A Bubble Occurs When People Forget
The Cronkite News Service reports on Arizona. “According to a report by Arizona State University’s W.P. Carey School of Business, 1,021 new single-family homes were sold in the Phoenix area during October, an 85 percent increase from the same month last year. According to the U.S. Census Bureau, 10,357 single-family building permits had been issued in Maricopa and Pinal counties this year through October. For all of 2011, the number was 7,297. Mike Orr, author of the ASU report said the strong growth will not lead to another real estate bubble.”
“‘A bubble occurs when people forget that bubbles are possible,’ he said. ‘Right now everybody is very very aware that we went through a bubble, so the chances of another bubble in the next 10 years is almost zero.’”
“Nate Nathan, president of the land brokerage firm Nathan and Associates, said his company has done 131 transactions in the last five months in the Phoenix area, up from 80 in all of last year. ‘It’s an absolute frenzy to buy finished lots or platted lots, the busiest my company’s ever been,’ Nathan said.”
Inside Tucson Business in Arizona. “New home permits and overall selling prices have surpassed all benchmarks set last year. Year-to-date, 1,748 new home permits have been issued across the region. Year-to-date closings stand at 1,235. ‘It is probable a greater percentage of these permits represent speculative permitting as builders respond to overflow demand from the tight resale market,’ said housing analyst Ginger Kneup, owner of Bright Future Real Estate Research. ‘The inventory of homes has not yet notably increased, however a reporting lag is expected since many builders do not advertise their spec homes until they are two to three months from completion rather than as soon as a permit is issued.’”
“Although foreclosures continue to decline, ‘traditional’ home sellers have not yet seen enough appreciation in value to put their homes on the market.”
The Arizona Republic. “Metro Phoenix housing analyst Mike Orr participated in a live chat this week about the state of the residential market. Here are some excerpts from his online conversation with readers: Kari: Mike, we bought our house in 2005 at the worst possible time. Are people still underwater for houses bought then? We are in ZIP code 85203. Orr: Unfortunately, the answer is yes. We are nowhere near back to 2005 home-value levels. I am not sure how long it will take to get back to those levels. Some people say five more years, but I am not so sure. If employment growth continues, we could see home prices climb faster.”
“Selina: I have heard rumors that the housing market may dip again when banks clear out all of the foreclosures that are just sitting there. Orr: I don’t think its very likely Phoenix’s housing market would dip for that reason. There’s no huge collection of homes banks are holding onto in Arizona and waiting to dump on the market. … We have a speedy foreclosure process in Arizona, and we have a shortage of homes for sale here. Shadow inventory is an urban myth in Arizona.”
The Yuma Sun in Arizona. “The boom days may be back for Arizona home prices, but in Yuma County, prices are still lagging. But there are indications that the Yuma housing industry is turning around, however slow it might be, according to County Assessor Joe Wehrle. Yuma’s average home price in the last quarter declined 1.1 percent over last year and 35.1 percent over five years ago. ‘What we’re seeing right now is that home prices seem to be on the rise. We did see a slight rise in the last year,’ Wehrle said.”
“The reason for the turnaround, he noted, is that the market has gotten rid of the repossessions that glutted it. ‘We still have a lot of repos the banks are holding on to. They’re smart enough to not flood the market. They’re releasing them slowly so we don’t have another downturn. That’s what would happen if supply exceeded the demand,’ Wehrle explained.”
The Las Vegas Sun in Nevada. “Foreclosures in Nevada could spike next year if lawmakers and banks roll back a bill passed in 2011 that played a large role in stymieing banks’ attempts to retake homes from Nevadans, according to the state’s banking association president and housing analysts. At issue is Assembly Bill 284, a measure passed by the Nevada Legislature in 2011 and signed by Gov. Brian Sandoval that forces banks to prove they have the legal right to foreclose on a particular home before they take action. Most important, the law requires bank workers to sign an affidavit that they have personal knowledge of a property’s document history, or they will face criminal or civil penalties.”
“But after the law took effect in late 2011, foreclosures in Nevada — which previously led the nation in foreclosures — ground to a halt. In August 2011, banks issued 5,350 foreclosure notices in the state, according to the Nevada Foreclosure Mediation Program. In September, there were 4,684 ‘notices of default.’ In October 2011, when the law went into effect, the number dropped to 80. Since then, the foreclosure filings per month have crept upward, reaching 1,417 in November.”
“This shadow inventory — of homes headed for almost certain foreclosure — has loomed over the seemingly positive news of slightly increasing home values and the rise of new housing construction. Sen. Tick Segerblom, D-Las Vegas, chairman of the Senate Judiciary Committee, said, ‘I’m extremely reluctant to change anything that everyone agrees has raised property values in the state of Nevada.’”
The Las Vegas Business Press in Nevada. “Bart Powell, a recreational vehicle dealer from Calgary, Alberta, bought a 2,400-square-foot home in Henderson for $275,000 three years ago. It’s worth about what he paid for it, maybe a little more, Kimball said. ‘Prices have fallen a lot, which is attractive for Canadians,’ Powell said from Calgary. ‘Your houses are probably half the prices up here in Calgary.’”
“Prudential Americana Realtor Tim Kimball said Web inquires from Canadians have nearly doubled from 1,100 last year to more than 2,000 this year. Most Canadians are buying for the long term, not looking to flip for a quick profit, Kimball said. They recognize that their dollar has gained about 20 percent in value compared with the U.S. dollar, and that Las Vegas home values will probably appreciate over the next five years.”
From KTVN in Nevada. “In Northern Nevada, buyers are having to hustle to find something to buy. ‘One of my agents was telling me last week that he has submitted 20 offers on homes and got beaten out on every single one,’ said Kevin Sigstad with ReMax Premier Properties. So where are some of these new buyers coming from? ‘The population continued to age, so you’ve got all these kids that were in college that are now coming out of college, all these kids that were in high school coming out of high school, and they’re in the market,’ explains Sigstad.”
Fox Reno in Nevada. “Sales of upscale homes in the Reno area are on the rise. There are dozens of multi-Million dollar homes currently for sale around Reno, and in the last 2 years, more than 55 of them have sold, says David Morris of the David-Morris-Group. Morris tells us that many high value buyers come from the bay area. Take Bruce Asch for example: he moved here seven years ago and recently relocated to a million dollar home closer to downtown. ‘I come from the bay area, so what I paid here, versus what I would have to pay for the like property is 25 percent,’ says Asch.”
“Marcy Barba is selling her multi-million dollar Spanish colonial style home after building it seven years ago, though she plans on staying in the area. ‘The quality of life that’s in Reno I think surpasses anything that I’ve experienced in California,’ says Barba.”
“Morris says today there is a different buyer formula in the housing market. ‘People with 6 and 7-thousand square-foot houses are much harder to sell today. People want a home that’s a home, they want a property they can live in, and they want a heating bill that they don’t gag when the bill comes in,’ says Morris.”
“If you are looking for a million dollar home, there are plenty of homes to choose from. Morris says of the more than 80 on the market in our area, 7 have sales pending.”
The Reno Gazette Journal in Nevada. “Nearly a billion dollars have been spent stabilizing the Reno and Sparks housing market since 2009. Through President Barack Obama’s Neighborhood Stabilization Program, Hardest Hit Fund programs and the national mortgage settlement, more than $900 million has been distributed to Nevada homeowners, administration officials said Friday.”
“‘The continuing signs of stability that the national data show for the broader housing market are starting to show progress in Reno,’ said Erika Poethig, acting assistant secretary for policy development and research for the U.S. Department of Housing and Urban Development.”
The Santa Fe New Mexican. “The short-term goal of a monthly housing payment is to keep a roof over your head for the next 30 days. It’s the same whether that payment is for rent or a mortgage. It might surprise many people to know that in today’s topsy-turvy real estate world, buying a house can be the better value in terms of your monthly out-of-pocket, as well as for your long-term financial security.”
“For example, falling home prices have caused many homeowners who would like to sell their properties to stay put instead. This has caused an undersupply of affordable houses on the market in many parts of the nation. Landlords have acted in accordance with the economic law of supply and demand, raising rents as more people have sought to take apartments rather than buy homes of their own.”
“An analysis by Homewise Inc. looked at a three-bedroom, two-bath home in Tierra Contenta selling for $203,500. At recent mortgage rates, you could buy that home for $1,131 a month, but the asking rent was $1,350. That’s likely because the current owner had paid more for the home than it is currently worth, and is stuck with an upside-down mortgage carrying a higher interest rate than today’s loans, which is often under 4 percent.”
“The result is some pretty favorable math for the prospective homebuyer, though not for the unfortunate owner/investor.”
“The homebuyer, too, is continually acquiring something the renter will never have: equity in a valuable asset. Assuming that someday the housing market gets back to normal, the house will have appreciated in value over the years, becoming an even more valuable asset that can help fund retirement, the kids’ college expenses, or a legacy for the next generation.”
“And what does the renter have after making 30 years of escalating payments? Just as the old cliche goes, a shoebox full of rent receipts — and another bill due and payable by the 10th of the month.”
““A bubble occurs when people forget that bubbles are possible…..so the chances of another bubble…is almost zero.”
The chances of you being a moron are almost 100%.
The homebuyer, too, is continually acquiring something the renter will never have: equity in a valuable asset. Assuming that someday the housing market gets back to normal, the house will have appreciated in value over the years, becoming an even more valuable asset…
Further evidence of what Blue Skye is saying.
And, speaking as someone who has lived in Arizona for 25 years, there is quite a bit of moronic thinking and behavior here. It’s quite amazing to me. Even after all this time.
That’s why I so appreciate this blog. It’s a sign of intelligent life in the universe.
“Normal” = bubble prices to this ignoramus. God help us.
Like I say, people around the globe have been conditioned into believing that housing is supposed to be unaffordable.
And that conditioning is predicated on the the target not having any idea of the value of a dollar.
“A bubble occurs when people forget that bubbles are possible…..so the chances of another bubble…is almost zero.”
Hooray, no more bubbles, let’s raise mortgage rates to 8% and savings rates to 5% for starters. Then we’ll see how true the above statement is.
Let see.
We STILL have
Zero down payment loans
The government guaranteeing EVERYTHING so banks feel no risk
The government forcing banks to lend to people who can not afford the loan
Housing prices 5-10X the local income
“‘A bubble occurs when people forget that bubbles are possible,’ he said. ‘Right now everybody is very very aware that we went through a bubble, so the chances of another bubble in the next 10 years is almost zero.’”
FWIW in my neck of the woods the median price is 3x the median HH income and from what I’m hearing it’s hard to get approved for a mortgage. And by “hard” I mean the lenders are merely reverting to historical standards. No more “fog a mirror, here’s your loan”. They want to see stable income. If you’re self employed they get even fussier. Etc.
If it was back to “fog a mirror” the bubble would be back with a vengeance.
“FWIW in my neck of the woods the median price is 3x the median HH income.”
Show us.
Per trulia the median house price is 206,000
http://www.trulia.com/real_estate/Loveland-Colorado/
Per money cnn dot com the median HH income is $74,734
http://money.cnn.com/magazines/moneymag/bplive/2010/snapshots/PL0846465.html
Well…. Not really.
The median HH income(a poor metric in itself) is actually $54k which puts the price over income at nearly 4x.
http://quickfacts.census.gov/qfd/states/08/0846465.html
Interesting, I wonder why the disparity in median HH income numbers. Anyway, my city of Woodland, Ca comes close, median income 62,222, median home price 222,000, which is 3.5 times income.
http://money.cnn.com/magazines/moneymag/bplive/2010/snapshots/PL0686328.html
The census website you shared averages data from 2007-2011, so it shows Woodland median home value to be almost 100,000 more. (Prices here crashed more than 60% since 2007).
There are different HH income categories. The one in the census link includes every one I suppose. I have seen other break downs, such as single head of household, married no kids, married with kids, etc. From what I have seen, married with kids is higher, and that is probably the number the article cnn money was quoting.
So depending which number you use, the range is 3x to 4x.
From what I’ve seen in Loveland, the median priced houses sell quickly, the more expensive ones (say 300K+) do not. In many cases, they don’t sell at all.
I definitely expect to see some price compression on the higher end as those houses are not selling. But the demand at the lower end has been strong enough that the local bankers are financing local builders again. I recall one year a few years ago when only about 60 new houses were built. It’s up to 300 now. It was well over 1000 during the bubble years.
“There are different HH income categories.”
That may or may not be true but I’ll wager on the CB before CNN.
Are MSM writers just dumb, or do they tacitly collude to provide propaganda cover for the centrally-planned housing reflation effort underway?
Yeah - especially when we bail out everyone. From banks to homeowners.
There is no reason to live below one’s mean. Nor to save. Nor to even buy things you can afford. Debt is king and the government will have your back.
“The homebuyer, too, is continually acquiring something the renter will never have: equity in a valuable asset. Assuming that someday the housing market gets back to normal, the house will have appreciated in value over the years, becoming an even more valuable asset that can help fund retirement, the kids’ college expenses, or a legacy for the next generation.”
“And what does the renter have after making 30 years of escalating payments? Just as the old cliche goes, a shoebox full of rent receipts — and another bill due and payable by the 10th of the month.”
There are many factors on the decision to buy a house or be a renter. One thing that’s hard to value is security and privacy. As a homeowner I feel more secure and I have the freedom to fortify my house, keep a big black dog, install a alarm/surveillance system/safes. My kids are renters and have been ripped off several times and their cars have been broken into. Lots of tradeoffs that you can put a value on but this one issue is the hardest for me. What’s it worth to you?
Not 5x+ my income.
Houses used to be 1-3x income with all the stuff you just listed.
What changed?
Government “helping”
What’s it worth to you?
Renting on 10 acres in the country, I have plenty of privacy and security, and I didn’t have to pay for fortifications.
When I bought my house I was 3 miles. from my job, my parents AKA “free babysitters” were 10 min. away. If I was buying today I would do as you have done. Raw land with access is 10k-20k an acre around here. My dream property would be about 60 miles S.W. of Austin somewhere around Wimberley TX. Second choice might be Alpine TX where land prices are still reasonable but it’s pretty remote.
The developers ruined Wimberley, IMO. Look outside of Blanco, though I admit it’s been years since I’ve visited there.
Last time I went through Wimberley a hurricane blew up from the gulf and flash flooded the whole area. It maybe in the ‘Hill Country’ but almost everybody builds in the valleys and gullies. The land of eleven hundred springs turned into a disaster area in 24 hours. Blanco is still one of Texas’s best kept secrets and sits on higher ground too.
My town used to occassionally play Blanco and crush them - after our coach/bus driver would nearly kill us on the 2 hour southerly drive by being turned around telling stories the entire drive. He once passed a farm tractor pulling a hay harvesting trailer on a 2 lane bridge while driving a bus with 60 people aboard and by pulling onto the grass median on the right giving the tractor the 1.5 lanes it needed, all without slowing down from 55 mph or however fast a yellow bus goes, and without turning around or interupting his story.
Guy should have been a race car driver rather than assistant coach and lousy history teacher at a tiny school.
You can’t beat a place where they shot the movie “True Grit” and has the “Real Ale Brewery”…
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&sqi=2&ved=0CEsQtwIwBA&url=http%3A%2F%2Fwww.hill-country-visitor.com%2FBlanco_Texas&ei=-MfIUKy0FajkiwL2vIGIAg&usg=AFQjCNG4-zT856hvv1Hr5KCgnZnBVpsdvQ&bvm=bv.1355272958,d.cGE
Ha! Probably still happens. Did your parents ever find out what was going down?
“My kids are renters and have been ripped off several times and their cars have been broken into.”
I have been renting for years and years. Including in a not very nice part of Manhattan during the crack years. Also near the end of the Brooklyn Bridge during the squeegee guy era. Also Jersey City, NJ. Never had my place broken into. Never had my car broken into. Only time I’ve ever had a wallet stolen was inside the law school building at time when only people with school ids were supposed to be able to get in.
Sounds like your kids need to choose their rental buildings better.
“An analysis by Homewise Inc. looked at a three-bedroom, two-bath home in Tierra Contenta selling for $203,500. At recent mortgage rates, you could buy that home for $1,131 a month, but the asking rent was $1,350. That’s likely because the current owner had paid more for the home than it is currently worth, and is stuck with an upside-down mortgage carrying a higher interest rate than today’s loans, which is often under 4 percent”
I disagree with this — most likely, because fo shadow inventory and the focus on building SFR’s over the last 2 decades (as opposed to apartment complexes) there is a lot of latitude for landlords to raise prices. In the past 5 years, while the housing market crashed, the rental rates on houses near where I live have gone up significantly — 50% in some cases.
The other aspect of this is, in addition to banks holding back inventory, a decent % of the houses that are on the market need a lot of work to be comparable to decent rental properties. So these houses don’t sell and sometimes come on and go off the market multiple times before the seller gives up or makes drastic price reductions. To make a long story short, there are a lot of busted-up houses just sitting and a lot of people would rather rent than buy and take on a rehab project.
The other aspect of this is, in addition to banks holding back inventory, a decent % of the houses that are on the market need a lot of work to be comparable to decent rental properties. So these houses don’t sell and sometimes come on and go off the market multiple times before the seller gives up or makes drastic price reductions. To make a long story short, there are a lot of busted-up houses just sitting and a lot of people would rather rent than buy and take on a rehab project.
You’ve described a good bit of what’s for sale in my part of Tucson. Busted up houses that were bought to rent out while they would magically appreciate to the sky.
We know how that worked out.
I’m willing to consider a house that needs a lot of work, but you’re going to have to give it away to interest me.
Building is cheaper. No demo, no disposal, no retrofit.
Yet why is it that resale housing asking prices are double digits above the cost to build?
There is no buildable land where I live–for miles in any direction, which takes me well outside the city and therefore eliminates anyplace I’d want to live.
There are some houses in tear-down condition, but then you run into 2 problems: a) these houses are in the worst areas, often surrounded by other tear-down type properties or b) demolition and disposal are not cheap.
Even if there was land, some politically connected developer would get the land before a private citizen could do so.
Sure thing.
How do you propose that someone living in a city find buildable land?
Tear down house? Sure. But as you say, the demo and disposal is tough, especially in dense areas (you can’t just put a massive dumpster anywhere you want)
Now, sometimes the city demolishes blocks of mostly-vacant houses. But guess what kind of neighborhoods those are in?
The other kind of infill development we have now in Baltimore is former factories/warehouses near the harbor. There are 2 problems with this land, as well–they don’t sell individual lots, but sell off acres to major developers (several Ryan Homes and NV projects going on near me now). The second problem is remediating past issues with the site.
At any rate, in the cities I have lived in (NYC, Philadelphia, Baltimore) it’s extremely difficult to find appropirately-sized, empty, buildable lots suitable for a SFR. And if you can, there are usually issues with them or the permitting process is a PITA.
Not everyone wants to live in a suburb or exurb.
Interesting “Joe”..lmao… Exposing the housing crime syndicate seems to get under your skin…..
why is that?
“At recent mortgage rates, you could buy that home for $1,131 a month, but the asking rent was $1,350. That’s likely because…”
If i understand correctly - the writer is amazed that rents are more than the house payment?
That just shows how ass-backwards the CA market is where LLs would routinely rent out houses for less than carrying cost.
‘Some of the increased activity is thanks to more homes becoming available on the market. As prices go up, more existing homeowners are willing to sell. The overall supply of homes and condos available on the Phoenix-area market went up 31 percent over the past three months.’
http://www.trivalleycentral.com/casa_grande_dispatch/area_news/home-prices-supply-rise/article_c0262e88-4165-11e2-90ee-001a4bcf887a.html
Increased supply in the presence of limited demand tends to make prices go down.
The fact that they’re still building in Phoenix is hysterical.
It’s interesting. Even though we didn’t crater hard at all in my little burg, the local bankers pretty much shut down the local builder boys for years. The corporate builders pulled up their stakes and left. Lennar abandoned a mostly unfinished development, putting the remaining lots on the market.
Residential construction has finally returned here, though it’s at about 20% of the level it was during the bubble. Mostly 200K and below houses too. No McMansions.
Small builders Colorado ??
Pretty much, the corporate builders have yet to return.
The corporate builders are the most active in Phoenix in Tucson, from what I see in permit data.
“The corporate builders are the most active in Phoenix in Tucson, from what I see in permit data.”
They are the ones best positioned to work with Wall Street’s vampire squid propaganda machine to lure unsuspecting greater fool foreign buyers to purchase overpriced residential real estate in Phoenix.
Yet it appears that demand is crumbling in FeeNix. Down nearly 8% this quarter.
PHX is nice for a visit–good respite from the NE. Could not imagine living anywhere down there year-round. Spent a week down there last year, it seemed like good careers there are an endangered species, if not yet extinct.
Surviving 5 months of +100 degree temps seems like torture.
Go to the high country in NM, blue skies and water.
Eaglenest
I’ve never understood the allure of Phoenix.
Good jobs? No
Good weather? No
The only thing I can see is that it was a destination for Southern California equity locusts who wanted to stay near their old stomping grounds. In other words, parents and sibs remained a day’s drive away.
Exactly! Those who could not afford The OC, moved East to Riverside, then Phoenix… That OC mentality is on the cutting edge of the decline of western civilization.
Meanwhile places like Santa Fe, NM are complete gems.
“According to a report by Arizona State University’s W.P. Carey School of Business”
Isn’t this the same outfit that was a$$-deep in NAR’s “mis-reporting” sales every single month of the year for 5 years running?
Time for a 2013 predictions thread?
Here are two of mine:
1. The U.S. will enter a recession.
2. The stock and housing markets will not be allowed to correct to levels which reflect current business and labor market conditions.
Snippet of URL for article linked below: “us-chance-of-recession-is-100″
Dec. 12, 2012, 10:04 a.m. EST
How to position yourself for the coming recession
By John Nyaradi
As Europe and Japan enter recession, can the United States be far behind?
Japan’s Cabinet Office recently reported that its second estimate of third-quarter GDP indicated contraction by 3.5%, consistent with its first estimate. Because second-quarter GDP contracted by 0.1%, the nation’s economy is now in recession. According to America’s Economic Cycle Research Institute (ECRI), Japan’s last recession (which began in the summer of 2008) ended in March of 2009. Japan had previously suffered through severe recessions during 1997-1999 and 2001-2002. Japan’s Ministry of Finance reported that the nation’s exports declined to 5.15 trillion yen in November from 5.36 trillion yen in October.
…
I don’t think the U.S. ever emerged from the last recession.
I think you’re right if you’re talking about the recession of 2000.
I don’t think we ever recovered from January 20, 1981.
You cant cut taxes and increase spending and hope all turns out OK.
I don’t think we ever recovered from January 20, 1981.
The Iranian hostages being released?
Reagan, the deficit tripple’r stepping in.
Trickle-down failed hard.
“I don’t think we ever recovered from January 20, 1981.”
Nothing a ton of deficit spending, quantitative easing and bubble blowing can’t serve together to indefinitely conceal.
A Teabagger, union man and CEO sit down to enjoy a dozen Twinkies. The CEO immediately takes 11 Twinkies for himself. The CEO then turns to the teabagger and says. “watch out for the union guy–he wants part of your Twinky.
Let’s be honest…we have been in a recession since 2000. Let’s remember all the stimulus efforts since then to avoid the dreaded two quarters of negative growth? (the definition of recession) does anybody remember the various free cash giveaways (remember the 600 hundred dollar checks….the 1,200 hundred dollar checks?). We forget but those were meant to paper over recession for a year or so….. When those stopped they dropped rates…and when that didn’t work they reduced FICA (”payroll tax cut”). This economy has sucked for a long long time.
http://www.forbes.com/sites/afontevecchia/2012/12/12/qe4-is-here-bernanke-delivers-85b-a-month-until-unemployment-falls-below-6-5/
QE-forever….
“Marcy Barba is selling her multi-million dollar Spanish colonial style home after building it seven years ago, though she plans on staying in the area. ‘The quality of life that’s in Reno I think surpasses anything that I’ve experienced in California,’ says Barb
LOL!! Reno 911 vs Bakersfield or Stockton…maybe??! CA is a BIG state!
Correction: A big, beautiful state. I always marvel at the hordes that move here to Portland from there.
Hey, idiots. Why not build up Eureka or Redding? There’s so much to do in those areas but Portland’s the answer for the hollowness in their lives?