‘Nose Dive’ In Areas Of ‘Overbuilding & Inflated Valuations’
Bob Casagrand has this update from San Diego. “Single family detached and attached homes: Homes sold in May totaled 2,805, down 28% from May 2005. This is a little short of the 3,000 that I had hoped for, but it was a 26% increase from April. In the past few years May has usually been a slight drop from April, so the roles seem to have reversed this year. The 2 months combined are down 38% from last year.”
“The Pending sales for May were 2,930 homes, so I expect June to be slightly over 3,000 sales which will be down 23% from last year. The inventory on June 1 was 20,635, which means that in the past month the inventory has increased by about 2,000 homes. This indicates about an eight month supply of homes on the market.”
“For the previous 6 years we have averaged about 40,000 homes sold per year. This year is going to struggle to hit 30,000, at least a 25% decline in homes sold. The other two major measurements on the market are the listing sell through and the rate of expired, withdrawn and cancelled listings.”
“The sell through is the relationship of new listings in a year to listings sold in a year. Typically in a normal year sell through runs around 60%. In 2003 this number peaked at 70%, which is almost a saturation level and helps explain the shortage of inventory at the end of 2003 and the first half of 2004.”
“To see the transition in our market just track this number: 2003 70%, 2004 60%, 2005 51% and the first 5 months of 2006 35%. The larger the percentage the less time to sell and the lower the percentage the longer the time to sell.”
“The percentage of listings that expire, cancel or withdraw from the market is a key indicator of market time as well. During 2002, 2003 and 2004 the average was 8.5% of listings that went into these categories. In 2005 the number jumped to 28% and so far this year we are at about 42%.”
“The growth in inventory this year from 13,376 to 20,635 is caused by the slow sales rate which is causing it to take more time to sell the homes not by increased listing activity. The unsold listings are stacking on top of the new listings.”
“I have read reports indicating that San Diego is in a period of population decline, if correct this affects our market even more than interest rates. With new construction continuing to put new homes on the market, the effect is to reduce the occupancy rate of housing which puts pressure to lower purchase prices and also in time rents.”
And the Financial Times. “The number of unsold homes on the American market has risen by more than 1m over the past year, a gain of a third, increasing the prospect of a rapid cooling of the US property market. The inventory of new and existing homes waiting for buyers is now approaching 4 million.”
“The surge in unsold homes has been largely due to a release of new properties on the market rather than a sharp slowdown in sales. This suggests that many sellers are eager for one last payout before the halcyon days of the market draw to a close. Speculative buyers may also be trying to exit the market before conditions deteriorate.”
“‘We should start to see a stand-off as buyers offer lower prices and homeowners refuse,’ said analyst Paul Ashworth. ‘After a period of frustration, sellers should become more realistic about what their homes are worth.’”
“‘We are at a turning point in the housing market,’ said Nicolas Retsinas at Harvard. ‘But this does not mean that we are going to take a nose dive, except in selected areas of overbuilding and highly inflated valuations.’”
‘But this does not mean that we are going to take a nose dive, except in selected areas of overbuilding and highly inflated valuations.’”
You mean like DAMN NEAR EVERYWHERE ?
Yeah, when folks joke about bulldozing houses in Kansas, we’re already there.
As prophetic as this blog was ( I use past tense intentionally because the crash is NOW!!), I STILL have people knocking on doors of my clients who have NODs filed and offering to give $5k to quitclaim properties where there is negative equity!!!! A number of short sale “experts” have called and want to help out clients who are in trouble because the market will “come around” in the summer. Believe it or not, there is a SIGNIFICANT MAJORITY of people who still think this thing is still a go!! This is gonna be ugly in a mean, hurtful way. . .
He means - Everywhere, except where he lives?!??!
LOL. My thought also.
‘But this does not mean that we are going to take a nose dive, except in selected areas of overbuilding and highly inflated valuations.’” ………..I mean really, Central Nebraska should do just fine. No worries here.
Where’s Auger-In when you need him?
sm-landlord..Auger is taking a mid night flight back from Harvard, where Nicholis Retsinas was giving a lecture on, “Investment Opportunities in the only Undiscovered, Underbuilt Island of FIJI.”
He is due back shortly after the banks appove his loan request.!
Hey, I just got in and am happy to report that I’m approved for the loan!!!
Now, to get back to business, what part of this report would have you elicit a response from me?
For the record I have sold all my RE and have spent the last two years traveling around the U.S. in my “mac daddy, rock star” Motor home (wife, child and golden retriever in tow). What part of that scenario would have you believe I am anything other than a bear with regard to RE? What am I missing?
Just making a joke: After a nose-dive (see above), the next step would be to…….. auger in.
Thanks, I’ll be here all week…..
Hey, those eggs smell bad!
I was looking at a rental house tonight in Tempe, and told the landlord that I thought prices were way out of line and that I was just going to rent for a while until things settled down. He said he’d been an investor here for about 15 years and had never seen anything like what’s been going on over the past year. He fully expected at least a 20% meltdown in prices, and had nothing but disdain for the graduates of the Carlton Sheets school of flip-flopping who have invaded the valley.
“The surge in unsold homes has been largely due to a release of new properties on the market rather than a sharp slowdown in sales. This suggests that many sellers are eager for one last payout before the halcyon days of the market draw to a close. Speculative buyers may also be trying to exit the market before conditions deteriorate.”
Yet we just read…
“The Pending sales for May were 2,930 homes, so I expect June to be slightly over 3,000 sales which will be down 23% from last year. The inventory on June 1 was 20,635, which means that in the past month the inventory has increased by about 2,000 homes. This indicates about an eight month supply of homes on the market.”
Declining population… I didn’t know that (but it doesn’t suprise me).
Increasing inventory…
And soon flippers will panic…
We’re almost at that “magical” 8.7 months of inventory. Looks to be at about August that we’ll hit that inventory level…
Hold on folks, we’re in for a wild ride.
I think we all know this will hit the stock market too…
Neil
You forgot the first ARM resets and a big tax bill in the fall.
Yes, the population of SD is declining. I’m seeing it first-hand. We have had several close friends (native San Diegans) who have packed up and left. A neighbor in my complex is moving back home (VA) in 2 weeks. The VP of Engineering at one of my customers returned to FL to be an owner-occupant and telecommute.
It’s going to wild indeed. I know things are getting strange when I listened to 1090am on the way home today and am now hearing gloomy mortgage pitches from Mountain Trust Mortgage and that wind-bag Wesly Hoglund at Linix Finiancial. He’s even admitting we’re sick of hearing him. His latest pitch is based on absolute fear. I rather enjoyed it. However, people are going to be throwing rocks at this guy soon.
I would say that “Hold on folks, we’re in for a wild ride.” is a huge understatment.
Is that the “Biggest No Brainer in the History of Mankind” idiot?
He needs to eat a bullet.
Oh man, I heard that ad you’re talking about on the way home from work today on KFI ( I can’t listen to KOGO…I’m spoiled from the excellent talk radio in Chicago). He was totally playing on fear. Unbelieveable. “Better lock in those rates now…” Hahahaha…Stupid FB’s.
fear has been the flip side of greed on the psychological drivers for the whole mania always…some have bought without thinking about it much out of desire for large gains, some have bought out of desire to avoid regret, i.e., out of one or another kind of fear.
My realtor is still playing alternately on the ‘fear’ and the ‘look; you’re an idiot to not be gaining like you can if you buy now’, whichever she thinks is the proper read on me at the moment. Once she got told we were thinking about sitting out a while because things are declining, she moved a bit from the fear-based appeals to a claim that the market has hit bottom and is now in recovery, so now’s the right time to buy here. If she’s right about a bounce-back, I’m thinking it’s of the dead-cat variety.
Which of course puts me in a camp where I’m “hoping” that things fall apart for a lot of people. Not a happy place to be, but it’s sorta like hoping the addict hits bottom soon so recovery can start. That’s maybe another aspect of a mania with something so fundamental as housing….it’s not fun to be ‘contrarian’ in the face of rhetoric about endless free money for everyone everywhere! To see the reality of it instead of just swallowing the koolaid is even worse than being designated driver, unless you hang with a really unpleasant pubcrawl crew
San Diego County population increased 0.9% (27k) from January 1 2005 to January 1 2006. The City of SD was similar… increased 0.8% (11k).
I am douptful the county or city population decreased since January; h0wever, the RATE of growth has declined since 2000-2001. At the time population increases ran around 1.7%, or twice the past year.
As an aside, assuming 2.5 persons lived per household, only 10-11k homes would need to be added each year to absorb that growth rate here in SD County. Of late, downtown San Diego alone has 10-15k units in the pipeline, or something like 4-6k per year??? I would think the rest of the county would surpass the 10-11k really needed right now… and thus would furhter think the rate of demand would be decreasing???
I think if you compare who’s coming in (immigrants) to who’s leaving (middle- and working-class families and professional couples) the demographic shift becomes more meaningful.
Old Bob is not too popular in San Diego these days. He’s been the subject of many flamewars on the Piggington site.
Bob has been one of the rare guys in SD who tells it like he sees it.
What is home ownership % in this Country. I think it is 80%. What do they expect 100%. I think 80% is the max if that percentage is right. Sorry, but an inflow of low paid immigrants and an out flow of high paid tech jobs will not change this amount.
It’s actually 70%, which is still an all-time record –so point taken.
I think it’s 69% ownership in the Country .
Harm ,we posted at the same time . i have read some reports saying 70% and some reports saying 69% . So it must be 69.50%. I think it hit 70% but than it went back down a hair .
The 2002 AHS supplement shows 586,000 of the 1,072,000 dwellings in the San Diego MSA to be owner occupied.
http://www.census.gov/prod/2003pubs/h170-02-38.pdf
Caution, 386 pg PDF.
Yeh, sounds like he swallowed our Canary!
Bobs Bio:
About Bob Casagrand:
As a Real Estate Consultant I serve both Buyers and Sellers with the goal of ’sell for more buy for less’.
It always seemed to me that announcing this would come back to haunt ya…The relationship with an agent often includes both buying and selling. I’m a contractor so I’m around two face pricks all day, but they don’t come out and say it.
According to what was going around on the Piggington site, Bob hasn’t been a realtor for that long and apparently hasn’t sold that many properties. This was like a second career for him.
Maybe he’s a disgruntled renter. (pass it on)
“This suggests that many sellers are eager for one last payout before the halcyon days of the market draw to a close. Speculative buyers may also be trying to exit the market before conditions deteriorate.”
I like that, speculative buyers MAY be trying to exit.
Gee, you think;-)
Beanie Babies were rare and valuable until they went and made too many.
oh yeah. Basic economic law of supply and demand.
So were:
Cabbage Patch Doll
Tulips
Gold
Right Wing Talk Radio
Dot.com Stocks
Railroad Stocks
Japanese Real Estate
pet rocks?
We could add:
Canals (and the companies stocks). Pre-Railroads
Silver (who were those brother’s who cornered the market?)
California commercial real estate
Nifty fifty (remember those stocks? Yea… Strohs Beer was one)
For the record, I have boought beanie babies. They’re great cheap toys for my neice and nephews. Want a weird animal that the kid loves? They probably made them (cheap on e-bay too). But to collect them?!?
Does anyone know the collectibles of the 1920’s? I have this nasty feeling history is repeating itself…
Neil
Did they go and moke more gold? Damn!
This may come as a shock to many, but it *also* applies to US Dollars.
didn’t they have something like a “born on” date that made them more valuable?
Kind of like the limited edition Thomas Kincade my wife made me buy, I just know the bast_rds will run another batch when the get the itch.
That was the glut of cheap, mass-scale, tasteless beer which had a “born on” date.
Not unlike houses.
oh my GOD. Not a Kincade!!! you poor bastard…
A Kincade? Agree you got hosed if you think this is going to be worth anything in a few years. For Kincade a limited addition is about 63,000 to unlimited. Besides they are soooooo cheesy.
I used to bash Kincaide, until the OC Weekly did a story about is drunken sexual escapades, peeing on winnie the pooh at Disneyland and pissing in an elevator of a nice hotel.
Now everytime I see his kitschy work, I smile the deep smile of knowing a hypocrite.
PS He markets heavily to the christian community and tries to pass himself off as a moral christian.
Sounds a lot like our President
The Ty company manufactured the market as well as the toys, and being a private company they were able to pull it off a lot longer than anyone expected them to.
There was from the start a black market that sold at a premium when shortages of fashionable beanies were seen at the retail outlets. I have always suspected that insiders (who were all family members) were compensated in part with lots of “rare” banies that they then sold on the resale market. Someday there will be a divorce and the real story will be told.
“The Ty company manufactured the market as well as the toys…”
Yeah, Madison Avenue at your service!
I think you’re right. I know a guy that always had a magical supply of rare babies to sell on eBay. Made tens of thousands.
“Beanie Babies were rare and valuable until they went and made too many.”
If forgot all about them. What about Cabbage Patch Kids. There was a bubble in those too. And wasn’t there another Christmas toy that went ballistic ? All bought with credit too, probably…
“Tickle-Me Elmo” dolls. Pieces of crap. Retail on average? $30. Price before Christmas? $600 - 800… each.
Oh yeah. I forgot about the Tickle Me Elmos. Thats right. Thanks.
there were also the “furby’s” a few years ago.
Don’t forget pogs.
To tie this back to real estate, I live near Ty Warner’s place in Santa Barbara, the construction on his mansion seems stalled/slow for like 2 years or so.
OK, we saw this Housing Market Crumbling article linked yesterday, now for an update:
http://www.moneyweek.com/file/12849/is-the-us-housing-market-crumbling.html
the article above said the TA support level for the Philadelphia Housing Index is 225, below which a shock is expected, well the index today is 211:
http://finance.yahoo.com/q?s=%5EHGX
and the 3 month chart looks like………
http://finance.yahoo.com/q/bc?s=%5EHGX&t=3m&l=on&z=m&q=l&c=
Good follow-up Brad. I read this article yesterday with keen interest.
I wouldn’t be suprised to see this in the 190’s next year.
You may want to replace that. The wife I mean.
Hey, does anyone have any 1031 statistics? It would be interesting to see if people are doing 1031s on SFRs. In the apartment world, cap rates are really compressed still by upleg buyers looking to avoid the tax hit. To a non-exchange buyer, some deals getting done make no sense from a return perspective, but to exchangers the returns beat what they would get after-tax if they didn’t buy. I wonder if this is also supporting some SFR markets.
Good observation. I haven’t been able to find a small multi-family property that would cash flow for what seems like years in Houston or Atlanta or elsewhere. How do the numbers work for the 1031ers? Can you gve an example?
My dad is also trying to find a reasonable 1031 in Houston. No such luck. I am relocating to Portland and I talked to a commercial broker who honestly stated that Californians were bidding up prices making most props neg cash flow.
I know an architect who is selling his vacation home.
He approached his accountant about a 1031.
The accountant talked him out of it, partly due to the bubble and partly with a discussion of don’t be afraid of taxes, only people who make money pay them. Pay your taxes and move on.
Frankly, I don’t see the benefit of 1031’s in this market, it is all funny money that will evaporate anyway. Why not change the funny money (casino chips) to real cash or other cash equivalents.
Agreed. Taxes are the the price we pay to live in a civlized world. It’s also a certain measure of success.
I feel differently because my gains are all long-term cap gains, and they are capped at 15% (with no SS or Med tax).
Too many people have been fed the bull on “don’t pay taxes at any cost” by late-night carlton sheets types of the financial planning world (Robert Kiyosaki anyone?). In many cases, it just makes sense to recognize the gain and pay the taxes unless there is a clear reason why not to.
Just talked to a friend who’s renting in Oldtown Alexandria, VA. Says townhouse and condo prices are dropping faster than Paris Hilton’s panties.
m_u_s_t… r_e_s_i_s_t,… u_r_g_e to reply too strong…
Make sure you reset the DOM feature so the buyers will think it’s a hot listing. Does anyone know the result of the Glendale
, Ca MLS suit over phoney DOM by buyer.
BAHAHAHAHA!
What magical genie does this woman in RIchmond want to pull out of her A$$? I guess she is expecting the PPT to come and rescue her, or Bushie and his buddies? Maybe Jesse Jackson, the biggest idiot around, might come to her rescue? Or Useless Ted Kennedy?
Laura Burns said she and her husband were grateful they had been able to weather their financial storm without losing their house. But she said the experience had left her somewhat bitter.
“I have no faith in the American dream anymore,” she said. “You bust your hump year after year, going to work and paying your taxes. Then you get in a hole, and there’s no one there to help you out of it. The government doesn’t help you, the bank doesn’t care.
“If someone legitimately can’t pay their bills — not won’t, but can’t — there should be some type of help for you. We found out there wasn’t.”
A little OT but since you mentioned the PPT, you may find this interesting:
http://cafr1.com/BAU.html
“….mentioned that on the “morning of 911, US Bonds moved in 3 to 4 minutes by 1.5 points back and forth three times or $1,500 per contract in seconds three times in less than 4 minutes.” If that makes your head spin, try this . . .
“Most institutional traders trade in blocks of 500 to 3,000 contracts. Daily transactions are 350,000 to 400,000 contracts traded. The bond market trading was suspended about one half hour after the attack. When it reopened it moved in several days by 5 points. Someone holding 1,000 contracts would have reaped five million dollars using one million. International and domestic stock index futures would have reaped over fifteen million using one million. Guess who made the biggest killing on short international and domestic stock index positions?”
The article earlier had said the U.S. Government was the culprit. Surprise!
Here is a great call my Larry “Perma-Bull” Kudlow:
__________________________________________—-
June 20, 2005, 10:40 a.m.
The Housing Bears Are Wrong Again
This tax-advantaged sector is writing how-to guide on wealth creation.
Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong in predicting sky-high mortgage rates. So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.
None of this has happened. The Federal Reserve has effectively mopped up excess cash and calmed inflation expectations. That’s why bond rates are hovering around 4 percent, with most mortgage rates about a point higher.
Meanwhile, the homebuilders index has increased 76 percent over the past year, with particularly well-run companies like Toll Brothers up about twice as much. The bubbleheads missed all this because they haven’t done their homework. If they had put a little elbow grease into their analysis, they would have learned that new-housing starts for private homes and apartments haven’t changed much during the past three and a half decades.
Anyone who belives one word this clown says is as big an idiot as him!
This guy needs some grease on his backside!
Oh, I’m sure it’s there. Obviously he didn’t get where he is today with market smarts. Your lucky they’re providing you with lube, Larry my friend.
Why is this clown allowed to have his own TV show? Does he get his own personal briefing from the WH Admin. each day to tell him how he should word his comments?
He’s as bad as any of the braindead people on FOX who somehow try daily to tie in Iraq as the main driver of our economy.
It’s sad how really few independent, honest journalists are out there these days. The avereage Mr. and Mrs. Joe Sixpack almost don’t stand a chance.
market harikari..
Nikkei is down 400 points as i write..
Bombay sensex is 20% down in less than a month.
i say ..WOW.
” The inventory of new and existing homes waiting for buyers is now approaching 4 million.”
HO_LY_CRAP!
…and yes miamirenter, That Nikkei is really dropping. Apparently all that money being printed is coming home to roost. Hope we take a lesson. Can’t fool the market all the time..
BOJ decided it was time to end the free money. This wasn’t supposed to be a problem, but it is. Hmmm… caught the speculators off guard.
http://biz.yahoo.com/ft/060607/fto060720062052012109.html?.v=1
Note that they have to raise a few more times before March. This could get pretty interesting.
Korea just raised its rate by 25 BP.
http://biz.yahoo.com/ap/060607/skorea_rates.html?.v=1
Tomorrow the ECB will tighten by 25bps minimum. Meanwhile, the Nikkei and the DJIA both dropped below psychological thresholds today (DJIA
(continuing) DJIA
FT.com
BoJ seeks to normalise monetary policy
Wednesday June 7, 8:35 pm ET
By David Pilling
Think of the Bank of Japan as a light aircraft. For five years, it has cruised along at around 30,000ft, far higher than necessary. In March, it declared deflation over and announced it would lower its altitude towards a more normal 6,000ft.
But last month, as its altimeter edged below 13,000ft, the central bank was buffeted by strong winds billowing up from the ground. Embarrassingly, it had to edge back up again as it sought to regain control.
———————————————————-
And then the BOJ aircraft pilot noticed the 20K ft high (bubble) peaks which he had inadvertently approached. But it was too late (SPLAT!) as the plan crashed head-on into the mountainside.
“According to the Washington Post a greater proportion of mortgage financers tapped their home equity for cash in the first quarter 2006 than any other quarter in 15 years. More than 50% of these applicants borrowed at higher rates.”
http://www.moneyweek.com/file/12849/is-the-us-housing-market-crumbling.html
“tapped their home equity for cash ”
What else is that ‘instant equity’ supposed to be for?
I am not surprised at all to hear that.
Nothing short of bankruptcy is going to stop people’s borrow and spend habits.
This is a trend which is destined to end as quickly as it began.
Recent SD sales rate = 2,805
Current inventory (zip) = 21,542
Months supply at current rate of sales (assuming they all sell!!!) =
21,542 / 2,805 = 7.68 mos
It really almost looks like a buyer’s market, except the prices are still too high…
What this fails to take into account is that the current month is one of the peak months of the year, it’s not a October, November, December, or January which are almost half what the peak months are historically. Therefore, you could make the argument that at current seasonally adjusted rates, we have probably closer to 10 months of inventory.
“‘We should start to see a stand-off as buyers offer lower prices and homeowners refuse,’ said analyst Paul Ashworth. ‘After a period of frustration, sellers should become more realistic about what their homes are worth.’”
And then the prices will revert to normalcy (i.e., 40% or more off recent peaks in bubble zones).
My posts keep getting chopped off. But lookout below for the Nikkei…
http://tinyurl.com/myq2b
‘While Japanese markets have shed more than 6% this week, many analysts still see it as a correction in the wake of an extended rally.
“I think this is a global linkage thing, because the U.S. market is very weak this week,” said Sadakazu Osaki of the Nomura Institute of Capital Market Research in Tokyo. “It’s just a short term phenomenon.” “People will look back on this in six months as a good opportunity to buy,” he said.’
Time to buy the dips? Or for dips to catch a falling knife? Because the BOJ has drained the liquidity out of the bathtub, and without easy money, I don’t see the support for overvalued risky assets that all these cheerleaders see…
“Wall Street higher as crude price falls
By John O’Doherty in New York
Published: June 7 2006 13:37 | Last updated: June 7 2006 20:18
Wall Street pushed higher on Wednesday as a drop in crude oil prices helped boost investor confidence. Retailers and homebuilders climbed while takeover speculation buoyed L-3 Communications.”
Puzzling to read on the FT web site a headline saying “Wall Street higher” when we all saw the route at the end of the day today, including lower homebuilder share prices. I guess it takes a while for news to travel electronically all the way around the globe to London?
If they would spend less time brushing their teeth and more time expanding their bandwith they would catch on a little quicker. YEAH BABY (Austin Powers)
BusinessWeek: Another rate hike could knock the foundations out from under the housing market
http://tinyurl.com/z5dxq
Foundations are already gone. The next rate hike will take a wrecking ball to the walls…
From the article: “You could see things swing the other way to where there’s an irrational fear.”
Please make it so!
My question is: Who paid for the Harvard study? I would gather the NAR or some similar institution with a vested interest in the RE bubble. San Diego, IMHO, is toast, but OTOH, you never know, there could always be another surge, albeit brief. In a nutshell, we ARE one the most excessively overvalued areas. I’ve never seen so many milion dollar asking prices for homes you would expect to pay 1/3 of that money for. Crazy!