good chance of doing so for a number of years ahead. Just because sellers are desperate, and some property is going for 50% less than the year before does NOT mean it is a buyers market. It certainly isn’t a buyer’s market if the prices continue to fall for years after the initial purchase.
In short, it is preferable to buy at a high price (no matter how ridiculous) if the price continues to appreciate. If we truly are embarking on a real-estate market down-turn then we really have a sellers market (i.e. since the prices will inevitably be less next year than they are now), and won’t have a “buyers” market for quite a while.
Again it depends on what your goal is in acquiring the asset. There has to be a differentiation made in property acquired for investment (with appreciation as the primary goal) vs. as a basic necessity (shelter).
You sound like one of those breakout cowboys that were masters of the universe in 2000. Most of them are back in real world now and wondering where all that money went
Or if your goal is investment with income as a primary goal.
I would love to own some more apartment buildings that throw off cash, but I haven’t seen an opportunity in a nice area for years. Right now I would have to put over 50% down on a typical building around here in order to make it barely cash-flow positive, and that’s just not an ROI that I am willing to accept.
On the other hand, single-family housing is not something that I have ever seriously considered as an investment opportunity.
as discussed many times before on this blog, the best time to buy from investment point of view is when rates are sky high, a substantial downpayment is required and housing prices as a result are very low.
In that case you have a high chance of both capital appreciation over the years AND it is likely that you will be able to decrease the carrying cost of the investment (refinance at lower rate a few years later).
Buying now at the lowest rates in four centuries (that’s in the Netherlands, although rates in the US are still close to historic lows if you look on a larger timeframe) is simply betting against the odds.
AND…you have a better chance of paying it off in a shorter length of time (pre-paying principal).
Let’s see buy high and sell higher
OR
Buy low and sell high.
Which one has the better odds?
How depressing. By the time I can afford a nice home, I won’t need one.
In a buyer’s market:
Farmland sits for months with “for sale” signs. That’s because builders have taken all the options they need and are waiting for the market to improve before starting construction.
Architects have no work.
“Seller financing” and “take over payments” is a commonplace means of completing a sale.
Sherrif’s and trustee sales are so lightly attended, the auctioneer is often reading aloud to nobody.
Agreed. People will realize that the housing boom was just the latest beanie babies phenomenon afterwards.
I also think we will see “short sale prenegociated” from underwater sellers.
My boss, who is also the owner of the company I work for, summed it up best; “You’ll know when it’s a buyers market…you’ll know.” I think he’s right, and as Ben points out we’re only in a transition phase. The RE agents will be telling sellers it’s becoming a buyers market in order to get properties priced to sell. They will also be trying to convince potential buyers it’s a “buyers market” so they don’t hesitate to make an offer.
IMO - it won’t begin to be a “buyers market” for at least a year or two. I think the ARM resets during this time will play a big part in exposing home owners who bit off more than they can chew.
I don’t think it is necessary to ‘nail the bottom’ for the housing market. Probably after bottoming, the housing market will go nowhere for at least a few years.
After the last crash in my country (in 1979, -40% in 1.5 years) home prices did nothing for about 10 years. Because of high mortgage rates, homes were a lousy investment during that period.
After those ten years, the biggest bubble in history started - and of course most people didn’t notice until late in the nineties, when homes had appreciated already several times from their lows in the eighties.
For agents, its a desperate time.
What I’m observing now is cold door knocking to solicit buyers. This is an advancement from the cold calls that many of us have reported. I also noted how Help-U-Sell has increased their mailings two to three fold.
I could understand agents cold door knocking in apartment complexes, but I’m renting a house! They left a flyer that says, “Stop making your landlord rich.” I’m curious to how could they know I’m not the owner of the house unless they blindly gave everyone the same flyer in the neighborhood. I have seen my landlord’s mortgage payment, and he is either taking a loss after property tax or breaking even after tax deductions. Since I’ve lived here, the comparable sales for this place have dropped $25K. It’s no where near a bottom as there are houses for sale that have a long DOM time so far.
I’ve been paying $1300/mo so that someone else takes a $4166/mo loss thus far. Seems like a fair trade for me. If my landlord was savvy about the market, he would have sold at the same time I did.
In one of the most expensive areas of Arizona, I am now seeing individual houses being marketed through the local coupon mail-out. That is desperation!
It’s annotated on public records whether the owner lives there are not very easy to ascertain if your a renter or an owner.
Help-U-Sell in trouble already in your neighborhood. Funny I thought they were the second coming.
BTW it’s a desperate time for agents who haven’t been there done that. For the experienced agent the fun is just beginning to start.
It’s easy to locate landlord property. The mailing address of the property taxes does not match the address of the house.
And some cities/states have a “owner-occupied yes/no” designation on the tax records.
Please all take a look - NY times blog is plugging this study - the numbers of which I have some trouble with — indicating ARM resets woudln’t hurt so bad:
http://www.loanperformance.com/infocenter/whitepaper/FARES_resets_whitepaper_021406.pdf
There is no way for anyone to know that yet since it is an event that has never happened before. I’ll bet you could have found a medical study to two done back in 1980 that said AIDS would only be a minor problem since it was confined to a small segment of the population.
It’s at the margin where effects are felt. Something like 20% of people buying houses in CA using option ARMS…if their costs double and a high proportion of them can’t make new payments, it has a double effect. It puts those houses back on the market and it reduces the population of people buying houses by all the people who defaulted.
Plus when banks lose money on those defaults they become less likely to issue those loans in the future causing the amount people are willing and able to pay to fall.
Some interesting numbers on the distribution of loans by type, interest rate, equity etc. I didn’t read the whole thing in detail but the premise seems to be most people can absorb the ARM resets because they have enough equity in their house, and those that don’t will simply sell up. There are a number of problems with that though including:
1 - Interest payments/taxes etc still need to be made somehow. Where will these folks get the cash?
2 - Cost of selling (including Realtor commission of 6%, escrow fees, missed interest and tax payments etc) are ignored.
3 - As rising inventory means either increased time on market (more missed payments) or reduced selling price for the forced sellers their equity is further reduced.
I could go on, but at least it was a decent read.
On this topic Tom Lawler’s presentation at NAHB is pretty telling.
http://www.nahb.org/fileUpload_details.aspx?contentTypeID=3&contentID=31952&subContentID=50368
WARNING PDF
Next time say if it’s a pdf file
…couldn’t see the extension at the far right end of the link
I did a cursory reading of that study (which is backed by First American, BTW). Here’s what I see:
On page 11, you will see that **right now** there is a significant percentage of the homeowning population that has negative equity (they also calculate 5% or less as negative, for transaction costs).
They also consider current prices as affording an “equity cushion” and they are basing their definition of “stressed borrower” based on TODAY’s pricing. Current prices are like vapor, IMHO, and are not a good indication of how much equity a homedebtor has.
In bubble areas, if you track buy/sell cost ratios or debt/income ratios on a historical basis, prices would have to come down by at least 30% to 40% (I’m in San Diego). If this were to happen, there would be A WHOLE LOT of folks with negative equity.
This “study” is fluff, IMO. IF (and that seem to be a big if — no govt intervention) credit standards tighten up, we will see very significant price drops; some on the order of 50%+. Although psychology matters, it is the availability of cheap, easy credit which drove this bubble to the extent that it has.
Correction: buy/sell costs….I meant buy/rent costs. Sorry!
Y’know, I would caution for a little humility. I too believe there is a bubble, that unless we are in the so called New Paradigm that bubble-lovers love, no asset goes up 10-20 percent every year for a decade.
And yet … In NYC, that’s what has happened. And in London and Sydney that’s what happened. And while the market has flattened in the latter two cities, it has most definitely not collapsed. To reverse Cote’s formulation, housing in those cities has, so far, behaved as an asset and not as a financial instrument. As well, we know that the history of housing collapses is often quite slow, for all the obvious reasons (And yes, there’s that white paper on the ARM reset, though I find that one a little dubious–it doesn’t take a large percentage of stressed homeowners to greatly stress the lending banks, and then the market).
In NY, as of yet, rowhouses of all sorts, not just the most elegant brownstones, continue to spiral upwards. Will that stop? I suspect so. But as I’ve been saying that for several years, as has everyone else on this board, I’m chastened by the poor track record.
Right now, it’s not a buyer’s market–it’s just a messier seller’s market.
Thanks
Hi Michael, I stopped seeing a “spiral upwards” in summer 2005 - where exactly are these rowhouses you speak of spiraling?
In Clinton Hill, brownstones that sold at $1 million, $1.15 m, seem to have jumped to $1.4 or so this year. What’s particularly striking is that these brownstones are on the outer periphery of Clinton Hill, really into Bed Stuy. The same movement has occurred in Sunset Park, and Lefferts Gardens, where quite a few houses are now listed at over $1 million.
Mind you, I think this is nuts. I’m not chortling about it. I just am cautious about calling a top.
It does seem that coops are selling a bit more slowly … But the mentality that, in the end, buying a house is a no brainer seems still to hold … but maybe I’m a pessimist after years of looking at this
Hmm -hard to refute you without specifics, but just judging from the explosion in open houses in those areas, and the already-dropping co-op/condo market, I’d say the places you might be interested in have a big chance of flattening/dropping- the highest priced one on craigslist I found just looking to day was 1.45 -but guess what -it’s negotiable.
http://newyork.craigslist.org/brk/rfs/155006835.html
Right, that was the property I had in mind, actually. That block, very much on fringe of nabe, had places selling around $950,000 last year. Anyway, I will defer to you, as I certainly HOPE you’re right.
What might trigger the collapse is another asset bubble that investors rush to get into. If Silver, Oil, Gold and Copper funds/stocks/commodities start giving 4% per month return, a motivated investor (the kind who bought houses for speculation) will be highly motivated to cash out even at a loss.
When that happens, the stock market or something related to it will become the next bubble.
*Start* giving 4% per month?
Ummm….check the market.
Ya mean like the 5% up day my metals portfolio had yesterday?
I bought gold GLD and silver PAAS about six months ago. It is now up 41.56% as of yesterday.
Don’t forget, it’s not the buyers of real estate (flippers, etc.) who have all the money which needs redirecting. It’s the MBS/CDO, etc. buyers — mostly institutions like bond funds, hedge funds, pension funds and FCBs. It is THIS money which needs to find greater returns, preferably fixed- rate, as that is their market. If the Treasury market keeps perking up, the institutional money will likely move there, and THAT is what will begin to tighten the credit reins, IMHO.
The money thrown around by RE “investors” is really borrowed money from these institutional investors. Fixed-rate returns have been SOOOO low for years that the real investors with real money had to move to mortgage loans (considered almost as safe as Treasuries as the loans are backed by collateral). **That** is where all this bubble money is coming from.
Here’s a link to a couple of charts showing historical behavior of global housing mkts. vs. nominal policy (interest) rates (i.e.: not inflation adjusted. These data are from a 9/05 Fed study:
http://www.federalreserve.gov/pubs/ifdp/2005/841/default.htm
I like Bill Gross’ (PIMCO) commentary, so you can start here, vs. the rather dry and pithy Fed paper. Both a good read on this topic!
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO+October+2005.htm
Yes, I’ve been a Bill Gross fan for some time now. He’s been warning of a housing bubble for quite a while. I really loved his commentary there. Thank you for the link!
House Geek,
I read the whole damn study, and it’s the typical econo-geek rationale of high loan values.
It’s basic FLAW, just like those moron professors in California who bought an overpriced turkey and rationalized why it was a “good value”, is that it assumes the CURRENT VALUES are real, and an accurate reflection of the market.
If you look at Their numbers, the anticipate only a small insignificant change in house prices. Look at the cumulative owners of less than 25% equity. It is nearly 75%.
If house prices drop 5% to 10% max. which is the scenerio they are looking at, then the number of trouble loans is about 25%. If you anticipate a much higher REDUCTION in “home equity”, then their little study shows about 75% of the loans of the last couple of years are in trouble.
It is those stupid loans (at the margin) that have driven the market to new highs, or should we say to “BOLD, NEW Places, were no man has gone before.” When the higher margins get squeezed, the higher property valuations go with them.
I think this paper actually supports the housing bubble being more dangerous than these folks can see. The data is sitting in front of them, but people “bought” the NASDAQ at 2500, because it was a 50% reduction. It couldn’t go any lower than that, and would soon recover.
It is still below 2500……..6 years later.
diogenes,
I wrote about the same thing above, before I saw your post. You are exactly correct. Agree also that the study actually confirms what we are saying — it even looks WORSE based on the study’s numbers.
http://finance.yahoo.com/q?s=GSS
Try 9.47% in a single day.
As of now, there are too many bulls and too many fools about who have not yet learned the hard lesson of financial history which they are about to be taught, and the lingering irrational exuberance in the air will tempt the naive to buy the dips. One should only buy when the fear in your heart tells you not to do so.
When prices have been falling for several years, many people are losing their jobs and the companies that employ them are going bankrupt, lenders are only making loans to the few who can manage to come up with a downpayment and who have convincing evidence that they are likely to stay employed for the foreseeable future, and all your friends and relatives commonly agree that buying real estate is a terrible idea, the number of homes to choose from for anyone qualified to buy will be quite astonishing, as it was back in the early 1990s. Rational observers will note that buying is cheaper than renting for anyone who can qualify for a loan. At this point, we will be in a buyer’s market, and not before.
totally agree; the psychology is still that of a sellers market in many ways and the easy money is still available for all those who want it. It will take many years of skyrocketing foreclosure numbers and bank failures to change the perception that housing can only go up.
In the Netherlands, we also had such a buyers market in the late eighties. We had our first bank failure in many years here a few months ago, and this week the president of the central bank warned that your money is not totally safe in a bank (so hurry and spend it on a home, some RE stocks or a plasma TV before it is gone …).
And by then, I won’t need a loan.
Hello everyone,
Weht to a conference yesterday with a colleague and she stated that she had just purchased a house for 150,000. The house is three months from beginning finished and she stated the it had already increased in value to 170,000. Now i am no rocket engineer but that just blown my mind. Now I live in NC and this housing is in Charlotte, NC, but to purchase a housing now in any market is just mad. I live 30 mile from Charlotte,NC and the housing scene here is D.E.A.D. Also, a housing that I toured in May of late year sold for 150,000 late December. Now it back on the market for 170,000. Now this clown is from Florida and I guess he wanted to escape the market there, but If he through it would be Better here, he will be saddly mistaken. This neighborhood that he purchased the house is beginning overrun with USDA low income mortage families. They are buying 160000 houses onthe government dime andd paying minimun payments. The Homebuilder can not get regulaer people to buy so it is getting Low income USDA people.
Flippers might buy , they buy anything .
It’s a buyer’s market when Ben Jones buys.
LOL . Yes Ben ,let us know when you buy .
Or when I do. Then you’ll know some seller is in a helpless puddle on the floor!
When prices fall below what the house would have sold for in 1997 adjusted for an appreciation of 4% per year, THEN AND ONLY THEN will it be a “buyers market”.
RE shills will do anything to create movement to make their Mercedes payment.
Tune these hyenas out and stick to common sense.
Wait and you will gain.
Here in coastal Los Angeles County, things are slowing but I would not call it a buyers market yet. And there are varying degrees of “buyers” markets. The last peak was in the beginning of 1990. By third quarter of 1991, I was driving around with big printouts of my company’s foreclosed houses/condos. Prices kept dropping to end of 1995 beggining of 1996 which was the bottom. For a personal story, a deceased relative’s house was put on the market in mid 1995. Small, but in great condition, big yard. Couldn’t give it away, and agents did not want to list it. Took 6 months to get one offer…
If you are looking to buy a house to live in, give it time. You do not need to buy at the very bottom. Sometimes, it is better to wait until prices go up a little because this brings more houses on the market.
If you are buying to invest, remember, last time, prices broke even with 1990 in 2001. Since here in SoCalif it makes no sense to buy for the rent, you need to buy at the bottom, and figure your holding period to be 10 years. Good luck.
Buyers Market-
1) When the listings in the MLS total 8 REO’s to 1 private seller and his listing remarks let’s you know they are trying to work out a short sale with the lender.
2.) Each neighborhood no matter the demographic or wealth status averages at least 3 boardups.
3.) More bonuses given to agents 6% commission plus 10k bonus to the selling agent.
4.) You see companies taking out whole page classified ads on a weekly basis auctioning property by the boatload and you actually see more than a few addresses you actually recognize.
5.) People like David Lereah and other sunshine grabbers disappear into the sunset.
6.) You see an interest rate of 8.75% and think that’s a dam good rate and you gotta have AAA credit to get it.
7.) When banks are selling whole developments for pennys on the dollar completed and non-completed. During the last downturn I watched a particular project in Lancaster get foreclosed on three times.
8.) Out of a sheet of 300 properties in foreclosure 30 are going down for not paying HOA fee’s and at the auction nobody bites. LOL in the same breath you try to contact the HOA for a week straight and nobody responds.
9.) That discount broker that you’ve been chomping on the bit to use when you get ready to sell. Well the time has come you’ve gotten the pink slip from the job and he tells you his fee is 6% cause he’s gotta eat too.
10.) You see an increased number of people driving down the highway with their possesions piled into their car or on top. Usually some high-end vehicle and you think to yourself damn I wonder why they didn’t just get a u-haul.
We are very far from a Buyer’s Market. The chant you see about a buyers market right now is no more than marketing spin. I have seen a buyers market and believe me this is not it. The reason being is that the market is still being controlled by irrational and emotional sellers and homebuilders. Actually I think a lot of people are going to be disappointed when the bottom comes and it becomes a true buyers market. Especially if your trying to buy R.E.O.’s and stuff like that. Your still going to get into bidding wars if it’s truly a good deal unless your in some rural part of the country.There’s a lot of smart money sitting on the sidelines just waiting. And all the money that you save during the height of the market will be utilized in repairs for that little jewel of a bargain. Like a poster mentioned above people who are losing are not real high on upkeep. And it’s pretty expensive to get that cement out of 3 toilets.
I really don’t think there’s going to be a reigning in of the funny money. Reason being it’s always been there the U.S. Gov’t provides it and if you did reign it in you would have to shut down Fannie/Freddie because they do a lot of it. A lot of these products were created to compete with Fannie/Freddie. So I doubt you’ll see a wholesale reign in. Or anything that’s really significant.
I do however think that after this summer you are going to see a tremendous push downward on pricing. Lenders are going to start taking them back at a pretty good clip. And the writing will be on the wall. I don’t see that changing unless Big Ben gets the rates into 3-4 mark. If not let the games begin.
I will buy when I can afford the house, calculate extra for upkeep and save a good amount. For me that will be a buyer’s market. One other factor matters to me as well: when the lending standards have been tightened. I’m not going to go through buying a house and seeing the neighborhood turn bad again, ever.
I will take on the unpopular defense of Realtors (TM) who are often thought of as always liars, cheats and/or morons on these pages. When they say “buyer’s market,” or “seller’s market” they really aren’t talking about price levels. The terms as they use them give no indication of who real estate is priced versus the cost of renting. These calculations are not actually what they see everyday in the sales business.
What real estate salespeople are concerned with are inventory and months on market. There is a great deal of stickyness in real estate prices compared with the stock market, the price finding mechanism operates more slowly, and there is alot more more “random noise” that means that until a particular house is actually sold, the exact value is an estimate. I’ve said for years that there is really no such thing as a buyer’s or seller’s market, there are just times when prices haven’t caught up with current demand. This is what realtors are actually talking about: not the absoloute price level, not even whether prices are going down or up, but whether demand has shifted more quickly than prices, leading to pressure for future price changes.