Speculators Told ‘Get Out As Fast As Possible’
More big media are jumping on the housing bubble bandwagon. “There are signs a housing slowdown that has gripped certain high-growth markets during the past few quarters, is now spreading nationwide. Preliminary reports from builders Hovnanian and Toll Brothers indicate demand is falling faster and more sharply than previously thought, and that the pullback is no longer confined to hot markets that had seen sharp home price run-ups in the past few years.”
“On top of this, some builders, such as Centex Corp. and Hovnanian, have started taking writedowns in connection with land options. In general, when builders take writedowns to walk away from land options, it is a sign that either land values are falling or demand in that market has dried up. In past cycles, declining land values often were a sign that a market was falling fast.”
“Analyst John Tomlinson found sales fell year over year in every market during February and March. Washington, D.C., Los Angeles/Long Beach, Tucson, Ariz., Sacramento, San Francisco, and Phoenix saw the biggest declines with sales falling 22%, 50%, 50%, 46%, 30%, and 37%, respectively.”
“However, even markets that hadn’t been weak previously, such as Philadelphia, Dallas, and Las Vegas, softened in the quarter, with sales falling 30%, 15%, and 13%, respectively, he said.”
“So far, builders’ efforts to offer more incentives and discounts have ‘failed to move the needle’ in driving sales, Mr. Tomlinson said. As a result, he said some may need to resort to bigger price discounts.”
“‘We were building at a pace that we did not expect to be sustained and we’re seeing a slowdown,’ Bernard Markstein, director of forecasting at the National Association of Home Builders said. He expects builders to slow their pace of construction to meet the softer demand.”
“However, many builders aren’t cutting back, and are instead talking about opening many new communities in order to drive order growth. Toll Brothers, for example, plans to open 80 communities during the next six months, and expects to wrap up fiscal 2006 with 295 subdivisions, up from 230 in fiscal 2005.”
“Each day brings fresh evidence of peaking home prices. The worst mistake a seller can make in a softening market is to overprice a home. Even putting a high price on your home to ‘test the market’ for a few weeks (with the notion that you can always lower it later) is a bad idea.”
“Don’t cling to memories of what houses were commanding six months ago; if your area has seen a slowdown in sales, you’re not going to get top dollar.”
“The game of buying a home, or two or three or 17, holding it for a bit, and then flipping it for a handsome profit has pretty much played itself out. ‘Get out as fast as possible,’ says Mark Zandi, chief economist with Moody’s Economy.com. ‘The market is moving away from the investor, and even when it stabilizes, I don’t think it’s going to come back anytime soon.’”
“So don’t repeat the mistake that tech investors made during the dot-com bubble. As stocks spiraled downward, they held on, thinking that the market would bounce back quickly. Just accept that you’re going to lose money on that Miami deal. ‘Take your lumps,’ says Jon Duncan, a Tacoma financial planner. ‘If you’re feeding this thing cash flow, it won’t take long to make this a very bad investment.’”
Phoenix inventory, thanks to Ziprealty
7/20/2005 10748
7/21/2005 10968
7/22/2005 11122
7/23/2005 11424
7/24/2005 11338
7/25/2005 11112
7/26/2005 11315
7/27/2005 11353
7/28/2005 11390
7/29/2005 11471
7/30/2005 11656
7/31/2005 11609
8/1/2005 11599
8/2/2005 11590
8/3/2005 11635
8/4/2005 11714
8/5/2005 11710
8/6/2005 12196
8/7/2005 12658
8/8/2005 12919
8/9/2005 13244
8/10/2005 13099
8/11/2005 13245
8/12/2005 13389
8/13/2005 13846
8/14/2005 13801
8/15/2005 13607
8/16/2005 13779
8/17/2005 13992
8/18/2005 14087
8/19/2005 14279
8/20/2005 14321
8/21/2005 14457
8/22/2005 14336
8/23/2005 14391
8/24/2005 14529
8/25/2005 14617
8/26/2005 14792
8/27/2005 15011
8/28/2005 14984
8/29/2005 14803
8/30/2005 15042
8/31/2005 15099
9/1/2005 15063
9/2/2005 15159
9/3/2005 15404
9/4/2005 15699
9/5/2005 15621
9/6/2005 15513
9/7/2005 15913
9/8/2005 16106
9/9/2005 16489
9/10/2005 16716
9/11/2005 16609
9/12/2005 16697
9/13/2005 16538
9/14/2005 16900
9/15/2005 16952
9/16/2005 17419
9/17/2005 17583
9/18/2005 17577
9/19/2005 17636
9/20/2005 17516
9/21/2005 17664
9/22/2005 17883
9/23/2005 18226
9/24/2005 18204
9/25/2005 18196
9/26/2005 18435
9/27/2005 18483
9/28/2005 18605
9/29/2005 18604
9/30/2005 19192
10/1/2005 19333
10/2/2005 19316
10/3/2005 19362
10/4/2005 19463
10/5/2005 19562
10/6/2005 19670
10/7/2005 20052
10/8/2005 20219
10/9/2005 20153
10/10/2005 20324
10/11/2005 20470
10/12/2005 20668
10/13/2005 20850
10/14/2005 21238
10/15/2005 21446
10/16/2005 21463
10/17/2005 21527
10/18/2005 21588
10/19/2005 21795
10/20/2005 21806
10/21/2005 22302
10/22/2005 22719
10/23/2005 22769
10/24/2005 22806
10/25/2005 22976
10/26/2005 23132
10/27/2005 23293
10/28/2005 23681
10/29/2005 23805
10/30/2005 23816
10/31/2005 23790
11/1/2005 23601
11/2/2005 23665
11/3/2005 24193
11/4/2005 24579
11/5/2005 24786
11/6/2005 24717
11/7/2005 24937
11/8/2005 25244
11/9/2005 25333
11/10/2005 25387
11/11/2005 25700
11/12/2005 25685
11/13/2005 25773
11/14/2005 25945
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11/16/2005 25884
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11/19/2005 26662
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11/21/2005 26684
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11/23/2005 26776
11/24/2005 26819
11/25/2005 26855
11/26/2005 26871
11/27/2005 26890
11/28/2005 26979
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11/30/2005 26797
12/1/2005 26792
12/2/2005 26915
12/3/2005 27238
12/4/2005 27295
12/5/2005 27356
12/6/2005 27387
12/7/2005 27403
12/8/2005 27367
12/9/2005 27649
12/10/2005 27706
12/11/2005 27664
12/12/2005 27512
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12/14/2005 27566
12/15/2005 27517
12/16/2005 27603
12/17/2005 27791
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12/19/2005 27722
12/20/2005 27604
12/21/2005 27554
12/22/2005 27516
12/23/2005 27486
12/24/2005 27311
12/25/2005 27014
12/26/2005 26810
12/27/2005 26822
12/28/2005 26687
12/29/2005 26649
12/30/2005 26547
12/31/2005 26497
1/1/2006 26462
1/2/2006 26401
1/3/2006 26751
1/4/2006 27403
1/5/2006 27564
1/6/2006 28224
1/7/2006 28337
1/8/2006 28542
1/9/2006 28595
1/10/2006 28786
1/11/2006 29222
1/12/2006 29507
1/13/2006 29689
1/14/2006 29899
1/15/2006 30415
1/16/2006 30391
1/17/2006 30707
1/18/2006 30817
1/19/2006 31085
1/20/2006 31457
1/21/2006 31463
1/22/2006 31497
1/23/2006 31607
1/24/2006 31766
1/25/2006 31830
1/26/2006 32142
1/27/2006 32002
1/28/2006 32477
1/29/2006 32458
1/30/2006 32512
1/31/2006 32563
2/1/2006 32684
2/2/2006 33087
2/3/2006 33145
2/4/2006 32953
2/5/2006 33368
2/6/2006 33576
2/7/2006 33550
2/8/2006 33684
2/9/2006 33844
2/10/2006 34234
2/11/2006 34588
2/12/2006 34753
2/13/2006 34815
2/14/2006 34815
2/15/2006 34816
2/16/2006 34816
2/17/2006 35144
2/18/2006 35427
2/19/2006 36260
2/20/2006 35443
2/21/2006 35642
2/22/2006 35503
2/23/2006 35324
2/24/2006 35178
2/25/2006 36388
2/26/2006 36524
2/27/2006 36639
2/28/2006 36174
3/1/2006 36389
3/2/2006 36283
3/3/2006 36811
3/4/2006 36900
3/5/2006 37064
3/6/2006 37217
3/7/2006 36953
3/8/2006 37487
3/9/2006 37626
3/10/2006 37531
3/11/2006 38011
3/12/2006 38184
3/13/2006 38169
3/14/2006 38003
3/15/2006 38197
3/16/2006 38574
3/17/2006 38602
3/18/2006 39074
3/19/2006 38972
3/20/2006 38822
3/21/2006 39159
3/22/2006 38982
3/23/2006 39043
3/24/2006 39271
3/25/2006 39381
3/26/2006 39504
3/27/2006 39817
3/28/2006 39784
3/29/2006 39765
3/30/2006 39948
3/31/2006 40192
4/1/2006 40177
4/2/2006 40182
4/3/2006 40012
4/4/2006 40050
4/5/2006 40332
4/6/2006 40739
4/7/2006 40612
4/8/2006 41124
4/9/2006 41393
4/10/2006 41018
4/11/2006 42266
4/12/2006 42327
4/13/2006 42257
4/14/2006 42561
4/15/2006 42592
4/16/2006 42775
4/17/2006 42874
4/18/2006 42523
4/19/2006 42840
4/20/2006 43017
4/21/2006 43236
4/22/2006 43385
4/23/2006 43502
4/24/2006 43697
4/25/2006 43344
4/26/2006 43427
4/27/2006 44024
4/28/2006 43886
4/29/2006 44022
4/30/2006 44290
5/1/2006 44229
5/2/2006 43900
5/3/2006 43966
5/4/2006 44162
5/5/2006 44422
5/6/2006 44094
5/7/2006 44575
5/8/2006 44777
5/9/2006 44609
PTF,
Dude, totally appreciate the open inventory numbers but I think many would agree that it would be just as effective by posting the end of month number. Having to ‘page down’ 6 times for a single post is a little uncool.
Agree or disagree?
Page down? I hae a roller ball on my mouse! Granted, my knuckle gets a little tired after awhile.
I vote to keep it the way it is. It’s one of my favorite posts. It’s nice having all the data so I can compare it how I want to and look for patterns. And six page-downs or a sore scroll knuckle is NOTHING compared to what those 44,609 Phoenix bagholders are feeling.
I like the length of Phuck’s posts.
It shows patience and determination to the media and RE industrial complex that lurks here.
Inventory numbers are fine (the little rectangle in the scroll window can be used to bypass them effortlessly), and according to these figures have nearly quadrupled. The million dollar question is: what is going on with prices in Phoenix? Until we see year-over-year declines, I fear that it’s premature to call an end to the bubble, bloated inventory or not.
Supply and Demand acronymn = SAD!
I am starting to see more “buyer incentives” and “reduced!” signs everywhere at this point, but the reductions and so-called incentives are more insulting to a buyer at this point than helpful to the seller. “Now reduced!” by 200.00 doesn’t mean jack squat to anyone except the greedy seller.
It seems to me that there’s a whiff in the air that something is about to happen, and not for the better, so they’re testing the waters and finding them ice cold, much to their dismay. It is like watching a victim after a brutal crime, as they sit there and stare i shock and disbelief.
There are still people out here to claim that Phoenix is of course “different” than everywhere else because of reasons a, b, c, etc… but even people who used to tell me this are either sitting quietly when the subject comes up, or even giving acknowledgement that I was right when it came to the homes here being WAY over-priced.
Homes I was looking at 5 years ago that were going for a high price of 220k (And I mean your large 5+ bedroom homes), are currently sitting still at 490k+. Too bad the average salary out here is an average of $35k per year. With a 40% ratio of home loans being some sort of ARM or I/O “creative” loan in 2005, and the first wave of ARM resets coming about, it is about to get very damn ugly here in my humble opinion.
The Queen Creek / Maricopa areas are the first in line for a big downfall. Too many specuvestors out there with no clear indication of how big of a clusterphuck the area really is. The average person commutes well over an hour, one way, on a gridlocked two lane road every single day. Now with gas prices killing everyone at 3.12 per gallon, it’s not hard to understand why almost one out of every 8 houses out there are “now reduced” by “extremely motivated sellers”. They’re dieing, and I only see the problem spreading.
I’ve seen 3 or 4 houses that I have my eye on personally, that I would love to have. I’m in no hurry though, they’ve already been on the market for well over 5 months, and I don’t see that changing anytime soon. And it’s especially easy to wait when I can go out and rent a 4 bedroom 2 bath home for an average of $1000 - $1200 per month.
Phoenix hasn’t lowered its prices nearly enough, although the slow creep of panic is starting to set in.
Agreed……. Prices have to come down here at least 30-40% before I buy. we sold last June in SFV at the almost tippy-top of the market to some young fool who was willing to buy. Now renting in N Scottsdale surrounded by “million” dollar homes that were going for 300s, 400s and 500s just 2 years ago. The most recent sale in our subdivison was for 735k, the next guy put his on the market for 895k…… yeah, right!
From a former “expert”, wait for 60-80%!!!!!! I’m very serious and I know Phoenix quite well.
I like the detail even if I do have to use a few more scroll down moves on that tired index finger of mine
I already ripped by some on my comment about this a month ago but here is another take;…If you just poted the 7/05 number and then the 5/06 number, doesn’t the reader come to the same conslusion regarding the deterioration of the Phoenix market ??
intersesting data. thanks.
intersesting data. thanks.
Sorry if you folks had to scroll down, in fact I could not believe it took me as long as it did to scroll down,
BUT, it is impormant that I post all the data, because the only way one gets the brevity of the situation is to see how long it takes to scroll down!
I know its over 50k by now because Zip doesn’t include FSBO,NEW HOMES,OR EXCLUSIVE LISTINGS , or does it ?
If it doesn’t include Exclusive’s there is no getting out of Phoenix just give the bank the keys and take your spanking like a man.
this got a chuckle here…my girlfriend thought it was funny, too.
People on this blog have bets going on how high it will reach by June 2006 on the inventory of listings, so this is the reason for my comment . Regardlless , the numbers are alot higher than they appear .
Better yet mrincomestream …when you don’t have any more INCOMESTREAM because your a realtor and your in line to get a job at Taco Bell , than talk to me about EXCLUSIVE REO listings . I might have some friends that might throw you a bone .
know its over 50k by now because Zip doesn’t include FSBO,NEW HOMES,OR EXCLUSIVE LISTINGS , or does it ?
>> You are correct… Zip only include the general listings. It does not count exclusives, fsbos or new homes. The true number is very likley between 50 and 55k at this date.
Wiz-
1. ) I think you took the comment wrong. Let me explain. If 40,000 listings on zip realty doesn’t include any exclusive right or exclusive agency listings then the Phoenix market is for lack of a better phrase FUBAR. And any owner in that market is toast, better grab his ankles and kiss his sorry a$$ goodbye is what i meant it was not directed at you.
2.) The day I have to stand in line at Taco Bell because I have lost my income stream is the day you go to your basement and make sure your powder is dry and your stocked up on can goods cause it’s real ugly outside.
3.) Thanks but no thanks for the offer of throwing me a bone for some R.E.O. listings. But been there done that made my money invested my money and I’m done. I’d rather take an enema with a telephone pole before I get involved with that again. This wave if I’m involved will be purely as an investor, for large commercial properties only, and a lowball offer would be considered a step up for the price I would be willing to pay. But again thanks for thinking of me.
Mrincomescream..Well ,its a good thing for you that your not in the business anymore because it not going to be fun for people in the biz .
Wiz-
I’m still in the business just not dependent on the business and it’s swings for survival. People who have been in the business pre-bubble will be alright. Those who have just jumped on the train are in for a rude awakening
brevity:
1. The quality or state of being brief in duration.
2. Concise expression; terseness.
My sense of irnoy tingles with joy!
PTF, if you speedscroll thru those numbers they are REALLY scary….like watching something go haywire!
It’s growing at 0.5% per day!
a chart would be interesting to see
It’s increasing with the price of gold
Keep up the good work, PTP! Don’t change a thing.
Some related quotes:
‘Many sellers are clinging to bloated pricetags that are based on what homes were fetching at the peak rather than what’s realistic today. Case in point: A four-bedroom home in Wellesley, Mass., that debuted on the market last summer for $750,000 now has an asking price of $620,000.’
‘Near Sacramento, Centex is offering backyard landscaping, window treatments, and free washers and dryers to first-time buyers of 1,700- to 2,800-square-foot homes. A Fairfax, Va., builder of condos is tossing in a prepaid two-year lease on a BMW to buyers of two- or three-bedroom units.’
‘And in San Diego, in a program offered by mortgage lender Cal Pacific, some sellers are promising to make up to a year’s worth of mortgage payments to buyers who come close to the full asking price. Still, with plenty of houses to choose from, don’t let a gimmicky offer lead you to overpay for a place you’re not crazy about.’
‘We still don’t see any absolute declines on a national basis,’ Fannie Mae CEO Dan Mudd said. ‘But we definitely see potential for declines in some of the most overheated markets that have seen some of the highest concentration particularly of investor demand over the past few years.’
And from the Fortune link in the post:
‘Paul Butler, a Windermere broker in the Puget Sound area, recently reduced the take on a $900,000 property to 4 percent.’
“Still, with plenty of houses to choose from, don’t let a gimmicky offer lead you to overpay for a place you’re not crazy about.’”
——————————————————————-
Of course not, any dummy knows that. Only overpay for a place you ARE crazy about.
unfu**ingbelievable
And in San Diego, in a program offered by mortgage lender Cal Pacific, some sellers are promising to make up to a year’s worth of mortgage payments to buyers who come close to the full asking price.
Why would a buyer agree to this? Property taxes are going to be assessed on the sale price (by definition, the “fair market value”), so why not insist that the sale price be reduced?
A house aorund here that had been on the market for 6 months and reduced from 4455K to $395K just closed for $395K with a $12,500 seller subsidy. Why would you do that? Taxes are based on sale price, comps are based on slae price, and even if you consider the “true” price to be $382,500, that’s still the GF paying just 3.2% below asking price when it had been on the market for 211 days and dropped $50K. A little hard bargaining could have gotten them a much better deal, IMHO.
That should read $455K to $399K…sorry.
“A house around here” - is this in San Diego?
“comps are based on sale price”
That answers your question. It was the brokers’ idea. They want high comps, the interests of their clients be damned.
Clearly a case of the seller’s agent wanting a bigger commission, and inducing the seller to go with the seller-paid year’s mortgage payments rather than the obvious simple reduction of price.
Pirates. They oughta walk the plank.
Do the math let’s say the property is worth a million bucks 6% commission is 60k. Lets say the payments on the property are worth 6k a mo x 12 = 72k annual. Lets say seller drops price by 72k the sum of the payments better yet. Let’s say he drops 100k.
Commission on a million 60k
Commision on 900k 54k
6 grand diff. Now do you really think the agent cares if he makes 54 or 60 at that particular point. At that point does 6 k really matter?
‘We still don’t see any absolute declines on a national basis,’ Fannie Mae CEO Dan Mudd said.
Who cares what’s going on on a national basis? Either you live in a market where there’s a bubble, or you don’t. Obviously the bubble areas are going to tank, and the non-bubble ones aren’t. If 51% of the country is non-bubble, then the other 49% could crash hard without affecting the median price at all. So what? It’s still an economic disaster that will have nationwide repercussions.
And it’s not like Fannie Mae has a reputation for getting the numbers right. Oops, forgot, they don’t need no stinking numbers.
They have lost all credibility with all of their financial shenanigans.
Wellesley, MA: home to Wellesley College where Hillary Clinton went to school (& where all my wedding photos were taken) Although $620,000 may sound exorbitant it’s a REALLY nice town and really well positioned on 128 for a comfortable commute almost anywhere (except maybe Cambridge ) I can see why values here would drop more slowly.
What you’re basically saying is, “it’s different here”.
Wellesley may be a nice place to live, but I’m sure it was a nice place to live before the bubble. The price of housing RELATIVE to the surrounding areas is the only factor that matters, which I’m sure you’ll find is constant if the RELATIVE quality of life hasn’t changed.
If the bubble doubled prices in Wellesley, it will most certainly halve them to revert to the mean, regardless of how different it is there.
“Analyst John Tomlinson found sales fell year over year in every market during February and March. Washington, D.C., Los Angeles/Long Beach, Tucson, Ariz., Sacramento, San Francisco, and Phoenix saw the biggest declines with sales falling 22%, 50%, 50%, 46%, 30%, and 37%, respectively.”
A 50% drop in YOY sales volume in Los Angeles? I don’t think so.
Yes, a friend of mine lives in the sfv, he almost bought a house last year, and that same house is STILL on the market for 50K less. He told me that he has never seen so many for sale signs. Who in their right mind would pay 600K to live in Reseda?
There is a lot more inventory, but the sales volume has not dropped 50%.
I just looked up my old zip code 90802, and the dom range from 120 - 28. When I sold 2 years ago, my unit sold in 2 weeks. So, obviously sales volume has to be dropping.
and one on my old building on the market for 229 days! MLS #: S412717 - on the same floor as the one I sold 2 years ago, and about 80K more. LOL
Sales ARE dropping big time in LA!
The meltdown is happening. I thought it might be slower than this and not really start until next fall. There has been one sale in my neighborhood since last Jan and the realtor has left the “SOLD” sign up on the front lawn, to advertise to buyers that sales are still happening I suppose, but more inventory is being added daily now. A year from now there will be 50,000 foreclosures in CA and prices will be dropping rapidly.
Especially when there’s a freeway, running through the yard.
Free falling, down to 300.
I believe the 50% decline in volume is for sales of new homes.(I think I remember reading that somewhere) Sales of existing is down too, just not as much.
I agree that for LA as a whole a 50% drop seems high, but I do know that at the Beverly Hills branch of a major real estate company (which said office is the #1 office in the country in terms of sales for said company), and one of the major RE companies in LA, sales volume this year to date is running 50% behind last year. They’re not exactly publicizing this information…
It’s simply amazing how sticky prices are in Brentwood, even though the homes for sale have been sitting for months. I’ve watched homes list and delist repeatedly and still no significant reductions in price.
It’s the same in Westwood where I live. The coffers of the trustafarians do not seem to be emptying. What’s your take?
I do not think that 50% drop in LA is right. However (from LA county assessor), within 1 mile radius of a given address in La Canada, the number of SFH per month sold were (data, sales):
12/04 6
01/05 2
02/05 5
03/05 8
04/05 10
05/05 7
06/05 7
07/05 8
08/05 16
09/05 6
10/05 7
11/05 9
12/05 2
01/06 1
02/06 3
03/06 3
SFH in La Canada are from 900k to multimillion. Pasadena and Altadena prices are generally lower, but the drop in number of sales is similar to La Canada.
Listed inventory (ZipRealty) has been increasing since February, although this number is difficult to judge because I have observed that many properties for sales have been delisted.
I know of several flippers that after reducing prices, would be selling at a loss. One has stooped mowning the lawn. I have observed several listing prices that would bring down recent comps.
So I do believe that the tanking of the market is for real this time.
The reason for the slowdown in La Canada is because prices are up much more than last year.
I will analice the price and price per sqf data whenever possible, and report on it.
Certainly prices have reached levels at which it is difficult to see how they can go any further. However, I disagree with you when you say this is the only reason. The largest local employer, JPL, just shedded 300 jobs and will not grow anytime soon; rates have increased noticeably and maybe mortgage underwritting is tightening; the news are increasingly referring to the troubles of the RE market …
Certainly, prices in Pasadena 91104 have not increased at all in the last 6 months, if anything they peaked last summer.
All I want is a pool of buyers/flippers to be underwater (whether price exhaustion or a combination of factors is the cause), then we will see where the market goes. Are you a proponent of the flat price theory?
CEO Dan Mudd (Fannie mae) stick to accounting pal.
After 2 years, thousands of accountants and lawyers & you still don’t have your quarterly numbers. For another six months?
Now the people who claim that real estate was only in a pause cycle before springe (as teaditionally is the case) are our experts on the bubble they never saw OR yet know it’s in play!
his name will be “Mud” soon.
or “Caca”.
Good point - how can he claim to predict the future when he can’t even recount the past?
With his problem with accounting… who is going to believe any of his facts and figures? This guy is obviously fudging the numbers and cooking the books.
No, it was Franklin Raines and his crew that cooked the books.
Still waiting for the whining and gnashing of teeth.
Well golllllleeeeeeeeee Gomer. They’re finally admitting that things are “slowing” in Dallas. If they were any slower where I live, they’d be calling the coroner.
Tokyo - Our local blog - bubblemeter.com - is being overrun with trolls and bitter realtors accusing bloggers of “homeowner hating,” and “causing” the slowdown. The whining is becoming earsplitting. The Great Correction is underway.
That’s hilarious. Cry me a river.
If the “homeowners” (read: speculators and brokers) hadn’t engaged in so much non-homeowner screwing over the past five years, maybe there wouldn’t be so much “homeowner hating.”
“And in San Diego, in a program offered by mortgage lender Cal Pacific, some sellers are promising to make up to a year’s worth of mortgage payments to buyers who come close to the full asking price. Still, with plenty of houses to choose from, don’t let a gimmicky offer lead you to overpay for a place you’re not crazy about.”
I wonder how many will jump at this
Leave a popsicle on the train tracks just as the train rounds the bend and see who goes for it. It’s that customer they want.
Rising inventory, slowing sales and bigger incentive packages all signal a correction in the housing industry, Mr. Tomlinson added. But time will tell if this will lead to big dropoffs in home prices, “which I think most people are most afraid of,” he said.
Any SANE person would be afraid of what will happen if there are NOT big dropoffs in house prices.
However, many builders aren’t cutting back, and are instead talking about opening many new communities in order to drive order growth. Toll Brothers, for example, plans to open 80 communities during the next six months, and expects to wrap up fiscal 2006 with 295 subdivisions, up from 230 in fiscal 2005.
“Communities,” a euphemism for “more shitty housing tracts.” Keep that supply coming!! Each new tract will help drive prices down even further.
“It would be highly unusual for housing to go into a multiyear tailspin when the general economy is holding up,” he said.
Uh huh. I wonder if he would concede that house prices doubling or tripling in the space of 5 years is also “highly unusual.”
Of course, when the only thing “holding up” the general economy is real estate appreciation and equity extraction, things get ticklish. There’s no such thing as a perpetual motion machine. You can’t say “housing is healthy because the economy is good, and the economy is good because housing is healthy.” The good economy is a function of housing appreciation, which (in this case) has another basis than a healthy economy — namely, the hyper-Keynesian stimulus of the Fed’s flooding the engine with liquidity and the government’s large deficits.
Once that external stimulus is gone (and the key part — the Fed’s creation of liquidity — is on the way out), housing stagnates, causing the economy to stumble, which causes housing to crash, which causes a major recession and ensures a multi-year bear market in real estate.
dwr, Tomlinson was referring to NEW home sales volume, as the article makes clear in the previous sentence - 50% decline y.o.y. in so-cal sounds about right.
“Run away!!! Quick, unload that POS for whatever you can get for it and don’t even think about investing in real estate again in your lifetime.” - Mark Zandi
“So don’t repeat the mistake that tech investors made during the dot-com bubble. As stocks spiraled downward, they held on, thinking that the market would bounce back quickly.”
This mistake is even easier to make with real estate investments, and the swelling inventory and hints of declining prices shows that many are making it. It is easy to tell when the stock market has crashed, because the prices are public information, readily available on yahoo.com and the like. Not so for home sales data, which realtors jealously guard for fear that would-be buyers will realize that prices are falling. Only through the drip-drip-drip release of sales data and steadily growing inventory does one get a picture of the slow-motion crash underway. With deceptive articles from “experts” claiming nonsense (”inventory does not matter”), it is small wonder the wannabe sellers cannot figure out how to price their homes to sell. Meanwhile, the market price, which is hidden from view but dropping with each flipper who can no longer maintain negative cash flow in the face of falling prices, continues to drain money from the net worths of FB households. We will not be able to survey the balance sheet damage for a couple of years, after many who wanted to hold on will be forced to sell at fire sale prices.
Good luck, stuck flippers!
slow motion - but, the snow ball effect of these news stories surprised me a bit. Every day I read articles that many of us could have written a couple of years ago, with many of these experts acting utterly shocked at the current slowdown. I think there will be a lot of folks yearning for the good ole’ stagnation of the Spring of ‘06 when things get really bad later this year and for years to come.
Suddenly the mainstream national media don’t want to get outbubbled and are making their announcements. Sort of reminds me of the networks calling the winner on election night - some are slower at the draw than others. When thge LOCAL media pronounce the meltdown, it will be hardly necessary - everyone will already know. God forbid a local medium hurts the home prices in the market they live in and get their RE ad dollars from.
Adios, stuck flippers!!
concur, death spiral
this will be a lot quicker than most people think because rate resets are going to crush people quickly–and information is readily available this time around regarding market conditions, versus prior periods of price declines. all these rate resets are happening over a short-period of time.
any data on what % of ARM resets happen in 2006, 2007, 2008, 2009, etc?
Unfortunately, homes have even more emotional attachment than stocks. It really is harder to let go.
And since the tax code works against you when you’re losing money [at least on a primary residence], even more reason to hang on as long as possible. With stocks [or investment homes] you can take cold comfort that you can write off at least US$1.5k (3k for married couples) every tax year against your income. With primary home, you can’t, so every dollar is a painful loss.
Not only that, but when you have kids and pets it’s really hard to find decent rentals for a price even close to a mortgage payment. We have a 15 year loan and still would not be able to find a comparable place for similar rent. The “advertised” rates on rentals usually go up quite a bit when you mention you have a dog. Cats are even worse.
We’re not in a bubble market, so we’re banking on the hope that we can pay down principal faster than it evaporates. In that case we’re still better off than renting. Once you factor in what it would cost to move staying put looks even better.
Housing really is different from stocks. It costs almost nothing to unload stocks, getting out of a house you’ve been in for years is slow, painful and expensive.
Weekend entertainment:
1) stake out a corner location with friends by a housing development and picket with signs showing this web site and sayings like ‘Your retirement is going down the drain’ , ‘beat you neighbor out the door, sell now and bank your profit’, ‘buyers wait another six months and then check prices in this neighborhood’.
2) You and your friends hit open houses low balling offers just to sweat the RE agents.
3)Take pic’s at open houses then tell the agents that you are going to check the records and post the buying and selling costs of the property on the net. Might also tell the RE that all the neg’s you see with the property you’ll list too…just to help future buyers from over paying.
Love your ideas, but you must have a death wish. Folks are plenty on edge with this bubble. Many of us have already pi$$ed off long-time friends and family members because of our warnings. Imagine what strangers would want to do to us.
That’s why this blog is so great. We can all come here and state the obvious to one another without destroying relationships or being the target of all the FB’s anger.
Time to load up the popcorn buckets. After a long and agonizing wait, the previews are over and the movie has just begun…
Great idea on paper. Fun to fantasize about. Will get you lynched.
4) Come in, look around. Ask about the HOA fees. Smile (don’t smirk), say “wow” softly out loud to yourself. Ask what you get for those fees. Say “hmmmm”. Exit, telling them you’ll have to think about it some more.
“Hovnanian and Toll Brothers indicate demand is falling faster and more sharply than previously thought,”
There is only one way and I repeat one way for this statement to be true and that is that the statement is a total ‘lie’ or that these idiots never considered the number of potential buyers frozen out of the market by increasing house prices. This was a PONZI scheme from the start by the home builders and the mortgage lenders.
BTW: PTF it only takes 5 sec to scroll through you data, faster if I want.
Bon Toll ain’t no dummy!
Look at his December 2004-July 2005 Stock Sales -
http://biz.yahoo.com/t/11/1190.html
Salinas;…Their are 134 posts on the blog so far…How long would it take you to scroll if all 134 were as long as PTF ??
Here are several anecdotal stories from Los Angeles (BTW I work for a small commercial bank financing commercial RE).
First, i had lunch with a commercial LO who works for a med size brokerage firm (75 people). His former brokerage firm was just purchased by this larger brokerage firm 2 mos ago. They do both residential and commercial but residential makes up 90% of their business and employs about 70 of the 75 people. Well, his former company brought over about 25 people - 23 on the residential side. All of these people are LOs. All but one have left - no business, no commissions, no job. He said the residential side is in shambles - people are in panic mode. Business has virtually stopped. Most of these LOs are in their 20s and are used to making $150k plus. Troubles…
Second story. This guy is a nice guy so I feel for him. Anyway, he too is an LO working for some small residential broker in the valley. He’s probably in his late 40’s to early 50’s. He called me looking for a job. He said his broker went BK “overnight” much to his shock. He asked me if I had any job leads for him (which I do and will be sending him). Pretty sad but just I think we will be hearing many more stories like his.
Yes, people, things are unravelling fast here in SoCal. And believe me I am not so blind to think to future problems will not affect my job. That’s why I am saving $$ and keeping the right side of my balance sheet at ZERO!
Much appreciated, Lost — please keep us updated.
I didn’t think it was that bad yet. I mean the YOY price decreases are still mild, like 5-10%. Just the inventory is up. But you never get a good picture of things from the media. Their reporting is always biased one way or another.
So, LostAngels, what do you see happening as we go through summer and fall ? All out chaos with people dumping houses like crazy ? To whom ? Do you foresee a group of buyers stepping up to take up some of the offerings ? Or is the market completely saturated ?
As I’ve stated before, I sold two SFH last year and have my current home in escrow in CA.
At first I found myself snickering “suckers”. After all, caveat emptor . All are adults…all had realtors who should have advised them of the magnitude of their purchase.
But the more I think about it, I find myself feeling guilty. All three buyers were first time home buyers, and all purchased with no money down I/O loans. I’m happy about making huge amounts of $$, but I really feel sorry for these guys. Either their RE agents were morons or they were outright lied to.
Now, with the exception of the last 8 months, is perhaps the worst time to buy a house in the history of the U.S.
Jdog, I don’t think you should feel guilty unless you vastly overpriced the homes, lied to the buyers about some major structural or mechanical problem, or told them what a fantastic school district they are located in. People need to do their own due diligence too. Besides, what were you going to do, go broke yourself ?
The homes WERE vastly overpriced. That’s why he sold and that’s why he feels guilty.
BUT it is absolutely true that you are NOT responsible for some doofuses’ “mistake of a lifetime”.
Now the realtor and the people they got the loan from, that’s another story. If I was a realtor right now, I’d go on hiatus for several months- until it is CLEAR to everyone that the marlket’s crashing. That way I’d be sure that all my clients were buying with their eyes wide open and would be able to sleep at night.
I hold title and claim to being the biggest A-Hole on this blog…
…and I say this…
…Congratulations JDOG!
…You got out while the getting was GOOD!
I mean that, folks.
We’ve been talking about this for FREAKIN’ MONTHS.
If YOU’RE TOO STUPID TO BUY A HOME RIGHT NOW…
…you obviously RODE THE SHORT BUS TO SCHOOL.
Biggest A-hole, not even close.
If that is a title you want to claim you better work harder at it.
Auction, if you want that title, you’re going to have to swing by my RENTAL and pick it up!
Unfortunately your average realtor makes between $28K-$37K a month (large range, granted, but it depends on what market they’re selling in). There’s no way they could afford to lay low for that long.
They’ll have to show up for work but they’ll still be unable to move anything.
Lofficer;…You did mean per year right ??
(Slapping self). Certainly did scdave. Thanks!
What market are you talking about loonofficer?? 28-37. Wow I’m semi retired and I make more than that in a quarter. Not including the few loans that I do.
Go to the Bureau of Labor Statistics website. Remember they’ve got realtors in South Dakota as well as California. Think about the number of realtors for every home that coimes on the market. Think about the number of deals each “average, full time” realtor will actually seal in a year. It’s not that much.
The Spring Boom That Isn’t: http://bubblemeter.blogspot.com/2006/05/spring-boom-that-isnt.html
The TV show on HGTV known as “Flip that House” will now be replaced with “Stuck in that House.”
This will be in effect immediately.
As the final credits roll the guy turns on his $10,000 new premium gas over, lays down nude on the cool granite of his new countertop, and slips peacefully into that eternal housing Valhalla in the sky
Oven
Granite counters can be fashioned into tombstones.
How about Flip the Bird and F__K this House?
jdog, don’t feel guilty. My wife and I sold to her sister and her husband in January. We banked almost 100K after paying off debt and moving expenses. What did they take on, i/o first year on a 400K mortgage. He also has a Harley from the previous house, which they sold, because of a HELOC. Irony is he can’t ride because he failed the motorcycle exam twice. Still paying for 90 miles round trip in the $500 month truck also. The kicker, however, is that they wouldn’t have been able to afford all impounds had she not got the new job, which came after they signed closing docs. And my in-laws think we are nuts for selling. Who are they kidding, if they only knew.
This blog has changed me so much. Hopefully what I am writing will appear. I sold my condominium (San Diego, CA) for 385K in November. Bought it for 90K (30 year fixed) in 1998. Never refinanced. Have my money in CD’s. Was looking to purchase for quite a while but since I have been reading this blog things have changed. I will wait
Good for you Veronica- congrats on your windfall and have a blast looking for a new place after the market tanks!
I second that.
Thank God someone else in San Diego can read.
I have hope now.
Great timing! Do ‘ya need a stay at home husband?
Even if you buy back at a higher price - say $150,000 next year. You will own your place for free with money in the bank. Hope your timing was perfect!!
Veronica - I am sorry, but you screwed up. A $380,000 condo in San Diego, in thirty years, will be worth nearly $100 million, according to the economic law of 20% annual condo price appreciation. CD’s only pay, what, 4%? Oh, well……
How many people who got burnt with the dotcom crash couldn’t control there greed and will get immolated anew with the comung “Lotcom crash”?
“Those who fail to learn from history are condemned to repeat it.” - George Santayana
“Lotcom” crash.. Heh, I love it!
Or dotcondo …
Anyone think dotgold will be next?
Ben,
After all of this unfolds, you need to publish a book with year by year facts / figures / news excertps along with the corresponding bubble talk from this thread.
You could tell the world officially, ‘I told you so’.
Working title: I warned you were about to get F__kd.
Change name from Ben Jones to Ben Dover.
Oh don’t worry.
You’ll be seeing plenty of Ben, soon.
ON ABC.
I sure hope you’re getting ready, buddy.
Your moment is almost here.
I sometimes think of reading this blog as watching a documentary. Only the ending hasn’t happened yet so that’s still a surprise.
If a book deal does come through and it’s made into a movie which actors will play the parts of the various posters? Please, not Tom Cruise!
I can’t wait until there are segments in VH1’s Behind The Music about some poor has been star who got burned in real estate. Has Danny Bonaduche or Gary Coleman bought any property in Phoenix?
Its funny that the home builders are making things WORSE, as they should. The bubble prices were driven by demand, not supply. It doesn’t cost much more to build a house now than it did 5 years ago before the bubble started. Sure, copper and stuff have gone up, but the overall cost of building the home itself, sans land, hasn’t increased the 200% that we have seen housing going up.
So… now that the prices are falling, homebuilders want to keep their earnings up by substituting volume for margin. They never will get the volume up to where they will compensate for the lower prices, but they will try. They are still making a lot of money on houses, so now they will KEEP flooding the market with new developments and keep dropping prices as much as necessary to move them. Until there is no profit left in building houses, at which point the price to the buyer will be the cost of building them, which will only be 20% over what it cost 5 years ago.
In effect, homebuilders break the bubble and revert the market back to the mean.
Houses are built with concrete, 2×4s, labor, copper, tile, wallboard, shingles, etc. As the number of houses being built falls, the price of these commodities will fall back to their pre housing bubble levels and thus the price of building a house 5 years from now will be pretty much what it was 5 years ago.
Bubbles are always a self correcting phenomenon. Only temporary demand drives them. There are 300 million people in our country now, just like there was 5 years ago. We each only need one house plus maybe a vacation property. Thus the demand for housing is constrained. But the potential supply of homes is almost unlimited. There is land for houses even around Sacramento !
So the bubble bursts. It was inevitable and now it is happening. And due to the large amount of debt involved and the skyrocketing inventory and the ARMs and the tremendous over supply of houses on the market, the prices are starting to fall fairly fast. Can you really say you didn’t see this coming ? We’ve been talking about it on this board for months. We’ve been observing the build up for over a year. I guess maybe even we were in denial about what was inevitably going to occur.
Gold broke $700 today. We were talking that a run up in gold were going to be a part of the housing bubble burst. And many things that we spoke of have yet to occur. The bursting party is just getting started. Pull up a chair. It is going to be a long night.
I agree with much of what you said but you have the population numbers wrong. We have population growth of about 20 million people in the past 5 years. Even population growth does not factor much in the real-estate run up.
There will massive price deflation of building materials after the bust is final, just like the massive deflation on computer hardware and software in 2001/2002. Building a house in 2010 will be roughly the same cost as in 2000, adjusted for inflation.
“So… now that the prices are falling, homebuilders want to keep their earnings up by substituting volume for margin. They never will get the volume up to where they will compensate for the lower prices, but they will try.”
Substituting volume for margin is rather like shooting themselves in the foot, as the flood of new home supply strongly pulls down the sale prices, especially when $100K super discounts are used to lure buyers to catch the falling knife.
Someone tell those builders to build some more… I’ll like to see this thing get really ugly!
You don’t have to tell them, they will. They will keep building houses and dropping prices until there isn’t any profit left and the house prices are back at pre bubble levels. That is how bubbles work. They are driven by demand, not problems with supply. And when demand wanes, down come the prices.
Look out below.
Concur. What’s really interesting is when this whole thing started in CA back in 2000 all the builders were saying they learned thier lesson from the early 90s and were only buliding houses after they had sold. They held true to this for about 3-4 years, but then, the builders got caught up with it and started buying land/lots desperately. Now they are building houses that are not sold yet.
I was suspicious of this about 6 mo ago, but I confirmed this recently after talking to a good freinds wife who is a bigshot for a major builder in No Ca and AZ. She seld that they currently had 392 houses that were sitting unsold.
This thing gets ugly fast. Only possible saving grace, albiet a small one, id the Fed drops rates drastically and soon to allow the people to refinance into a better loan instead of walking away.
We all know that ain’t gonna happen, but still it is a possiblity and may be the saving grace. Price reductions so far are mainly the result of speculators leaving the market.
Fed ain’t droppin’ no rates any time soon.
Maybe in November.
And then, only for a pause, to watch.
How many more times must I say this?
SD ziprealty used home inventory = 19,907 — over 160 homes newly listed just today.
Is tomorrow the big day we clear 20K? Halfway to PHX? It makes me want to break out into song:
“By the time I get to Phoenix she’ll be rising
She’ll find the note I left hangin’ on her door
She’ll laugh when she reads the part that says I’m leavin’
‘Cause I’ve left that girl so many times before”
OK getstucco. We were right. What next?
“if the Fed drops rates drastically and soon to allow the people to refinance into a better loan instead of walking away.”
Won’t happen. Gold is already at $700/ounce because foreign governments are avoiding the US dollar and bonds, not fed rates, set the mortgage rate. Whereas 6 months ago we had a conundrum and an inverted yield curve that is no longer the case. Bond yields have been rising daily with no end in sight.
You can watch them here. http://www.bloomberg.com/markets/rates/
For the longest time the 10 year was stuck on 4%. Now sitting at 5.18%.
And one other thing is going to happen too. Right now the risk spread between the fed rate and a 30 year mortgage is less than 1% . When the default rate starts climbing and home appreciation withers, the risk spread is going to be 2 or 3%, maybe more.
How do I turn off a “strong” edit ?
Trying to turn off “strong” wih </strong>
Excellent post.
Yes the pieces are in place for a major financial disaster. It’s not just the US but virtualy all 3rd world countries. Problem is, I see EVERYBODY getting hurt. Nobody is in Gold 100%, but even gold has tremendous risks these days IMHO.
b>
Read somewhere that the historic 30 year over Fed is 2.75%
Housing Slowdown Appears
To Be Spreading Nationwide
By JANET MORRISSEY
May 8, 2006 5:17 p.m.
NEW YORK — There are signs a housing slowdown that has gripped certain high-growth markets during the past few quarters, is now spreading nationwide.
Preliminary reports from builders Hovnanian Enterprises Inc. and Toll Brothers Inc., whose quarters ended April 30, indicate demand is falling faster and more sharply than previously thought, and that the pullback is no longer confined to hot markets that had seen sharp home price run-ups in the past few years.
Hovnanian’s orders fell 20% in its fiscal second quarter — an about-face from the 5.5% order growth reported in its fiscal first quarter. Toll’s orders declined 32%, which is steeper than the 29% dropoff posted in its fiscal first quarter.
For Toll, the order decline was across the board as all of its geographical regions reported year-over-year decreases in demand. Chairman Robert Toll attributed the declining demand to higher cancellations and to speculative buyers who are dropping out of the market and putting the homes they recently acquired up for sale. Although Toll said his company doesn’t sell to speculators, “we have certainly been impacted by the overall increase in supply.”
On top of this, some builders, such as Centex Corp. and Hovnanian, have started taking writedowns in connection with land options. In general, when builders take writedowns to walk away from land options, it is a sign that either land values are falling or demand in that market has dried up. In past cycles, declining land values often were a sign that a market was falling fast.
Until now, home-building executives said the pullback in demand was largely confined to markets where sales had been overheated and home prices had skyrocketed during the past few years, such as Washington, D.C., parts of California (especially Sacramento), Phoenix and parts of Florida. They blamed speculative buyers for much of the pullback, saying investors had exited the market, causing less overall demand and more inventory.
These hotspots continue to see the sharpest pullbacks, but other markets also are slowing.
Majestic Research analyst John Tomlinson, in his monthly report that tracks new-home sales in 40 major markets, found sales fell year over year in every market during February and March, with the average decline being 25%.
Washington, D.C., Los Angeles/Long Beach, Tucson, Ariz., Sacramento, San Francisco, and Phoenix saw the biggest declines with sales falling 22%, 50%, 50%, 46%, 30%, and 37%, respectively. However, even markets that hadn’t been weak previously — such as Philadelphia, Dallas, and Las Vegas — softened in the quarter, with sales falling 30%, 15%, and 13%, respectively, he said.
“Almost every single major market that we track is showing pretty significant year-over-year declines in sales,” Mr. Tomlinson said. “It’s much more broad-based” than it was prior to February.
Rising inventory, slowing sales and bigger incentive packages all signal a correction in the housing industry, Mr. Tomlinson added. But time will tell if this will lead to big dropoffs in home prices, “which I think most people are most afraid of,” he said.
So far, builders’ efforts to offer more incentives and discounts have “failed to move the needle” in driving sales, Mr. Tomlinson said. As a result, he said some may need to resort to bigger price discounts. “That’s the million-dollar question,” he said.
Bernard Markstein, director of forecasting at the National Association of Home Builders, said there is no question housing demand is slowing nationwide. He said rising mortgage rates have given people reason to “pause” in their decision to buy.
“We’ve been getting reports of a slowdown in housing across the board,” Mr. Markstein said. But so far, he said, it’s just a “moderating of activity — not a falling off of the cliff.” He describes it as a “return to normalcy.”
Mr. Markstein is predicting that overall housing starts will fall 7% to 1.95 million from 2.1 million in 2005. He sees demand returning to 2004 levels.
If companies continue to build at the pace they had in 2005, there could be more serious inventory problems.
“We were building at a pace that we did not expect to be sustained and we’re seeing a slowdown,” Mr. Markstein said. He expects builders to slow their pace of construction to meet the softer demand.
However, many builders aren’t cutting back, and are instead talking about opening many new communities in order to drive order growth. Toll Brothers, for example, plans to open 80 communities during the next six months, and expects to wrap up fiscal 2006 with 295 subdivisions, up from 230 in fiscal 2005.
Chairman Toll sees the glut of inventory on the market as a “short-term phenomena” and believes the supply imbalance will correct “relatively soon.”
Despite the softening trends nationwide, Fitch Ratings analyst Bob Curran said he still believes the housing sector is heading for a soft landing — not a crash — and that the current housing slowdown is temporary and will likely rebound by late 2006 or early 2007. He said economic data for job growth and consumer confidence has been positive.
“It would be highly unusual for housing to go into a multiyear tailspin when the general economy is holding up,” he said.
Mr. Curran noted that most of the publicly traded home builders are heavily weighted in big-growth markets, such as California, Phoenix, South Florida, and Washington, D.C., which experienced overheated demand and a spike in home prices during the past few years — and are now seeing the biggest weakness.
As a result, the sharp slowdown in the hot markets makes the major builders “a little more vulnerable in the short term,” he said. A slight slowdown in smaller markets won’t make a huge difference for them, Curran said.
“If you’ve got 25% of your assets in California, quibbling about what’s happening in Salt Lake City isn’t going to make a difference,” he said.
Interesting read
http://www.financialsense.com/fsu/editorials/jain/2006/0508.html
Great read, thanks.
OK read but just to much apocalypse for me….
Not enough for me.
I love these graphs:
http://www.oftwominds.com/blogmay06/housing-global-recession.html
Yes. IIRC, you’ve been on these boards/blogs for a while as well (WSJ, no?).
It is interesting how the media is saying **the exact same things** so many of us have been saying for years. Why are they acting so surprised? This was obvious to anyone with two eyes and a brain for a long, long time.
Danielle DiMartino:
Bubble’s bursting on all fronts
07:52 AM CDT on Monday, May 8, 2006
The evidence of a deflating housing bubble is spreading to places less visible to the naked eye.
We’re not just talking record, and fast-escalating, inventories – one of the most glaring red, flashing lights and harbingers of falling prices. Or things such as Ameriquest laying off 3,800 workers and closing 229 branches in its mortgage-lending unit.
No, the evidence has segued to the subtle in three ways – mounting mortgage interest expenses, a declining homeownership rate and a rising owner-occupied vacancy rate.
According to research by Moody’s Investors Service chief economist John Lonski, the yearly increase in mortgage interest paid by households rose to 15.8 percent in the first quarter – a 24-year high – from 2005’s annual growth rate of 14 percent.
So you’re asking: Interest rates aren’t soaring. How can households’ interest payments rise that much?
Here’s how Mr. Lonski put it:
“The steep advance by household interest costs amid relatively low fixed-rate borrowing costs is unusual and reflects an earlier atypical reliance on variable-rate mortgage debt for the purpose of affording costlier housing.”
In other words, the chickens are coming home to roost on the variable-rate mortgages.
Ownership slipping
You may not recall the last time mortgage interest expenses happened to be growing this fast, in 1982. The yield on the 10-year benchmark Treasury, which determines mortgage rates, happened to be about three times what it is today and set to fall – an important distinction.
And then there is the homeownership rate. After more than a decade of rising to the highest levels on record, the homeownership rate declined to 68.5 percent in the first quarter of 2006 from 69.1 percent in the same quarter last year.
The obvious explanation is that affordability is at a 20-year low. And many people have sold their homes and are renting as home prices slide.
But that’s not the whole story, according to Goldman Sachs chief economist Jan Hatzius: “The decline in homeownership is particularly interesting because it has occurred in the face of strong rental-to-condo conversions of apartment buildings, which have expanded the supply of owner-occupied units.
“Thus, declining homeownership is very likely due to a decline in demand, not a decline in supply of owner-occupied units.”
More evidence
And finally, the owner-occupied vacancy rate is rising sharply. At 2.1 percent, the current rate is the highest on record. This is, of course, an unintentional consequence of speculators realizing there’s no place to take a seat now that the music has stopped.
“The fact that the homeownership and vacancy data tell the same story as the housing inventory data is significant … because they are based on entirely separate data sources,” Mr. Hatzius added. “This increases our confidence that the housing sector really is slowing substantially.”
Mr. Hatzius figures existing home prices have already started to edge downward and that home price inflation will turn negative by the end of the year.
So now that we’ve verified that the housing market is slowing, the more fundamental question becomes one of what to do if you are one of the 68.5 percent of Americans who own a home.
Tuesday: Good advice
E-mail ddimartino@dallasnews.com
Good post , thanks .
Please post your opinion of signs we are at the bottom. Here is mine:
You are walking down the street and a man in a trench coat come up to you. He says shhh, hey buddy come here…Looks around…Hey buddy I have a couple pictures of condos in my coat. Yea yea, Im a realtor…You try to leave and he quickens his pace to match yours…At this point you start shouting for help and he slithers off.
Signs we are at the bottom?
Well, lets see?
During the bi-annual guys only road trip to the Mustang Ranch (Nevada’s most popular brothel) you recognize 9 out of the 10 women lined up to greet you from their glamour shots on RE billboards. That might be an indication of a RE bottom, or maybe not. Nonetheless, It would be fun to have the shoe on the other foot though(with regards to who is getting screwed).
Auger;….Now we know what Suzanne was doing prior to her venture into Real Estate research….Its back to the “Line Up” for Suzanne….
exactly! Let her research this …!
Hummers on blocks…. of granite.
“Get out as fast as possible.” Oh great, this will be like watching a herd of elephants trying to stampede through a turnstile.
On a serious note;…With the debt levels both public & private as high as they are, can we realy afford a meltdown ?? I fear that it may engulf all of us….Its a little scary IMHO…
Well of course it is scary! We are going into a depression for pete’s sake! There will be civil unrest, massive unemployment, an entitlement society coming to grips with dashed expectations, baby boomers retiring with no savings, possible bird flu pandemic, energy issues with attendant food production issues and a currency unsuitable for toilet paper duties. Can you come up with a worse possible scenario other than the fact that we will probably get led into a world war over resources (er, terrorism I mean)? This will be ugly for sure.
I believe you forgot world overpopulation, a backlash against immigrats, and global warming.
Don’t forget the locusts.
Zandi is a good economist. For ANY economist to give advice this definite is unusal. He sees the handwriting on the wall.