All Roads Lead To The End Of The Housing Bubble
Desk clearing time for this holiday weekend. “‘The price has been lowered on this unit,’ acknowledged Justin Tamblyn, a sales agent at 62-unit GreenCity Lofts. Only 11 of the 62 lofts have closed escrow since they went on sale in late 2005, he said. ‘I’ve seen the market slow recently,’ said LaToya Faulkner, who toured the development. The couple, both Oakland, Calif., residents, are looking to buy a house, but ‘we are taking our time,’ Faulkner said.”
“Reports of price reductions like those at GreenCity Lofts, though not necessarily as dramatic, and cautious buyers taking their time are growing all over the country, especially in areas like Northern California where price gains were dramatic for so long.”
“‘People who will do what they need to do can still buy a home,’ (LA broker) Tom Adams said. ‘They may not be able to buy a home, two cars and still take that expensive vacation..there are things that need to give. They need to be more flexible in their expectations.’”
“Sales of existing homes in Sacramento dropped 14.2 percent in April and are down a whopping 38 percent from a year ago, according to a report released Thursday. The median price of an existing home in the capital fell half a percentage point, which is still 1.2 percent higher than it was a year ago.”
“In deal that may foreshadow a wave of consolidation among home lenders, the parent of Aames Home Loans said Thursday that it was being acquired by Accredited Home Lenders Holding Co. for $340 million in stock and cash.”
“Aames Investment Corp., a 50-year-old Los Angeles fixture, specialize in loans to risky borrowers, charging higher interest and fees to compensate. Accredited plans ’significant cost reductions’ as it combines the two companies, CEO James Konrath said.”
“Analysts said the sale could be the first of many as the mortgage industry contracts in the face of continuing rate hikes by the Federal Reserve. ‘This deal will probably serve as a watershed event in the industry,’ said Richard Eckert, an analyst in Newport Beach. He said he expected that it would be just the first of many acquisitions.”
“Trouble sleeping or insomnia may result in turning on the T.V. and watching late-night infomercials promising get-rich-quick investments through buying and selling real estate. To help raise awareness of what some call a growing City of Buffalo problem, a handful of activists produced a documentary on flipping.”
“‘It’s overwhelming once you see it,’ said the former photojournalist Marc Odien. ‘I hope that people will understand what property flipping is, how it affects property and that (for out-of-state investors) what they’re getting into is not always the best investment.’”
“The Fed and most private observers expect an economic slowdown close ahead or in progress. Federal Reserve Chair Ben Bernanke has every chip in his dwindling honeymoon pile bet on this slowdown, and that inflation is really OK. There is no question that central banks are withdrawing liquidity.”
“If the economy slows, we may have seen the rate top for the year. If it doesn’t, and inflation moves over the edge, then the Fed will have to hike until the economy does slow, or the bond market will do the lifting for the timid. All roads lead to slowdown; some easy, some not.”
“Emotions are running high in housing and real estate, certainly more so than in most other sectors. No other stories that I have written have touched nerves like the ones on St. Joe and Beazer Homes. I was caught a little off guard by the response to my positive story on Beazer, which has admittedly been my worst call to date.”
“Here’s what some of you had to say: J.K. of San Diego opined: ‘Dude, you do not live in the real world. Homes are now on the market for over six months. New homes come with ‘perks’ or incentives attached, and they still don’t sell. I personally know of people who are literally living on their lines of credit. Homes are way overpriced, and wages have not kept up.’”
“And then there was this gem from H.F.: ‘Nice job calling BZH … got any other hot stock tips? Do they pay you to throw darts at a board? When you get canned, you can cut my grass and clean my pool.’”
The St. Petersburg Times. “Retirees Jimmy and Neltha Gibson were optimistic when they listed their year-old house for sale in January for $357,000. ‘We thought it would sell,’ Neltha Gibson said. Four potential buyers took a look in the ensuing weeks. Since then, nobody. The Gibsons have dropped the price three times, to $320,000, with little response. One real estate agent told them 85 other houses were for sale in Live Oak Preserve, and new houses are still going up there.”
“‘It’s been all in the last six months when everything has died,’ Jimmy Gibson said.” “January through March, builders in Hillsborough poured 3,100 slabs for new houses, the most ever. Experts expect more home-sellers to follow the lead of the Gibsons, triggering widespread discounting. ”
“‘A lot of sellers are still in denial about the value of their house,’ said Umesh Shah, who owns a franchise which sports the motto, ‘We buy ugly houses.’ Shah has heard from many people lately who stretched themselves financially to buy a home.”
“Also stretched are investors, who poured into the market last year as tales of quick-flip profits spread. If those in the $250,000 to $600,000 range haven’t cashed out already, they may be selling their investment houses in a glut.”
“The Gibsons viewed their home in Live Oak Preserve as the last one. They blessed it with upgrades. Since January, they have tried a succession of real estate agents. Even at $320,000, their house would bring a one-year profit of $62,000.”
“Last week, their agent lined up a prospect. The Gibsons stashed away every toy. Then came the phone call. ‘They’d looked at so many houses,’ Jimmy said, ‘they finally called and said, ‘we’re too tired.’”
Some serious housing bubble work this past week. A big thanks to those who support this blog. Check back this weekend for news, your market observations and topics. Have a great holiday folks!
Thanks for all the hard work Ben. This is a great blog. Just as we’ve grown to hate the Realtors on the way up. We need to learn to love them on the way down. They are the ones will start refusing to list houses from unrealistic sellers. They are the ones that will tell their crack-smoking toady clients that taking the low-ball offer might be the last one they’ll get in a long time. Realtors have bills to pay and need to eat, too. They can’t afford to “feel” asset rich because their house are priced “right” — they earn and eat only when the houses sell. Realtors will bring this down hard and fast. Give ‘em a chance! I guarantee Realtors are going to stop taking unrealistic clients soon (if they haven’t already).
I expect the realtors to have plenty of motivated sellers in the coming months as well.
The realtors will bring down the prices after they sell their current flips .
The median price of an existing home in the capital fell half a percentage point, which is still 1.2 percent higher than it was a year ago.”
In other words, Sacramento prices will soon show a year-over-year price drop - that’s a landmark.
You too Ben!
Thanks Ben for all the work. Have a really good one!
Thanks, Ben, for the incredible amount of work you do to keep this blog current, cogent, entertaining and informative. If I were constrained to just one URL a day, it would be this one. Can’t imagine how you do it and find time for anything fun for just yourself. I’m grateful beyond words.
Second that Chip!
I love this blog! We should get some great articles this week about the median price drops for California and San Diego locally. Lots of news on this already at http://www.realestatedecline.com
..San Bernadino County also showing median price crashes getting started!
‘They may not be able to buy a home, two cars and still take that expensive vacation..”
What is this “vacation” thing you speak of ?
“They may not be able to buy a home, provide three meals a day, and buy gas to commute to work..there are things that need to give. They need to be more flexible in their expectations.”
So sacrifice everything for an investment, er… HOME! No way. Either move somewhere else or rent. A slave to anything - Home, Job, Drugs, etc. - is no way to live life. Life is too short to be chained to a home. Living to make the house payment and eating Top Ramen. NO THANK YOU!
He has got to say what he has got to say to move sheeple into homes.
I don’t fault him, but for the % of the population that can do simple math and/or read this blog, all we have to do is wait.
Another poster recently described medieval warfare. Before armies would set up a siege and starve the entire town, they would ask for surrender. If they didn’t surrender, deprivation, hunger and eventually death would follow through starving the town of resources.
Let’s starve the RE industrial complex and not buy. They can either surrender or starve.
I like that analogy.
That’s the exactly the same analogy that was running through my mind as well (watched Kingdom of Heaven the other day). It really is tantamount to siege warfare. We definitely have the advantage in the long run.
Read Sun Tzu for some great warfare alanolgies. David Lierah lives for the phrase: “When weak appear strong”.
gah damn sp…too many drinks tonight! yay sushi!
Bring war material with you from home, but forage on the enemy… use the conquered foe to augment one’s own strength.
-Sun Tzu, the Art of War
“All warfare is based on deception - Sun Tzu.
If your enemy is superior, evade him,
If he is angry, irritate him,
If equally matched, fight
And if not, split and reevaluate…” - Bud Fox, “Wall Street”
“‘People who will do what they need to do can still buy a home,’ (LA broker) Tom Adams said. ‘They may not be able to buy a home, two cars and still take that expensive vacation..there are things that need to give. They need to be more flexible in their expectations.’”
and the rest of the conversation…”Remember, it is the buyers fault for not paying for extremely overpriced homes from greedy investors. Buyers need to realize that they just need to take out 1000 year mortgage in order to afford the home. Besides, I really need a commission check right about now…”
What an a-hole.
““The Gibsons viewed their home in Live Oak Preserve as the last one. They blessed it with upgrades.”
Then why the hell are they selling it now in this torpedoing market???
They are trying their best to stay close to their children and grandchildren. According to the full article, the son (a pharmacist) is transferring to a new pharmacy in Tennessee.
This is exactly what I meant in an earlier post about life throwing curveballs. We never know what’s coming around the corner. For the Gibson’s to wait a couple of years or so for the market to be more in their favor would also mean missing those years with their grandchildren. They obviously don’t want to do that.
BayQT~
Maybe they ought to wise up to their inconsiderate self centered son who keeps moving AWAY from them.
Nah, he is fleeing the bubble that his parents had a hand in creating.
Cry me an f-ing river.
If they need to move, how about pricing the home correctly? A one year profit of $62,000? For what?? 20% profit for doing absolutely nothing?
Trying to sell the house for the lottery ticket they think they have.
Let it rot on the MLS.
Listen…I didn’t say I was on the Gibson’s side. I was merely trying to explain what I thought their side was. Don’t get it twisted that I was whining *for* them. I think they are in a fix, too. And they certainly DO need to price it correctly to sell the house. Hopefully, they will see the light and do just that.
BayQT~
exactly my thought …
it will take many years to get rid of the conviction that, just because you signed up for homeownership, you are entitled to loads of free money.
There is an old axiom that you should not relocate to follow your children. It works very well until you actually have grandchildren.
Does this mean we won’t be seeing any of those classic “Aames home loans to the rescue” commercials anymore? I can still remember those from the 70’s. Remember that skinny, neurotic guy from the commercial? He’s gotta be making a horizontal phonecall by now.
Yep, I have had a fair number of 1970s bubble commercials, including Erik Estrada pimping out of state RE fir $199/mo.
Ha, ha — he is STILL doing that — now it is in Arkansas.
can you post them? that would be great!!!
http://www.google.com/search?hl=en&q=erik+estrada+real+estate
Estrada also appears in a long-running series of infomercials, selling property in Siskiyou County, California; Lake Shastina, California; Ocean Shores, Washington; and Colorado, and recently, Tellico Village, Tennessee. He has also been appearing in commercials for real estate in Arizona, Arkansas, and Florida.
“‘People who will do what they need to do can still buy a home,’ (LA broker) Tom Adams said. ‘They may not be able to buy a home, two cars and still take that expensive vacation..there are things that need to give. They need to be more flexible in their expectations.’”
And I why should I do this - when I can rent for much less?
Why should I finance the idiot seller’s Hummer and expensive vacation?
I’d rather rent and enjoy or invest my money.
“I’d rather rent and enjoy or invest my money. ”
The difference between rent and mortgage payments in most California can be as much as $20,000 a year.
There used to be a lottery comercial where a winner is standing in the dairy Isle and realizes “I can totally afford all this cheese”
A week ago I realized I had $50 worth of cheese in my fridge and a full wine rack with some nice bottles.
I thought back to the commercial and realized I can totally afford a nice lifestyle but couldn’t if I was tossing another $2000 a month to the bank.
i’m gonna have to change your name to “chubby” renter
That’s funny, I weigh 140, rock climb, and backback long distance.
Now, now “chubby”, don’t be ashamed of your junk in the trunk. “Chubby” is kind of cute….
Happy renter said that he or she had $50 worth of cheese in the fridge, not in his or her stomach…I think the moniker might be a bit premature…just wait until the cheese is eaten.
Sacramento County sales volume graphs. Enjoy!
A new blog, Sacramento Real Estate Statistics, is also worth checking out.
Everytime I think the valley is toast, I get my head spun around! I was in a meeting today and so yahoo from LV paid $125 million for a couple of parcels on Rosdeale Hwy in Bakersfield. The two=bit hick realtor (acutally a nice guy) made 6% commission on this. This guy was STRUGGLING lately. This fucker hit the frigging lottery. The seller was Castle and Cooke (owned by David Murdoch - #50 or so on Forbes list). Looks there is still a shit load of money to be made. UGH!
That’s 7.5 mil in commission. Somebody really needed a tax write off.
I knew you or another BULL would post. This thing keeps on going and going. This realtor (I know you are one mrstream) basically is now set for life. He wears jeans and $5 “dress” shirts. I guess good things even happen to nice guys, despite being a realtor. I think he earned some money on this transaction - he brought a buyer and seller togeher on a huge transaction - BUT $7 million seems like way too much.
I will go on record as saying the moron from LV will rue the day he paid this much for the land! Guys like Murdoch don’t get rich by selling at the wrong time. Murdoch also recently sold a large commerical project here in Bakersfield for $78million. Maybe he knows something about the COMMERCIAL BUBBLE!!!!!
Contrary to your belief I’m not even close to a bull. Calling me a bull is like saying all CPA’s are sniveling little snots who costs their clients hundreds of thousands dollars because of their perceived knowledge of financial matters. But I digress.. another story for another time.
Anyway I thought the commission was a little aggressive for a 2-bit realtor on a land deal. He made a pretty penny but I doubt he made that much unless he was the son of the seller or something along those lines.
I think that there is some assymmetry in the name calling here.
C&C looks like you brought a knife to a gunfight.
MRIS:
You seem to have a hair trigger!
I will go back and double check my facts and report back. I will also bring a machine gun next time. LOL. My main point, which was lost because of my smart ass comments - The beat goes on in the valley of Ca, despite the facts presented on this blog. Also, the wealthy are still playing in the RE game despite what others perceive as over-valuation.
Crispy-
That deal is not showing up in my news sources and it should. Has it closed yet? BTW I would like to hear more about it if you have access to expand on it. I’ll put the gun away with the hair trigger if you promise to leave the knife and machine gun at home. LOL
IMO the commercial crash particularly in office and multi-family will make the residential crash look like a busted pimple.
I have a couple of friends who are in commercial real estate. Typically, the comission on this large a deal gets reduced a LOT, unless the agent worked for a long time (as in, years), to get it to closing. If this guy gets more than a half mil, after his split with the broker, I’ll be surprised. Still, it will be a handsome payday and way, way more than the residential agents in his office make in any year or two or three.
Yea, He probably made half a point to a point on the deal. I would be very surprised if he did more than that. The lawyers on a deal that size would have eaten him alive if they saw he was making that kind of money ie: 6%. If he’s been around awhile and knows the game he has an escalator clause in his contract with the broker. He probably made closer to 80-90% of cash to house
Sac is on the leading edge of the RE decline. It will be good to watch this market as it tell how things will likely develop in the rest of Calif.
Translation of business press release speak:
“Aames Investment Corp., a 50-year-old Los Angeles fixture, specialize in loans to risky borrowers, charging higher interest and fees to compensate. Accredited plans ’significant cost reductions’ as it combines the two companies, CEO James Konrath said.”
Significant cost reductions means just about every employee at Aames will be packing their stuff and unemployed shortly.
correct - you can achieve synergies with right-sizing and delayering :-/
“The Gibsons viewed their home in Live Oak Preserve as the last one. They blessed it with upgrades. Since January, they have tried a succession of real estate agents. Even at $320,000, their house would bring a one-year profit of $62,000.”
And what the hell is so “inadequate” about a $62,000 profit in ONE FREAKIN YEAR ?!? What makes these people think they’re ‘entitled” to ANY profit just for holding a (depreciating) asset for such a short time? Lots of stock market investors have had negative returns for 6 years, or are just now hitting the break-even point. Where is is written in stone that residential housing *must* appreciate 20% a year? Jesus Christ, this is precisely the f—d up house=ATM machine, IO mortgage=savings mentality that has driven bubble to absurd heights.
Agreed.
An old saying:
100% of 0 is…oh yeah, ZERO.
Live Oak Preserve is in the boondocks. There are still billboards advertising its new construction homes for sale all over Tampa. When people finally get their heads out of their asses and prices come down, these stupid middle-of-nowhere master planned “communities” are gonna tank fastest and hardest. Gramps and Gran might as well cut and run while they can still break even.
Flipping in Buffalo???? I know there are lots of foreclosures there, but I don’t see how you can flip properties succesfully in a place with a declining population and zero or negative appreciation. You can buy a nice 4500 square foot house on an 1-2 acres and for 350k near Buffalo. Just the other night I was telling my wife if she really wanted to buy a house now we would have to move to Buffalo, NY otherwise I’m not letting her even look until fall ‘07. That 350k house would go for 900k+ in the DC area.
Buffalo in 18 months the fire deptartment will just watch it burn what with the price of water these days.
And gas. Damn fire trucks must guzzle the juice like a Hummer!
Yes, but you get to park in front of fire hydrants.
Robert, you’re a piece of work. I hope you never get pissed off and leave the blog, like Professor Bear did.
Shit yes. That was good Cote.
Unfortunately what some people mistakenly believe to be an inflated ego makes for a big target. Amost inevitable as it is easier to tear down than to build. As soon as someone suspects that I need to post they’ll be unable to resist trying to prove it precipitating a crisis that ultimately leaves a void.
“Last week, their agent lined up a prospect. The Gibsons stashed away every toy. Then came the phone call. ‘They’d looked at so many houses,’ Jimmy said, ‘they finally called and said, ‘we’re too tired.’”
——————————————————————–
Somehow just thinking about 30 years of indentured servitude to a bank makes me feel tired too.
I have no problem with a standard 30 year loan if people were buying at 35% of inclome or less. Didn’t we learn anything from the Depression? Mortgages with higher down stream payments create issues… big issues. Mortgages at > 35% income create… an opportunity for foreclosure. Sheesh.
And don’t get me started on relaxed down payments and how they led to this bubble.
I too have the cheeses and wines. Heck, I even have my own wine fridge. But I find it crazy that I can save $3k+/month (post tax), spend way to much living it up, and yet i cannot afford a house. I’m willing to accept for 15 years I’ll drive my current car (or a cheap replacement, if required) and that I won’t be able to eat out. Crazy.
I do understand about being too tired to look at another house. That happened to me a few weeks ago. Again… I’m ok. My girlfriend and I believe the homes on the market now will be the great bargains in two or so years. So… we’re just getting an idea of what they’re like.
Speaking of looking at houses… did anyone notice how many for sale homes have either rented “mini-furniture” (model home furniture) or no furniture? This was in the south bay area of Los Angeles! I was blown away… Talk about holding costs (empty homes). I went into about 20 homes and… 18 were completely empty. Hmmmm… And lets think about this, after the 18th house with the knee high mini-twin beds in most bedrooms… Don’t you think buyers are catching a clue that the house isn’t that big? And ooooh… I love how having a full size bed in the master suite makes it look huge instead of showing how a king won’t fit… Although, my girlfriend and I laughed our #@!’s off when we saw the two mini-twins in the master suite set up a la “I Love Lucy.”
Sigh… too many coworkers went home excited about the buying opportunities and sure fire investments in real estate. I’m seriously thinking about asking HR to send over proof that those that are supposed to have Master’s degrees do… sheesh. Insert home schooling joke here.
Have a great weekend everyone!
Neil
My wife and I bought our first house back in 1992 in Salt Lake City. At the time it was actually cheaper to buy a house than to rent one… imagine that! The mortgage banker went through my credit history with a fine tooth comb. I had to pay for some tuition that I was in dispute over and write an apology letter to the University. I could only borrow an amount whereby the payment and all other debt obligations (including car loans) would not exceed 28% of my income. Everything was verified (employment history, credit history, etc…) ARMs were not even available. I only had 3% to put down so I had to pay FHA mortgage insurance on top of the payment. Times have changed haven’t they?
sounds similar to my situation!! I’m close to paying this baby off - about 60k to go. “oh,but you will lose your tax break” boy, are sheople suckers - if I hear that one more more time, I will explode. Spoken like a true borrower whose $3000 mortgage payment only pays $40 towards the principal….
Ditto. Bought my first house in 1985, with 5% down and a 12%, 1 yr ARM because 30 yr fixed was 15+%. (Remember those days?) They verified everything, 2-3 yrs tax returns, PMI required. I was very impressed how thorough they were.
Lending standards have fallen somewhat.
I wish we could go back to those kind of lending standards . I wish people would only pay 25% of their income toward housing expense .
Homeschoolers usually sacrifice one parental income to do so and would be less likely to engage in house flipping given the ability to sacrifice immediate pleasures for long-term gain.
The Fed boys have known that it is a bubble for years now but they daren’t call it that. This article dated October 2004 from the FRBSF is interesting in that they call for the price/rent ratio to come back in line with falling house prices being the key. Of course they call it slower house appreciation and not falling prices.
http://www.frbsf.org/publications/economics/letter/2004/el2004-27.html
What they are saying is that they hope to inflate/devalue the currency as much as the markets and foreign central banks will allow to absorb much of the RE bubble.
What they don’t indicate is how they are going to stimulate wage growth.
They don’t control what gets inflated next.
Nominal price declines may not be that much 10-15% over 5 years but real price declines will be the 40-60% in bubble markets.
Well that is $640,000 question (inflation ya know) isn’t it? Can this be pulled off? Only time will tell…..
For your scenario–10 to 15% nominal, 40-60% real, over 5 years–you’re talking almost runaway inflation.
Yep, they will inflate as much as they can get away with.
Nobody knows what that rate is. I think high single digits is possible. We might even already be in that range depending on whose stats you believe.
It is really a dance of death with the Japanese and Chinese need to keep exports strong.
“What they don’t indicate is how they are going to stimulate wage growth.”
Exactly. In the old days, they could stimulate wage increases a lot easier — today, the jobs get exported quickly if the costs rise a lot. And inflation that blips wages would trigger too much increase in Social Security and other COLAs. As soon as they figure out how to stiff the COLA clauses, watch out for hyperinflation to clear the books.
“As soon as they figure out how to stiff the COLA clauses, watch out for hyperinflation to clear the books.”
I’m sure they already have the process worked out on paper. At this juncture the two parties are just waiting for the other one to do the slam dunk. Look at the immigration issue, which they just decided doesn’t need to be debated further. Many of the jobs that they say are “beneath whites” simply don’t pay enough to support even a modest middle-class worker if you pay your income taxes and workman’s compensation. The erosion of grinding “manual labor” income is just too risky to be discussed by politicians. Meanwhile the CEO(s) of public corporations loot what should be distributed to shareholders, and the SEC turns a deaf ear and blind eye. Didn’t think I’d see these things in my lifetime.
and for the record, situation in most of Europe is exactly the same.
In my country over the last 15 years, home prices increased by 600-1000%, wages increased maybe 45% (just a little over inflation, which was officially 1.5-2.5% yoy). For the next years thanks to a huge influx of legal and illegal workers from Poland and other ‘cheap’ EU countries there is no way the average wage can increase.
Of course, wages for top management will keep increasing at double digit rates, but they cannot buy all the homes in the country (and they are clever enough not to buy at current prices).
I’m sure we will see even more manipulation of the CPI (to mask the huge wave of inflation that is coming) and real declines of real estate values of at least 50-75% over the next 5-10 years. But I would be surprised to see significant nominal declines.
IMO the FRB and other central banks have a lot less power than you attribute to them. Globalism has ham strung their ability to inflate. Hear in the USA we have the Mexicans keeping manual labor rates down on the low end and Indians keeping white collar wages low on the high end. Almost all manufacturing has left the USA. Now, with the internet and outsourcing to Asia all kinds of service jobs are migrating to low cost centers. Sure, commodities have risen dramatically in the past 3 or 4 years but I don’t think you can keep the USA consumer going much longer given the debt situation. You cannot inflate the money supply when borrowers are unwilling to borrow and lendors unwilling to lend. I think we are reaching the saturation point where people just unable or unwilling to take on any more debt. I think that, once the credit cycle turns all assets classes are going to deflate in real and nominal terms alike.
This is the zinger of the week.
“And then there was this gem from H.F.: ‘Nice job calling BZH … got any other hot stock tips? Do they pay you to throw darts at a board? When you get canned, you can cut my grass and clean my pool.’”
I am still laughing at that one. Journalists/Hacks it is pretty much all the same. Excepting Jon Lansner who probably still lurks or has his staff lurk on this blog.
Look at the guy’s response, too — the jerk doesn’t back down an inch:
No, H.F., they pay me to write contrarian stock ideas. Not all of my (or anyone else’s) ideas will work. Perhaps you’d rather read someone who simply cheerleads the current hot trend.
Excuse me? “Someone who simply cheerleads the current hot trend”!? Guess what Mister Stock Analyst — you’re dumber than that guy. That stock simply didn’t “work”, it didn’t work to the tune of 15% in a month!
That said, I’m gonna go out on a limb here — I’m probably getting out of my HOV short on Tuesday.
It looks to me like this past Wed/Thu was a price/volume climax, next week’s arnings report (May 31) was telegraphed on May 2 and did some pretty good damage already, I’m a big believer in the “gaps are always filled” theory (May 2 again), and it’s beaten up well below any trendline that I can draw.
FWIW, I see HOV going up after the earnings report to fill that gap and meet a downtrendline at around 37.60 by June 6. I’m certainly not going long in the meantime though.
I have to agree. Up on good volume before a holiday weekend is a “good” sign. Usually people like to close out before they go on vacation.
I’m still not quitting my LEAPs though. I’ll ride it out and I’m pretty sure this fall will be a bloodbath.
Also I notice how the markets seem to have shrugged off both the big down sessions overseas and here. There was also no reaction on wall street to the scare at the white house. Not that it was worthy of a reaction, but it seems it would have caused some selloff a couple years ago.
I think there is a lot of optimism around and that can go on for a long time.
but optimism can change in one hour - like a flock of birds all spontaneously veering left at the same time….
lemmings and sheople
I would like to clarify something, before David Lereah takes it in this direction:
There is no, I repeat, there is no buyers’ conspiracy to bring the house prices down!
I wouldn’t be part of a conspiracy per se, but I am certainly willing to entertain the notion of having a large vocal mass of “on strike” buyers screaming at the appreciation/flipper/speculator junkies to go rot in the debt prison they made.
I want everyone to have a safe and fun-filled 3 day weekend. For me it’s going to be a selling-my-stuff-and-moving-to-Tucson panic. Did I mention that I signed a 1 year lease on a 2 br apartment? $711/mo. I think I did. Everyone have a great weekend!!
Bill (formerly Clearwater Florida)
You should be able to steal, er… buy a nice home in AZ in a year or two!
Where in Tucson?
There are a few markets I have been tracking closely. One of which is the neighborhood I grew up in, Wilmette IL (north of Chicago). Since departing that area (my parents did too), it seems to have become aggressively yuppified. Many of the glorious old houses that were built in the late 1800s / early 1900s were torn down so McMansions could be stood up in their place. Now, that is a real crying shame.
On to the news. Zip realty vs Zillow is showing actual depreciation in that area. If you want to see selling prices far out of line with evaluation (even at Zillow’s inflated levels) check these out!
1625 CENTRAL AVE, Wilmette, IL 60091
Zip here
Zillow (missing for some reason)
1409 SCOTT AVE, Winnetka, IL 60093
Zip $1,277,000
Zillow $952,527
(True pride of ownership is worth the extra $$ honey)
983 CHERRY, Winnetka, IL 60093
Zip $1,695,000
Zillow $1,427,349
(damn… you bought it in 2001 for $580K.. maybe far out of line with reality, but not too far from Zillow compared to…)
1124 FOREST, Wilmette, IL 60091
Zip $2,700,000
Zillow $1,312,681
(oh yeah, let me know when Elvis gets here too… Wait! you mean they bought it in 98 for $700K?)
The last one is only mildly egregious, at least they left the neat old shell in place but sadly they gutted it and installed the obligatory granite countertops, ect.
For a full picture of the damage done to this historic area by yuppie locusts, check out the zip listing for 60091. Warning, you need to have access to Zip to view the listings. Zillow is more gracious.
Stand By Below - descending…
There are a few markets I have been tracking closely. One of which is the neighborhood I grew up in, Wilmette IL (north of Chicago). Since departing that area (my parents did too), it seems to have become aggressively yuppified. Many of the glorious old houses that were built in the late 1800s / early 1900s were torn down so McMansions could be stood up in their place. Now, that is a real crying shame.
On to the news. Zip realty vs Zillow is showing actual depreciation in that area. If you want to see selling prices far out of line with evaluation (even at Zillow’s inflated levels) check these out!
1625 CENTRAL AVE, Wilmette, IL 60091
Zip $835,000
Zillow (missing for some reason)
(Steep price, but they look quite reasonable compared to some of their neighbors)
1409 SCOTT AVE, Winnetka, IL 60093
Zip $1,277,000
Zillow $952,527
(True pride of ownership is worth the extra $$ honey)
983 CHERRY, Winnetka, IL 60093
Zip $1,695,000
Zillow $1,427,349″
(damn… you bought it in 2001 for $580K.. maybe far out of line with reality, but not too far from Zillow compared to…)
1124 FOREST, Wilmette, IL 60091
Zip $2,700,000
Zillow $1,312,681
(oh yeah, let me know when Elvis gets here too… Wait! you mean they bought it in 98 for $700K?)
The last one is only mildly egregious, at least they left the neat old shell in place but sadly they gutted it and installed the obligatory granite countertops, ect.
For a full picture of the damage done to this historic area by yuppie locusts, check out the zip listing for 60091. Warning, you need to have access to Zip to view the listings. Zillow is more gracious.
Stand By Below - descending…
blech, I had this with links to zillow and zip embedded, but it seems that the comment gizmo did not like it
Sorry if this is a repeat…Top foreclosure cities..
http://www.realtytrac.com/news/press/pressRelease.asp?PressReleaseID=112
INDIANAPOLIS, ATLANTA, DALLAS, MEMPHIS AND DENVER TOP LIST
No one’s going to jail. I repeat no one’s going to jail.
http://www.forbes.com/2006/05/24/fannie-mae-0524markets14.html?partner=financial_newsletter
Not even the UBS analyst who sees FNM good for another 45% to the upside. He just lowered his price target from just slightly above all-time highs to a couple of bucks below all-time highs. Wow.
Today I went to register my kid for school next year. Had to wait a good five minutes while the woman went over with her friend (over the telephone) how much equity the friend had in her home, how much she’s pulled out, how many times, what it’s worth now minus the debt…
This might be the most unpopular question ever, but let me put a bone out there for people to chew on. (This is absolutely in no way meant to be a flame, and for the record I’ve been saying there’s a bubble in housing for years now). But I would like to see thoughtful responses:
There’s little doubt that the US dollar is looking increasingly shaky. People have lost significant percentages of their cash holdings to inflation over the last few years. (How much exactly is arguable, but the number is certainly over 20%)
So if the value of the dollar is declining (and that decline is possibly accelerating, why do people here believe that this devaluation of the dollar won’t easily offset real estate overvaluation. In other words why do readers believe that a currently overvalued home (and I’m not arguing whether or not houses are overvalued. They are.) couldn’t actually stabilize at its current market value if the dollar continues to decline?
Inflation raises prices. We have inflation. I’m curious to know why others here believe housing prices will fall radically in an inflationary environment?
(Unless of course you buy CPI based inflation figures, in which case you don’t think there is any inflation — which would be a logical answer)
Educated responses?
It’s very simple.
1. Inflation raises interest rates.
2. Housing is built on borrowed money.
3. When liquidity is removed, people will not be able to pay the prices.
4. Foreclosures and falling prices follow.
5. Setiment reverses, and instead of multiple investor buyers we have multiple investor sellers.
That’s the quick explanation. On the other hand, if we have deflation… well, that scenario is obvious.
the trouble with this argument is that inflation does NOT any longer raise interest rates thanks to FED manipulation (plus point 3, liquidity is NOT removed, not at all!). Despite by far the highest liquidity growth in history, longterm rates are still very low by historical standards.
For the chartists: the 10-year Treasury just bounced back from the historical 5.1% trendline resistance; longterm rates may go lower for some time again. All this despite many signs that in real life inflation is getting seriously out of hand (in Europe actual inflation has been around 10% yoy from the moment the euro was introduced).
Interest rates will probably rise seriously when the whole smoke-and-mirrors plan of the FED, BOJ and ECB collapses, but that may be years into the future.
I think sohonyc has a valid point.
Soho did not include a timeframe in his question and neither did I. Lower home prices are inevitable either way (inflation/deflation) and the US is losing control over the game we’ve been playing for a long time.
I recently heard the argument that in order for the dollar to keep deflating rapidly some other currency(s) must rise correspondingly. China’s would be the only logical choice there and it is doubtful that will happen. This is only what I saw somewhere and I don’t know but, imho it kinda makes a little sence.
No. In order for the dollar to keep deflating rapidly against other currency(s), some other currency(s) must rise accodringly.
Commodities are a different story.
Short answer to your question is this. Inflation is contained by globalism. This is the mother of all credit bubbles in history. You cannot expand the money supply without getting people to borrow. The consumer has reached their limit and it is starting to reverse. The FRB, Santa Claus or Tooth Fairy cannot stop it. We are headed directly into a deflationary depression.
One of the reasons that is trotted out for Seattle “being different” is the “job growth”. This is always followed by the sugary “soft landing” or “single digit appreciation” spin. And what about globalization?
With workers in India/China making 1/8 what people (e.g. SW engineers) make here, I don’t see the “worst case” scenario of American RE prices going “flat” while wages catch up. I see globalization putting very real and painful downward pressure on American wages across the board.
The argument that RE prices will flatten but not fall while wages “catch up” goes against globalization which is a very real economic force.
At some point it just makes too much economic sense to move that job overseas to more eager/hungry/motivated/cheaper workers.
The result is the continued elimination of what used to be known as the “middle-class”.
So where are all the buyers going to come from to keep the bloated prices afloat? (oh yea, the 500 year reverse interest super adjustable magneto loan).
and as mentioned before, in Europe it’s just the same. I don’t know about Japan, maybe their different culture offers a bit more protection against this problem.
In EU we also have increased outsourcing of highlevel jobs (often the well-paid jobs that actually produce something; unfortunately all the totally useless managers are not outsourced, instead there are more of them every year).
And instead of the Mexicans that drive wages down in CA, in Europe we have the cheap workers from Poland etc. (except in the building industry, where companies are protected from low-wage competition; can’t have declining building costs and declining profit margins for big developers of course).
So yes, the elimination of the middle class is right on schedule in most of the developed world. My guess is that most of them will be debt slaves for the rest of their lives thanks to the banksters and the RE industry.
“In EU we also have increased outsourcing of highlevel jobs (often the well-paid jobs that actually produce something; unfortunately all the totally useless managers are not outsourced, instead there are more of them every year).”
LMAO; ROFL
Humm…
http://www.azcentral.com/arizonarepublic/opinions/articles/0527satlets2-276.html
“There is no question that central banks are withdrawing liquidity.”
this must be the most stupid thing I have read in many weeks…
in Europe the easy money party is roaring along like never before, and I don’t see any sign of less liquidity in the US either. But I do see many signs that liquidity will increase even more in the near future (at least in Europe).
Look at the lenders either downsizing or being acquired (consolidating). The loan numbers themselves have dropped. The liquidity is drying up. No, it’s not as fast as a margin call on a down day, but it is happening.
The central banks don’t have a choice. Either they tighten credit or face massive defaults - which ultimately reduces the money supply anyway. We are at the end of this credit boom and the landing is going to be painful for all.
Leading Realtor sounds warning
“For some of you, it will be a scary thing,”
http://tinyurl.com/o52l2
There are two kinds of inflation that are important, one is goods inflation
which has been high and is under reported. The second, is wage inflation which
has been very low for the last 5 years. The only inflation that makes housing
more affordable is wage inflation and thus wage inflation is the mechanism where
house prices stay level and ‘inflation’ brings the trend line up to meet the
house price.
To the extent that goods inflation occurs without wage inflation it makes
houses less affordable because less money is left after paying for food, gas,
etc.
Conclusion: Hard times are on the way.
I would also like to comment on the ‘dollar deflating rapidly’. If you are
talking about currency devaluation, ie the dollar dropping against other
currencies, then the last few years have not seen much of a drop. There was a
nice sharp drop for the last couple months but the dollar is still in the same
range vs. the euro that it was in Jan 2004. Also, remember that China is
pegging its currency to the dollar and has only allowed a very small drop in the
dollar rimimbi rate.
currency charts. If your talking about the dollar vs goods then I would
agree that ‘goods’ inflation is much higher then reported and the dollar is
falling in that sense. There are a couple reasons that the dollar may not
undergo a rapid currency devaluation.
1. As long as ‘goods’ inflation is not much worse then in competitor countries
(i.e. oil prices hit all of us: US, China, EU, etc) then the higher interest paid
on US bonds will attract dollars to US.
2. In the absence of wage inflation, any major drop vs the Euro or Yen would
give the US a competitive advantage, ie if the dollar falls 50% vs the Euro,
then Boeing can sell planes at half the price of Airbus. The Europeans won’t
let that happen and since they can print as many Euros as they want they can buy
dollars till the cows come home.
My predictions:
1. House prices will fall hard, but will take a fair amount of time.
2. #1 and the combination of falling housing based jobs, foreclosures,
personal debt, etc. will lead to a sever recession which will last a long time.
3. Just as in Japan depreciation will be the big worry so the FED will
drop rates fast but just as in Japan it will be very hard to get
the economy moving again and there won’t be any asset bubbles in
the US. There may be a ‘carry trade’ as occurred with the Yen which
drives an asset bubble overseas but the US is such an important
global economic engine that most likely everyone will have a
sever recession at the same time.
4. The dollar will fall a modest amount vs other currencies if the
Fed drops interest rates faster then other countries CBs.
5. Commodity prices will fall pretty hard as demand dries up.
6. We won’t have a ‘depression’ i.e. >10% drop in GDP, but there will
be an awful lot of depressed people.
SC,
Reasonable asssumptions, IMO.
Check out iTulip.com for an alternative view of what may happen.
For example, if the Fed drops the interest rates very quickly, then foreign investors could (and probably would) pull their money out of the US markets and treasuries. That means that the stock market would crash, and the interest rate for treasuries would go through the roof, while the dollar value crashed vs. the yen and the euro (and no, its not a given that the EU would print more money to keep up - at the risk of massively inflating their economy).
Anyhow, check out iTulip.com