Weekend Topic Suggestions
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Just wanted everyone to see this, a 26 year old realtor in a $800K condo with high hotel condo fees.
http://www.ajc.com/business/content/business/private/stories/0611bizprivate.html
Her parents must have helped out a LOT.
Man. I’ve see friendships blow up over a “Who ate my Doritos?” argument. A combo of youth, monopoly money, and a 3/4 million condo? Yeah. that will end nicely.
When the building sold out in 11 weeks, they knew their investment was secure, Moulton said.
I know that when $800,000 condos are being occupied by 26 year old realtors, my investment is secure too
Had the intrepid reporter who wrote this puff-piece stopped by this vapid 26-year old future FB’s “sold out” complex after dark, she might have noticed that 80% of the windows were darkened.
Her parents “knew their money was safe”? Yeah, let’s see how well that works out for them and their clueless FB-spawn.
Don’t you just LOVE this article?! What a puff piece, and a perfect reflection of the ‘River of Denial’ that many people in the United States are floating along on. NO MENTION of how much this place costs per month and how the heck she is paying for it! The roommate helps with expenses? LOL! What is her share…$3000/month? jeesh… Her investment is ’secure’…right. Check back in 2 years…please, check back. I’m dying to know how this one ends.
Can anything with a bold vertical motif in teal and brown that runs up the walls and folds over the bed like a canopy really end in any other way then swell?
A swell foreclosure when her parents’ friends stop using her to buy McMansions.
Bold vertical motifs are my favorite.
The pictures actually look quite nice.
NO MENTION of . . . how the heck she is paying for it!
Sure there is…she’s a realtor…aren’t they all super rich
>The roommate helps with expenses? LOL!
Yeah, her roomate Crystal Coffman is helping her with the monthly payment on the Crystal Coffin.
Sorry, couldn’t help myself…
When the building sold out in 11 weeks, they knew their investment was secure, Moulton said.
When all similar Beanie Babies sold out in a matter of days, Joe Sixpack knew his investment was secure!
The thing is, one can get a 3000-3500 sf house and a basement on top of that built in the 1930s completely redone for this or less in Virginia Highlands / Morningside which is a couple miles to the East in a much better school district and area. They can’t build any more of that type and quality of single family housing anywhere near this close in to main areas of Atlanta…OTOH, they can build these condo towers all year long (and will).
Looks to me like a silver-spoon kid — the College of Charleston is very expensive. Momma and Daddy Bigbucks are the financial backstop, so no worries. Must be nice.
She said she knew as soon as the project began sales she wanted to live there.
Of course, to reach the $793,300 price tag, Moulton needed a little help from her parents on the down payment.
“Every time I come home, I’m like ‘I can’t believe I live here,’ ” Moulton said.
FAST-FORWARD 18 MONTHS:
Now that the housing market has plunged to levels that no one would have believed possible just two years ago, Moulton’s condo has lost half it’s value. Unable to make her payments and unable to sell at even a slashed price, she has, like so many others that bought more house than they could afford, been forced to turn the keys over to the bank and has filed for bankruptcy.
The 27-year-old real estate agent, now unemployed due to massive real estate lay-offs, has moved back in with her parents as she now has no where else to go and bad credit.
“Every time I come home, I’m like ‘I can’t believe I live here,’ ” Moulton said.
“A typical young professional single, Moulton loves to entertain her friends, who are more than happy to mingle in the new-urban surroundings.”
Since when the heck are RE agents “professionals”? Is the bar exam in GA as easy to score as the RE license?
I’d like to hear stories of people cutting back - real or not real yet.
simmsays…crazy fathers day gifts
http://www.americaninventorspot.com
Has the mortgage market “Cried Uncle”
Question for all those knowledgeable finance
people (SoCalMtgGuy, BoulderBo, NNVMtgBkr, etc.):
Have recent Fed and Foreign bank interest rate
hikes changed the character of the Mortgage Markets?
What’s your current view?
What do you predict for the immediate future?
At what point must short / long rates reach
until the housing market “cries uncle”
Any interesting recent FB stories?
I can only comment from the Commercial aspect in the UK, but certainly higher swaps are impacting on yields which had been rapidly compressing.
Unlike the residential market, the commercial market (despite low yields) looks reasonably secure, given improving rental market conditions.
Even so, I think the yield floor has been reached as swaps rise. It’s all about Cash Capacity - I can only fund so much debt, and you have to be a seriously good customer, or the deal to be very very good (and remunerative) for me to do accreting mezz.
Therefore any further increases in value impact directly on the amount of equity an investor has to put in, and thence the IRR they get.
Regards,
Loafer
How about Puke Lareah laying his raft of lies at the doorstep of Bernanke with the media playing along?
http://www.businessweek.com/bwdaily/dnflash/jun2006/nf2006068_4156_db016.htm
I have to believe that Bernanke feels the same way about buddy David as the rest on this blog do. Bernanke may or may not try to save housing (my bet’s on he could give a rip about housing, saving the dollar and inflation are his target) but it won’t be because of this idiot. Whether I agree with Bernanke or not, I do believe like others here that he is one smart cat with a God forsaken job. If DL were to show up on his doorstep, I’m pretty sure his next words would be, “release the hounds”.
I have submitted that he can’t be too smart if he accepted the job of cleaning up Greenie’s mess. I predict that he will take the fall and the next chairman will be the “genuis” that saves the world.
Even smart people sometimes make bad career choices. Remember Werner Heisenberg.
Bernanke could have rested on the laurels of his academic track record from now until whenever he chose to start a comfortable retirement, and instead he has risked his reputation to assume the thankless job of cleaning up after a speculative binge. We should all thank our lucky stars that there are very bright and capable people like Bernanke who are willing to step into a difficult position and lean against the wind of criticism in order to preserve the value of our currency.
Cereal did some research, and pointed me in the right direction. I will post the info here for you guys.
DL’s primary residence is in Fairfax station.
11605 Havenner Ct.
Fairfax Station, VA 22039
Bought in 02 for $570K
now worth 870K
Owns a studio in DC bought in 04 for 245K, now worth around 260K
Has another studio in DC bought in 03 for 152K, now worth around 230K
Has another house in Virginia bought in 05 for 276K, not sure what it is worth now.
Posting personal info in blogs is pretty poor form.
Leary is just doing his job - cheerleader for the Realtors - I doubt he really belives this crap himself - he’s a professional spin doctor - that’s how he pays the mortgage.
That’s why smart people won’t take a word out of his mouth as anything even remotely close to the truth.
Seen the movie “Thanks for smoking” ?
In general Uncle Git you are correct.
If Lereah disclosed this conflict of interest prior to making forward looking statement.
He didnt’, I think it is fair game.
Just posting it for information purposes only, it is public record. No harm intended, I realize he is doing his job.
If Ben does not agree, he can delete the post. I will not take it personally.
I’m not sure the information means that much. Lots of reasons to own those properties besides flipping….especially the studios. IE, does he have any college age kids going to school there?
“we have some interest-sensitive housing markets”??
Housing and Interest rates?
What?
Is he serious?
Where did this come out of?
Is this some kind of wierd new logic?
What’s up with this rosy Harvard study?
http://www.jchs.harvard.edu/publications/markets/son2006/
JCHS - is funded by the RE industrial complex
If you define a problem narrowly enough, a conclusion can be drawn to support the preferred outcome.
Ah, really? Who are the people funding it? It’s pretty crappy to have an institution like Harvard using it’s name to promote one particular industry. The whole thing seemed a little fishy to me!
I was laughing to myself that the Harvard Study results must be from a “Skull and Crossbones” connection. JK
Ideas for the safe parking of money to protect it from the inflation beast while I wait this thing out.
CD’s are paying 5% + which is better than the S&P 500 has done over the last five years.
My thoughts are that we are in for a long term sideways equity market punctuated by some exciting ups and downs but ultimately erasing gains of anyone who buys and holds.
There are other options but moves are so magnafied nowadays with program rading and hedge fund leverage that it is easy to get whipsawed to death.
3 month Treasury bills are paying almost 5% right now, so I think they are better and safer than bank CD’s. Not all Cd’s are insured and even if they were I wouldn’t trust the insurance. I am expecting a very exciting down, but without the up in the equities market, myself, so I wouldn’t go there unless it was for a bear market fund or other bearish strategy. Anyway, the bulk of your money should probably be in Tbills, in my opinion. It is easy with Treasury Direct online once you set it up.
I see that you always recommed T-bills. Why? Why not gold? The interest rate given by the t-bills are lower than the actual inflation. So should you not be recommending gold?
Richard Russell (dowtheoryletters.com) recommends both gold and short-term Treasuries, the former as store of value, the latter for income/compounding (and both for “safety).
At least t-bills have a guaranteed rate of return; gold does not. Gold is a speculative investment, with high risk. It is true that bonds may not offer enough return to offset inflation. Nothing is really “safe from inflation”—a low risk return may be too low, a return greater than inflation is going to involve some risk.
“gold is a speculative investment”…
A fellow I know wanted to put some retirement funds into Vanguard or Fidelity Precious Metals and/or GLD, and was told the same thing (”it’s speculation”).
In 1913 - purchasing power of USD - one dollar.
in 2006 - now 5 cents.
What’s speculative?
TIPS are “safe from inflation”
I-bonds should help you keep up with inflation as well
And gut you like a fish if deflation occurs. Only reason I liquidated all my TIPS holdings.
TIPS and gold/gold miners
I personally do own gold but I don’t like to reccomend to strangers looking for safety as there exists a lot of hot money that exit before you get home from work and check your screen.
Well, for a start, don’t hold whatever it is in USD.
Regards,
Loafer
Thoroughly agree!
I would not invest in anything that is speculative like US T Bills or Treasury Bonds. They are no longer the “flight to quality ” they once were.
You can just see the smug self-satisfaction radiating from the picture of that Baby Realtor. Ugh. I just threw up in my mouth, a little.
In some cultures, they only eat vomit. I never been there, but I read about it…”in a book”.
White Goodman, “Dodgeball”
Yes, one can only hope that the fearless reporter does a follow-up story in two years or so.
Local guy talking about being in LV this week attending a seminar on
how to get the equity (unlock) out of your house and make it work for you if you don’t plan to sell. I see a seniors on the welfare rolls and others working into their 80’s as these sheeple are sheared. This will be the next creative mortgage ploy and scam.
Is America bankrupt? Will the borrowing ever stop? When will we pay our debts? A friend sent this to me yesterday:
WASHINGTON (MarketWatch) — Americans increased their household debt at an annual rate of 11% in the first quarter, the fastest growth in nearly 20 years, the Federal Reserve said in its quarterly flow of funds report.
Total outstanding debt in the household sector rose to $11.8 trillion.
The growth in nonfinancial debt marked the largest jump since the fourth quarter of 1986. Read the full report.
Nonfinancial debt had risen at a 9.4% clip in the fourth quarter.
The first quarter’s acceleration was primarily due to increased borrowing by businesses and the government.
In the first quarter, the federal government’s debt increased at a 12.9% rate, up from 7.8% in the fourth quarter. State and local government debt grew at a 5.8% rate, down from 8.6% in the last three months of 2005.
Borrowing by businesses increased at a 10.4% rate, up from 8.3% in the fourth quarter.
Meanwhile, household net worth increased at a 2.7% annual rate, reaching $53.08 trillion in the January-March period.
http://tinyurl.com/gqdng
But spending is “good for the economy”…… Apparently our degenerate president and the rest of the RepubliCriminals embraced Lying Larry Kudlow’s tripe.
Follow-on question: Is the American debt burden “too big to fail,” forcing economic policy-makers to eventually inflate or devalue the currency as a means of avoiding widespread bankruptcy and a 1930s style depression?
My money (literally, since I am more-or-less fully invested here in Australia) is indeed on an inflationary solution worldwide, with the possible exception of Switzerland among significant economies.
I expect central bankers to attempt to keep fudging the CPI figures to keep “official” inflation at about 3%, and real inflation at about 7% or 8%, in the hope that lower real living standards for the bulk of the population in Western economies will resolve the imbalances.
How about a topic about large cities in flyover country that are NOT part of the bubble? Where you can still (today) get the dream home for under $300K. I’m thinking say Columbus,OH, Memphis, Fort Worth, Houston, Albequerque(?), Pittsburg, Richmond, Charleston, etc. Plenty of places other than DC/SF/NYC with all the quality f life you could want.
Agreed.
A quality of life decision vs. staying in the rat race.
Does the Cost of Living adjustment b/w cities justify the monthly mortgage payments? Are you a richer person on 50k/yr in MI than you are as a 100k/yr person in San Fran?
JA - I moved from DC. When my previous employer asked me what it would take to make me stay I said,”Double my pay or pay off my mortgage.” They declined (obviously) and I moved. Kept the same pay, dropped the state and local taxes (even my real estate taxes dropped (rate up, how much I pay way down)), commute went from 1 hour to 15 minutes and got a much better house. Most big companies do not adjust pay scales for differences in cost-of-living (at least not enough). I pay my engineers the same reguardless of them living in LA, Fort Worth, or Atlanta. My last company payed their people almost the same (within 5%) no matter if you lived in San Antonio or DC. You don’t have to take a pay cut, or much of one, that’s a myth.
Plus I get to go to my kids soccer games, swimming lessons, and put them to bed. Something I missed a lot of working in DC - spent that time stuck in traffic. Can’t trade that time for money.
Where did yuo wind up moving to?
Fort Wort, TX. Live less than a mile from TCU. 10 minutes to downtown, 15 to where I work. Get to watch sunsets in the winter (never did in DC during the workweek). Gotta love it.
Your quality of life may have gone up but what effect are those like yourself having on the quality of life of the natives?
Wife is a native! Bought from a widow who is downsizing and I was the only one interested after a year (YEAR) on the market. Got a very good deal - can walk the kids to school (well at least through 5th grade)
I live in NJ. My brother pays $11,000/yr. in property taxes alone. I think it’s time to leave, even if the home prices do go down
Lingus,
At least buffpilot speaks english
Buff, Good to hear. My wife and I are considering a move from Boston to near her family in MI. I don’t know if I want to wait 2+ years for things to bottom out here…
Lingus, Please explain the rule you operate under? A person can only move how far away from their birthplace before it becomes offensive to you?
Are you of the opinion that people are so different from region to region that they are incapatable with each other or what is your issue here? Really, I don’t get the animosity so please explain?
I doubt there is any place in the US that is not part of the bubble. And as goes California so goes the nation.
Ohio IS bubble central. They have done nothing but build new homes over the past several years. My family in Ohio actually believes there is a bubble, unlike most people I know in CA. I keep a close watch on Ohio because I want to move back there (Oakwood in the Dayton area specifically). I’m waiting for this GM thing to play out though. I have an agent in Columbus (my other area of interest) who calls me constantly with “investment opportunities.”
Ohio bubble central???
Thank you sir, I needed the laugh.
I’m a girl, and you would be amazed at the building going on there. Wasn’t deeming it the #1 bubble area - just a great EXAMPLE of what has been going on. Also, if you factor in the economic problems Ohio is facing, it could be disastrous for the area. Dayton Daily News is reporting over 9,000 jobs will be lost by the end of this year. Meanwhile the construction of new homes continues.
I don’t think you’ll find 2+2 condos, like the one up the street from me, on the market for $1.3 million in Ohio. Your family in Ohio doesn’t know how good they have it.
Tell that to my grandmother who has been trying to sell my great aunt’s house. Nobody wants to buy “used” homes - so they’ve been trying to sell for over a year without any luck. Jobs, booms/bust will come and go in CA, but places like Ohio have a much harder time trying to recover.
Ohio is also one of the most lax states when it comes to lending regulations, and leads the nation (I believe) in foreclosures at the present time (due to lax regulations and job losses in manufacturing).
Ohio has seen a dramatic rise in foreclosures - a lot of good information about Ohio on Ben’s foreclosure blog if anyone is interested in this region.
I live in Memphis, and there is a housing ‘bubble’ on the outskirts - places like Germantown and Southaven (technically in MS) where houses are going for a million change - but these are huge, huge houses, usually on a good bit of land. I still think that there isn’t enough granite countertop in the world that would make living in houses that all look alike worth it, but then I’m one of those ‘crazy’ people who believe that a house is a shelter, not an investment.
We just purchased a house for 96K, 4bd/2bh, 2300sqft, on 1.68 acres of land - less than 20 minutes away from downtown and from both of our jobs. *smiles* we took out a 100% loan, but it was a fixed 30 yr - despite my friends and coworkers advice to take an an I/O Arm. I politely told them they were out of their damn minds, but I don’t think my message really got across.
hi ya kiya,
thats incredible. i just saw comps on new houses with approx. 1,600 sf on 4,500 sf lots that sold for $479,000 in a rundown city just north of boston. personally, i bought a 1-bedroom condo in the $60’s and put about $10k into it all cash. we have no mortgages, are costs are less so we can sell for less. thats a famous car dealers mantra here in massachusetts. its in a nice little town about 1 hours drive northwest of boston. i’m going to keep it for investment and hopefully get a good deal on a house this winter thats closer to beantown. if not i don’t mind it all in these parts. can you imagine what they would be asking for your house if it were 20 miles from boston. depending on age and condition it would probably be in the $650k range.
hi ya kiya,
thats incredible. i just saw comps on new houses with approx. 1,600 sf on 4,500 sf lots that sold for $479,000 in a rundown city just north of boston. personally, i bought a 1-bedroom condo in the $60’s and put about $10k into it all cash. we have no mortgages, are costs are less so we can sell for less. thats a famous car dealers mantra here in massachusetts. its in a nice little town about 1 hours drive northwest of boston. i’m going to keep it for investment and hopefully get a good deal on a house this winter thats closer to beantown. if not i don’t mind it all in these parts. can you imagine what they would be asking for your house if it were 20 miles from boston. depending on age and condition it would probably be in the $650k range.
Topic: Are the various MLS counts seriously understating inventory considering the number of FSBO’s? All the newspapers I look at are full of FSBO ads.
Could be. About 20% of the For Sale signs around here are Help-U-Sell or some other FSBO operation. Does anyone know if Help-U-Sell gets your listing on the MLS?
If you pay for it which most don’t who use that service. I don’t think the brokers for these companies sign up for it because it’s an additonal cost. Plus they now if they don’t put a reasonable number in for commission they are not going to get any looks. So whats the point of paying for the service. Dont want to debate whether it right or wrong.
Of course they are. The MLS is only stating inventory currently held by licensed brokers. The rest as far they are concerned is irrelevant.
How about using Zillow to find what the bubble did to house prices in your area.
A house down the street from me (Queens, NYC) sold for $225,000 in 1999. It went on the market last month for $850.000. It has since been reduced to $799,000.
I figure it’s true value is around $350,000.
Buffpilot - $300K in Albuquerque would get a nice SFH home in the 2000 sqft range (or more depending on location). We got a 2700 sf for $299K in Jan 06. Quality of life much better than CA. Zillow put the price now over $400K, but I don’t think that is right. A similiar home on same street for sale at $325K. There are still a lot of homes under $200K that are smaller, and still in the good areas.
That’s my point. So when are you leaving ca?
Me thinks that maybe our 26 friendly realtor in ATL might be using her other talents to cover the condo. I wanted to see a picture of the rich sugar daddy that she is doing daily in the condo. He sure would have to be butt ugly to get suckered for that much money.
I left CA in January. We moved in our home in April. I still go back to CA once a month for about a week for work follow-up. ABQ is much nicer.
I love ABQ also. My aunt and uncle live up in mountains east of the city. (Tijeras). Great place. I’ll probably be going out in early Sept for a visit.
Take the weekend off and come see the Housing Bubble movie!
“How about a topic about large cities in flyover country that are NOT part of the bubble? Where you can still (today) get the dream home for under $300K. I’m thinking say Columbus,OH, Memphis, Fort Worth, Houston, Albequerque(?), Pittsburg, Richmond, Charleston, etc. ”
The fact that you can buy homes in these cities for less than $300K doesn’t mean they aren’t part of the bubble. If that $300K home in Memphis was selling for $150K three years ago, you’re in bubble territory. I have relatives in Minnesota, Nebraska, and Tennessee. They have all seen prices rise in the last few years to levels that are “ridiculous” by local standards and they all know people who quit their jobs in the last few years to become house flippers (investors).
I agree, but the bubble has barely(if at all)inflated in some of these cities. I look at median house price/median income. If the ratio is under 3-4 there is not much of a bubble - none if under 2.5. When it nearing 10 (DC) or higher your in a bubble
IMHO the ratio does not take into account the unrecorded inflation of oil, food and tax increases. In many markets what was an affordable market is now bubbled.
Exactly! Just because it is cheap to you doesn’t me it isn’t a bubble price.
We can discuss the huge decline in the home builders’ stock price and what that means. I see this as a big forecast of the weakness to come. For example, Hovanian(HOV) closed at 29.61 yesterday. The 52 week high is 73.40.
I agree that discussing the homebuilders’ stock prices would be interesting. And when the first of them enters bankruptcy.
The major Wall Street homebuilder stocks are off by 50% or so from last year’s peaks, but they are very sticky on the way down. Does anyone else suspect that when the economic slowdown is common knowledge (not just a discussion topic for housing bubble bloggers), that a sharper break on the downside will result?
Also, remember that some builders (e.g., Toll) split their stock last year (and some may have split multiple times since 2000 — not sure). Do these splits get reversed at some point?
Topic suggestions?” How about San Diego inventory? It’s been growing steadily by a 50 to 100 homes a day. On 05/02/2006 SD inventory was 19,494, as of a couple of minutes ago it’s at a mind boggling 21,632 houses for sale.
zip showed 13,896 on Jan 2, 2006. Thus inventory has grown so far this year at over a 100% annual rate of increase. This is not seasonally adjusted, but I am still guessing that by the end of this year, we will have seen a doubling of inventory from where we started (to over 28K), and this is not a big stretch, given that we are already most of the way there and the year is not even half over.
“Foreign government sponsored enterprises” (FGSE) and other hat tricks:
http://www.xanga.com/russwinter
Topic suggestion: The posters here are sometimes accused of being one-sided. Perhaps Ben could start a topic with “How prices could be sustained” or “Reasons why the hyousing market will endure.” I’ve always said I understand why it should fail, and I understand that mindless optimism, if not mania, and inertia can carry a market far, but perhaps there are other reasons which I fail to grasp.
Along these lines, 3 fears:
1) China et al. are permanently driving up the price of all the materials needed to build a home. Therefore, a new home will never be “cheap” again. The high cost of new homes will keep the price of current homes from ever dropping too much. And we need new homes due to population growth.
2) Baby boomers - They cash in their pensions and 401k and decide to own two homes. This can’t go on forever, but it could prolong the bubble for who knows how long.
3) Returning Iraq and Afghan veterans will be given some incredible help from the gov’t to buy a home. This will continue the madness, for a while
I just want to say, nothing against the veterans in that comment. A lot of 1st time buyers need help, and if anyone deserves it …
1) the current expansion rate of China’s economy will slow in the forseeable future; the Chinese government has even said they will take steps to make it so. The current housing bubbles in China and India are also peaking/passing.
2) this was the excuse for a lot of the current construction glut.
3) given that the current administration has been cutting veteran benefits, the prospect of a modern equivalent of the post-wwii “GI Bill” seem remote. Also, war has to end first for that to happen.
from China Daily
June 9 2006 http://tinyurl.com/hg2o3
…”China’s economy is facing heightened overheating signs, as outstanding bank loans surged 15.97 percent year on year by the end of May amid a seemingly unabated investment binge, a news report said Friday.
Chinese banks extended 209.4 billion yuan (26.1 billion U.S. dollars) worth of local currency loans in May alone, nearly double that of the same month last year, the Xinhua-run Shanghai Securities News reported. The “big four” state banks accounted for half of the new loans. ….”
China will keep spending until the Olympics are started.
Another topic suggestion regarding possible post-bubble: The first of the boomers have been retiring the last few years but most are still vital and in good health with money and energy to spend (helping to fuel the economy). What happens as larger segments of boomers move into the “elderly” designation? Will spiraling health costs and other health concerns of this huge group affect primary and/or 2nd home markets? Will colonials or any home with stairs be the new split level (least desired home design)? The timing of masses of boomers becoming “elderly” coincides with the years that many here have id’d as the recovery years. Will the tax burdens needed to support medicare and social security be a factor in home ownership rates among the young and vital?
Also: will burgeoning layoffs hit older workers first/hardest (way before their mortgages are paid off)?
(This is where Dr. Phil would pipe in, “so how much fun do you imagine you are to be around?”) LOL
I think a topic where the best bullish arguments are presented would be interesting.
logistically, it might be too much of a pain for Ben.
I don’t know.
How about a general consensus on whether anyone’s ready to begin the lowballing? I mentioned, a week or so ago, that a co-worker of mine was going to make an offer on a ridiculously overpriced home in Telford, PA (and assumed she’d get as much for her home as a realtor told her to list it at last summer). Spoke to her today and, while she still made an offer, thanks to the advice I gave her she lowballed (and will list her home appropriately). She won’t tell me how much she lowballed by yet (she doesn’t want to “jinx” her offer), but she said it was a LOT less than the asking price (the home was listed at $309K and zillowed/ABCed in the low $200s - my hunch is she used this newfound information as a guideline).
So…feeling somewhat empowered, today I contacted my realtor (very nice woman - zero pressure since I’ve been looking for 2 years now and she still hasn’t given up on me) and asked her to tell me honestly how she feels about offering low bids. I found a home that might be nice for my son and I and, if after seeing it I still feel that way, am pretty sure I will toss in a low bid (which, based on when the people last bought the home, would give them the ol’ “1% above cost of living” appreciation).
Anyone else thinking about it yet?
Ooops…that would be “1% above inflation” appreciation.
If you have studied the bubble charts, you should know we are not going to see the bottom of this thing until 2010-2012. There is a pretty good concensus on that timeline.
Example:
http://voiceofsandiego.org/articles/2006/06/07/opinion/01toscano.txt
However, if you cannot wait it out, your strategy is the best. Zillow existing listings and if they bought pre-2000, you can attempt some low balls. The fallacy is if they refinanced to ‘pull out equity’ which Zillow does not tell you.
You will have a lot of sellers scoff at lowballs for now. The winning strategy is to make a lot of lowball offers, and you might have a 5% chance at acceptance.
You are picky about the house you want (which is a great thing). So if it is nice house that might fetch ‘FMV’, chances of success are small.
I applaud your efforts regardless of outcome. Good luck!
The slowdown that has hit the Valley’s housing market is spreading.
Home sales are down and so are some prices in central and northern Arizona’s second-home communities. The number of homes for sale in Payson, Sedona, Pinetop-Lakeside and Strawberry has shot up this year as the number of buyers plummeted.
As in metropolitan Phoenix, overly zealous homeowners in these smaller towns are cutting prices to sell houses. advertisement
Even Arizona’s cooler summer weather to the north hasn’t been enough to encourage the bidding wars among buyers that the vacation-home enclaves saw in 2005.
“Last year, a lot of buyers mainly from Phoenix were clamoring for the same homes in Payson,” said Susan Keown of ERA Young Realty and Investment in Payson, where the number of homes for sale has tripled in the past year. “Some were willing to pay more than what the houses were appraising for. But, she said, those buyers and bidding wars are gone.
That is partly because many potential buyers for houses in central and northern Arizona are homeowners from the Valley who can no longer afford second homes. Some people trying to sell in Payson, Pine and Pinetop-Lakeside have primary residences in metropolitan Phoenix but can no longer afford two homes.
Higher payments on adjustable-rate mortgages and home equity lines are cutting into the monthly budgets of more Phoenix-area homeowners.
Also putting a damper on second-home demand is shrinking home values because of dipping prices in some Valley neighborhoods. Then there are those who want to buy but can’t because their houses won’t sell in the slowing Valley market, leaving them unable to apply some of the profit to a vacation home.
Home listings in Arizona have quadrupled in the past year to reach almost 43,600. Valley home prices have been flat since October. Through May, used-home sales were down 34 percent from last year’s record-breaking pace.
“It’s logical that northern Arizona’s housing market is following the Valley’s slowdown,” said Jay Butler, director of the Arizona Real Estate Center at Arizona State University’s Polytechnic campus. “A lot of Valley residents bought second homes in areas like Payson and Flagstaff by taking money out of their primary homes. Many don’t have that option anymore.”
Home sales in the Pine/Strawberry area are half of what they were a year ago.
Home prices overall aren’t down in many central and northern Arizona towns, but sales are closing for less than the listing prices, primarily because some sellers are overpricing homes.
“The slowdown here hasn’t been as pronounced as the one in the Valley,” said Cliff Potts of Prudential Arrowhead Realty’s Payson/Pine office. “Prices are holding, but sellers have to be more realistic.”
High-end home listings in Flagstaff have climbed during the past year. And, in Sedona, listings were up 129 percent in May from last year.
“We have already seen some price reductions,” said Ray Jegge of Coldwell Banker/1st Affiliate in Sedona.
But it’s still not clear whether this is the time to find the best second-home bargains in Arizona’s high country. As in the Phoenix area, real estate market watchers are still guessing when the housing market will hit bottom.
“This is prime season for buying in northern Arizona,” said John Foltz, president of Phoenix-based Realty Executives. “I doubt we will see anything definite on how much that market will slow until fall, when demand traditionally falls off.”
AZgolfer, do you have a link for that article?
What is going on in the Portland,OR RE market. About 4 months ago I decided to buy a small house for my daughter and thought that we could get something in the 1200 sf range in the low 200’s. How wrong we were. We aren’t even looking in the most desirable neighborhoods. We have bid on 5 diferent houses and offered asking price or above and have lost out everytime. Prices are way out of range as investment for a rental or for the first time buyer as all of the above bid on properties went for in the high 200’s to the mid- 300’s. Is this the California effect or is the economy just that strong in portland now? I live outside of Oregon and would appreciate any insight from this blog.
Californicators and flippers.
Just wait till Intel announces their layoffs in the coming months.
I’ve just moved to Portland from San Diego - Portland was late to the appreciation game - inventory seems to be rising quite rapidly now as of a few months ago - I’m not sure about sales.
I personally am renting for a year or two and will wait to see how this mess plays out.
Have your daughter rent for at least another year. Prices are going down, down, down.
Topic: What’s the Worst That Could Happen?
Anarchy - in reality I am preparing for this.
http://tinyurl.com/k727q
Fed reduces interest rates. The Bank of England did this and prices are starting to rise again in the London/SE area because the bulls think the RE market is “too big to fail”.
FB demographics?
Has anyone tried to slice and dice the statistics on all the folks who took the bait on all the NegAm/IO/ARM mortgages over the last few years? It would be interesting to see the distribution of this group compared to the genral populace in term of age, occupation, income, political/religious affilication, race, etc. Some one somewhere is going to have to find a way to identifiy these people so that we can give them a dose of anti-koolaid .
Some hunches about the typical FB:
- Young
- First-time homeowner (never owned a home during a recession / real estate downturn)
- Bottom half of the income distribution
- Higher than overall population percentage of recent immigrants
- Disproportionately high percentage working in the RE industry
Forgot one:
- Higher percentage of minorities than the overall share of minority homeowners
1) What keeps the US stock market from correcting to the extent that foreign markets have, despite the fact that eroding fundamentals suggest our market is similarly overvalued?
- Flight-to-quality?
- Dips buying?
- Government intervention?
- Noise traders who don’t understand that a crash in the bond market normally implies a follow-on crash in the stock market, as lower valuations are implied by higher risk-free yields?
2) How will the slowdown in the housing market and the correction in the stock market influence one another? (My guess would be a mutually-reinforcing leapfrog effect where lower stock valuations lead would-be home buyers to become more precautious about the risk of buying, and a slowing housing market reduces home-equity ATM cash available to sink in the stock market.)
Did the US stock market reach capitulation yesterday, as some analysts suggest? If so, it is the mildest capitulation I have witnessed in over 25 years of paying attention to the US stock market. My guess is that the “buy the dips” crowd did not learn their lesson during the tech stock bust of the early 2000s, and they are collectively lining up to get slaughtered once again.
Many analysts have compared the recent Asian market selloff to the Thai baht currency crisis of 1997-1998, even going so far as to say the recent Asian market correction is more severe. In a world with very loose controls on international capital flows, I don’t believe you can have the kind of crash that we have recently witnessed in the Asia-Pacific region without serious repurcussions for the US market; go back and look at some 1998 stock price movements if you want some evidence on this.
Topic: Are we missing anything here?
Anyone who has been reading this blog for more than a few months will be inclined to agree that the general consenus and and forecasts put forth here last year seem to be coming to pass. Inventory rising, rates continue to rise, DOM growing, RE Agents speaking about realistic pricing, basic nervousness in the RE sector, some price reductions, HB stocks averaging downward. So everything we have been saying here is becoming a reality and at this point I have to ask, “Are we missing anything here?” What are the potential events or actions that could stop housing prices from tanking big time? Heck, it even looks like BB is taking the tough love approach. Is there anything happening now or that could happen that we may be somehow blind to? Anything that in 2 years we would slap our foreheads and say, “Duh! Why didn’t we see that?”
Mid term elections?
1. A housing “tax credit” for all homeowners (hyperinflation). Say, each homeowner can qualify for an additional $5,000+ each year because they are part of the “ownership society.”
2. Some form of debt forgiveness as the govt offers to cover lenders’ losses on mortgages/bail FBs out.
3. More “downpayment gifts” by the govt or some such thing that forces even more money into the housing market.
4. Our dollar loses value (the govt prints money to pay off international debts) and we can once again export more than we import (imports too expensive/exports cheap) and get back to making things in the US. Not that other FCBs would allow that to happen, but it’s a thought.
Not that I think any of these things are likely or wouldn’t have tremendously bad consequences…just trying to imagine the worst.
The Treasury yield curve is fully inverted from 6mos out to 30yrs –
http://www.bloomberg.com/markets/rates/index.html
Is the economy heading into a recession, or are we already in one?
I concur. This is an issue of extreme importance to all.
Is anyone out there still claiming these days that there is no world-wide housing bubble (other than, say, Hank Paulson)? The Economist magazine has a rather bracing take on the subject in the latest issue. Don’t miss the caption (”Several housing markets are vulnerable to higher interest rates”); they apparently consulted David Lereah before going to press
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Economics focus
News from the home front
Jun 8th 2006
From The Economist print edition
Several housing markets are vulnerable to higher interest rates
IN MANY economies, zooming house prices have been a powerful motor of growth in the past few years. According to estimates by The Economist, the total value of residential property in developed economies has risen by three-quarters since 2000, to almost $75 trillion. The increase is equivalent to more than 100% of those countries’ combined national incomes. Countries in which house prices have gone up most have tended to enjoy the strongest growth in consumer spending as homeowners, finding themselves wealthier, have treated themselves. But how much fuel is left in the global housing engine?
The latest quarterly update of The Economist’s global house-price indicators shows that most markets remain lively. In the past year prices have risen at double-digit rates in nine of the 20 countries in our table, including six in Europe: Spain, France, Belgium, Sweden, Denmark and Ireland. At the top of the league, Danish property prices are 21% higher than they were a year ago. In about half of the countries that The Economist tracks, the pace of home-price inflation has quickened over the past year, most notably in Denmark, Sweden and Ireland. In contrast, the sharpest slowdown has been in Hong Kong where prices have slipped by 3.2%, compared with a jump of 30% in 2004. In Britain, South Africa and China, the rate of house-price inflation has fallen by roughly half during the past year.
The days when Britain and Australia led the global housing boom (with 12-month gains of around 20% in 2003) are long gone. In the past 12 months Britain’s property prices have risen by 4.6% and Australia’s by only 3.6%. Houses in Sydney fetch 3% less; the prices of apartments have fallen more sharply. However, London’s housing market, fuelled by city bonuses, has seen a revival this year, with prices up by around 10% in many areas.
American house prices rose by a surprisingly robust 12.5% in the year to the first quarter, according to the Office of Federal Housing Enterprise Oversight, a regulator thought to publish the most reliable index. Even so, the quarterly rise was the smallest for two years, and other indicators suggest that the market is cooling fast. The National Association of Realtors, the estate agents’ trade body, says that the median sales price for existing homes went up by only 4.2% in the year to April, compared with 16.6% in the year to October. Prices have been falling since last summer. And as sales have fallen, the stock of unsold homes has grown fast. A glut of new building is leading developers to cut prices.
Most experts are still predicting a soft landing in most countries, with prices levelling off, but not dropping. Yet with property in many places looking so overvalued, that could imply a long period of falling real prices even if nominal prices stay flat. In its latest Economic Outlook, published last month, the OECD says that overvalued housing markets and rising interest rates represent a serious risk to developed economies. It is popularly argued that higher house prices in relation to incomes are justified by lower interest rates, which make buying a home cheaper. But interest rates are now rising. America’s 30-year mortgage rate is now at a four-year high of 6.7%, up from 5.5% a year ago. An analysis by the OECD concludes that if prices rise at their 2005 pace during this year and if interest rates rise by two percentage points, then there is a 50% or more risk that real prices will decline in America, France, Ireland, Spain, Sweden, New Zealand and Denmark. The OECD believes that real prices have already topped out in Australia and Britain.
In Europe, Spain and Ireland look particularly exposed to higher rates. Not only have home prices and mortgage debt surged relative to incomes, but most mortgages are at variable interest rates. If these economies’ housing markets stumble, they will strain the European Central Bank’s “one size fits all” monetary policy, which is set on the basis of economic conditions in the whole of the euro area. Until now this policy has been unduly loose for Spain and Ireland, exacerbating their housing booms. But if house prices fall, they will be unable to cut interest rates to cushion their economies.
House of horrors?
In America, by contrast, many economists reckon that the Federal Reserve would cut interest rates if the housing market weakened significantly. This is one reason why few people expect home prices to fall. It is also commonly argued that house prices are sticky downwards: owners prefer to stay put than to accept a reduced price. It is true that, year on year, average American house prices have not fallen since the Great Depression. However, several local markets have seen declines of more than 10% at some time in the past two decades. In the past, such slumps were not synchronised: some states would remain buoyant as other suffered busts. But this time prices have boomed simultaneously in an unusually large number of states. A slide in prices is thus likely to be more synchronised, too.
American commentators take comfort in the fact that house prices in Britain and Australia have flattened off rather than slumped. However, although these two countries show that prices can stay at dizzy heights for much longer than seemed possible, the story is far from over. Homes remain painfully expensive in relation to incomes; so if inflation remains low, almost a decade of stagnant prices may be needed to return property to fair value. For many homeowners that would feel pretty uncomfortable. The soft landing in prices so far in Britain and Australia has caused a slowdown in consumer spending. In America, where growth has depended even more on the housing market, even a soft landing for property could cause a bumpy one for the whole economy.
It would really nice to have the list of the most exposed financial institutions exposed to the real estate bubble.