When Appreciation Slows, There’s No Call To Action
The Merced Sun Star reports from California. “Merced County’s property value increase of 9.3 percent to $19.5 billion ranked as the second highest increase in California from the same time last year. Stanislaus County property values had the highest year-over-year increase, rising 11.4 percent to $39.7 billion for the 2014-15 tax year, and San Joaquin County’s 8.8 percent increase to $61 billion was the fourth highest percentage gain among California’s 58 counties. Terry Ruscoe, owner of Merced Yosemite Realty in Merced, said Merced’s property values are being pushed up by continued interest from Bay Area investors and having many more homes in escrow compared to a year ago. ‘The market’s moving and the market’s pushing prices up,’ he said.”
“Merced County’s values reached $20.5 billion during the 2007-08 tax year. Values then plunged down to $16.6 billion through 2011-12. ‘The housing market has recovered, though it’s a little softer than it was even six or eight months ago,’ Merced County Assessor Barbara Levey said.”
The Union Tribune. “The slowdown in the pace of appreciation in San Diego County’s housing market continued in August, concluding a markedly tame summer peak buying season. ‘When prices are going up every month, there’s a hard motivation to get in right now and get the deal closed,’ said Mark Goldman, a loan officer and real-estate lecturer at San Diego State University. ‘When price appreciation slows down there’s no call to action, meaning if I wait until next month, it takes away that urgency from the buyer.’”
The Los Angeles Daily News. “The San Fernando Valley’s housing market continued sputtering in September, with sales falling from a year ago amid modest price increases, according to two reports. The Southland Regional Association noted that the median resale home price rose 3 percent from a year ago, to $535,000, but fell $8,000 from August. The group’s report also showed that the inventory of houses and condos increased 11 percent from a year ago. ‘Prices rose too high too fast, increasing 37 percent over two years,’ said Jim Link, the association’s CEO. ‘In addition to tight lending rules, affordability is the culprit for this slower market. Two years ago, first-time and median income buyers were being outbid for the ‘bargain’ distressed properties by cash-paying investors.’”
“Now buyers, and especially first-time buyers, simply cannot qualify for the higher prices, he said.”
The San Fernando Valley Business Journal. “In the Santa Clarita Valley, prices have risen substantially over the past year. Median home prices jumped more than 9 percent from last September to $490,000. That price was flat from August. Realtors in that area say inventory rose nearly 38 percent from the same month last year. ‘The market is much more balanced now that investors have largely retreated, with foreclosure-related sales hitting a record low,’ said Nancy Starczyk, president of the Santa Clarita Valley division of the association. ‘Prices are still rising, but sellers realize that buyers can go only so high.’”
The Los Angeles Register. “The piercing alarm of a stun gun shattered the quiet in a Laguna Niguel neighborhood one morning last week as a real estate broker let it rip. When Janet DePerry bought the stun gun from a vendor at a Realtors convention in Anaheim a few weeks ago, there was a long line of real estate professionals with the same idea, she said. Lately, brokers have been reminded that their routine – often working alone with strangers, and sometimes in empty or remote homes – exposes them to unusual risks.”
“Last Saturday, a transient put a real estate agent in Laguna Niguel into a chokehold, punching her in the face and almost knocking her unconscious, according to sheriff’s deputies. The agent was securing a lockbox at a home that was for sale for more than $1.5 million. ‘I feel more secure,’ said DePerry.”
The Inland Valley Daily Bulletin. “Thousands of homeowners in need of lowering their house payments have been coming to the Ontario Convention Center since Friday to seek assistance from the Neighborhood Assistance Corporation of America. The organization has come every year to the Ontario Convention Center since the height of the Great Recession to serve residents in the Inland Empire, which several years ago, was ‘ground zero’ for foreclosures.”
“Among the many seeking assistance was Hilda Lazaro Lopez, who continues to have difficulties with mortgage payments on her home in Los Angeles. Lopez attended a NACA mortgage relief event two years ago, which resulted in a $2,000 monthly savings on her mortgage payment. ‘I’m looking for help to pay less and try to sleep more,’ Lopez said. ‘I did this two years ago and it was a huge help. I almost lost my house. I need to get better interest.’”
“Maria Gamez, of Riverside, is also looking to lower mortgage payments. ‘Right now it’s $2,100 a month and we want it down to at least a thousand-something,’ Gamez said. ‘They keep refusing my (loan) modification, and so I’m here personally to see if they can help me.’”
“In September, the number of properties that received a foreclosure filing in San Bernardino County, was 11 percent higher than the previous month.”
The Orange County Register. “Mel Watt, currently head of the Federal Housing Finance Authority, recently announced plans – in a speech at a Las Vegas casino, of all places – to allow mortgage giants Fannie Mae and Freddie Mac, which he regulates, to purchase loans with down payments as low as 3 percent. With only a 3 percent down payment, and poor credit to begin with, these subprime borrowers will have virtually no ability to weather dips in the market. They will be trapped in homes with underwater values, denied the mobility that is key to pursuing job prospects in a changing labor market.”
“Good jobs and rising incomes are the only fundamentally stable way to expand access to housing. Policies enabling unsupportable consumption to stimulate certain sectors while trying to socially engineer the nation are doomed to failure, and those pushing them are simply proving they will pursue ideological goals no matter what havoc was wreaked just a few years ago.”
“If lenders want to lend to borrowers at high risk of default, nothing is preventing them from doing so, but they must be allowed to suffer if those practices get them in financial trouble.”
‘When prices are going up every month, there’s a hard motivation to get in right now and get the deal closed,’ said Mark Goldman, a loan officer and real-estate lecturer at San Diego State University. ‘When price appreciation slows down there’s no call to action, meaning if I wait until next month, it takes away that urgency from the buyer.’”
There it is again, the perception that Price equals Value.
Raise the price and the perception is that you raised the value, and a rising value of something draws in money, and this drawn in money acts to add to the price rise, adds to the rise in value and - just like magic - an upward trend is developed.
And vice versa: A slowdown on the price rise slows down the upward trend and a slowing upward trend dampens the enthusiasm to buy and this dampening of enthusiasm to buy feeds on itself and eventually the upward trend reverses itself and then prices (and thus values) go down.
Econ101 turned on its head.
A bit weird if you think about it.
It’s actually just bad economic logic. And quite shameful the entire economics profession seems to pride themselves on parroting it.
most economist work for gov or colleges
same thing
uber alies
All gubmint economists are bad. Economic prostitutes who work for Wall Street are the good guys.
Tax:
Please get the uber thing correct!!
It is Uber Alles - not Uber Alies -
German for over all!!!
On a more serious note, in the era of crony capitalism, the distinction you are trying to draw between government and private is moot.
Weird….the same thing happened with Tulips!
“Fannie Mae and Freddie Mac…to purchase loans with down payments as low as 3 percent.”
The Fed has been stuffing money to the banks and the US government via the GSEs by the trillion, but now say they are going into a holding pattern. Mel says it is time for the GSEs to ramp up subprime just as the housing market is rolling over. It looks like a very uncoordinated clown act.
Time to set up low income households as willing victims in the next foreclosure crisis, so Hillbilly can swoop in later and rescue them
“Time to set up low income households as willing victims in the next foreclosure crisis, so Hillbilly can swoop in later and rescue them.”
YES! The dotted lines are waiting. Spread the word.
(Amy, are you out there?)
“Mel Watt, currently head of the Federal Housing Finance Authority, recently announced plans – in a speech at a Las Vegas casino, of all places – to allow mortgage giants Fannie Mae and Freddie Mac, which he regulates, to purchase loans with down payments as low as 3 percent. With only a 3 percent down payment, and poor credit to begin with, these subprime borrowers will have virtually no ability to weather dips in the market. They will be trapped in homes with underwater values, denied the mobility that is key to pursuing job prospects in a changing labor market.”
You could even get stucco. (Boy, could you get stucco!)
‘Thousands of homeowners in need of lowering their house payments have been coming to the Ontario Convention Center since Friday to seek assistance…Hilda Lazaro Lopez attended a NACA mortgage relief event two years ago, which resulted in a $2,000 monthly savings on her mortgage payment. ‘I’m looking for help to pay less and try to sleep more,’ Lopez said. ‘I did this two years ago and it was a huge help. I almost lost my house. I need to get better interest.’
We have “thousands” of FB’s in one area still asking to pay less, and the government is lowering down payments.
‘According to the California Association of Realtors, distressed sales, which include short sales, sales of bank-owned properties and other foreclosure sales, stood at 15 percent of all home sales in Fresno County in September. Distressed sales were up to 21 percent in Kings County…Tulare County saw its distressed sales climb from 19 percent in August to 26 percent in the latest month…Madera County even surpassed last year with distressed sales rising to 33 percent over 19 percent the prior month and 32 percent in September 2013. Statewide, distressed sales made up 9.1 percent of all homes sales in September’
They may pay less, but the mortgage lasts a lifetime. They’re renters that do their own maintenance.
They rent money from the bank, rather than housing from a landlord.
Same difference at the end of the day, except renting money from the bank is typically more expensive after you add up all the components of PITI, HOA, Mello Roos, etc that the money renter is also on the hook to pay.
“The unsold inventory index for real estate-owned homes…went from 2.8 months in August to 3.1 months in September.
The index for short sales rose from 6.1 months in August to 6.2 months in September, while the index for equity sales was unchanged at 4.1 months.”
A tale of three markets.
Won’t those lower down payments mean low-income home buyers will have to pay less to get into a house, thereby making home ownership more affordable to them?
What am I missing here?
You are missing what happens right after they get into the house.
None of these policies are about good social policy, improving standards of living or sustainable prosperity. These policies are about crony capitalism. They are about enriching the FIRE sector at the cost of the public at large. It is privatize the profits, socialize the losses. Through that lens, it is all perfectly consistent and makes perfect sense.
They can feign ignorance about what their policies do to the quality of life of subprime borrowers for only so long before they lose all credibility. Running subprime borrowers through the wringer then sticking the public with the costs has been fabulously profitable however.
Mel Watt wants his big payoff when he gets out, just like Geithner got paid, and the multiple heads of the FHA got paid, the head of the FCC got paid, etc.
“It is not too much to say that Wall Street may be the ultimate owner of the Deep State and its strategies, if for no other reason than that it has the money to reward government operatives with a second career that is lucrative beyond the dreams of avarice — certainly beyond the dreams of a salaried government employee.”
“They will be trapped in homes with underwater values, denied the mobility that is key to pursuing job prospects in a changing labor market.”
FWIW, today’s poor are above having to move for employment.
I guess the new realities have brought forth a tougher breed of real estate agent. I doubt Suzanne could have handled that situation!
Would you pay $1.5 million for a house with Chokie the bum standing around outside?
Chokie the bum. Lolz
‘Terry Ruscoe said Merced’s property values are being pushed up by continued interest from Bay Area investors’
Wait a minute. I’ve seen this movie.
‘The housing market has recovered, though it’s a little softer than it was even six or eight months ago,’ Merced County Assessor Barbara Levey said.’
You got that right Barbara:
‘Merced MTM% Chg -14.6% YTY% Chg -10.7%’
Why is it that everyone who works in the HousingSewer are compelled to deliberately misrepresent the true state of the market?
The good news is that anyone who used a loan last month is only 9.6% underwater.
For clarification, those stats are changes in Merced’s “Median Sold Price of
ExistingUsed Single-Family Homes”Love this play on words:
Unemployment claims up, but trend is for better jobs outlook?
Surgery a success, unfortunely the patient died.
QE a success, unfortunately the economy died.
http://finance.yahoo.com/news/rents-soaring-evictions-231200374.html
Doubtful. The data shows falling rental rates and has been for years.
Notice that San Francisco is a big part of this story.
San Francisco also has crazy rent control.
Rent control creates a natural shortage of units, because people who would otherwise move keep apartments below market rate for years. The new people that move in now have to make up the difference, driving rates higher, basically subsidizing the rent controlled people.
I love how they reference the Ellis Act and landlords pulling buildings off the market. Since the rent control keeps prices so low, it’s more profitable to let them sit empty! If the person was paying say $1000 a month - over 5 years they’re only paying $120,000 in rent. Building owner could SELL the unit for more than that after the 5 year limit and not have to deal with the hassle of tenants. I don’t blame them.
Rent control has created this two tier really rich and really poor divide. Without rent control, rent might actually be under control since all available units would be competing at market prices which would cause rents to moderate.
^^^ meant to say $60,000 over 5 years.
Speaking of SF, I certainly thought they were done when the Dodgers pulled away after the second half of the season. Tribute to guys sucking it up,result I believe 8th title in franchise history.
Congrats, now back to housing.
As someone who sold a 2-unit in San Francisco last year, the Ellis Act eviction issue is only one part of a very complicated landlord-tenant story. Most owners want as few units occupied as possible at time of sale, as buyers don’t want the risk of dealing with long term tenants at low rents, many of whom will go to some pretty crazy extremes to remain in the unit. To avoid deed problems associated with an “Ellised” building, sellers will try and negotiate a “tenant buyout” where they pay $10k - $50k in exchange for the tenant leaving. The buyouts are much more numerous than Ellis evictions. My tenant (who was planning on moving out of San Francisco anyway) accepted my buyout offer and I was able to sell for a much higher price than I expected to. The buyer re-rented the same unit for FOUR TIMES the previous rent. So you see, rent control indeed creates a very distorted market.
Please forward this inquiry to the appropriate office.
Dear Sir/Ma’am,
I have two very basic but very relevant questions in light of today’s economic realities;
1. Why has the BoC felt the need to double its balance sheet since 2009? In particular ‘investments’ appear to be driven in order to support the government’s need to deficit spend. Why does the BoC support deficit spending? It appears, especially from Sept 2011 to Sept 2013, that the BoC has elected to initiate an insidious form of QE (why else would the balance sheet expand by 20% in each of those two years). I believe it is unwise for the BoC to continue to purchase government bonds as benign as it may seem in comparison to our American friends.
Reply:
The Bank of Canada is not conducting a quantitative easing program.
The increase in the Bank’s balance sheet reflects the decision by the Government of Canada, as part of its Prudential Liquidity Plan (PLP), to increase its deposits with the Bank, as explained in the Bank’s quarterly financial statements:
http://www.bankofcanada.ca/wp-content/uploads/2012/11/quarterly_financial_report_third_quarter-2012.pdf
This is in the context of the Bank’s mandate as fiscal agent for the Government.
The PLP was announced in Budget 2011 and you can find the details on page 222 if you follow this link:
http://www.budget.gc.ca/march-mars-2011/plan/Budget2011-eng.pdf
The Bank needs to acquire Government of Canada bonds and treasury bills to match any increase in its liabilities, and it acquires these assets at the regular Government of Canada bond and bill auctions, at prices set by the market.
2. The Canadian banknote supply (which I presume is reflective of overall money supply) has expanded on average by just about 5% over the last 5 yrs. If the economy is growing no where near this why is the BoC doing this - which incidentally debases our currency. Salaries have certainly not grown by an aveage of 5% each year over the last 5 yrs either. The banknote money supply expanded by 5.8 % (Sep 2013- Sep 2014). It seems to me that this partly explains the decline in the CND$ relative not only to the US$ but to several currencies over the last several months. Granted a weaker CND$ does help our exporters but it also increases input costs - which may or may not cancel the benefit of a cheaper CND$. However I was also under the impression that the BoC was concerned about a real estate ‘bubble’ brewing in recent years, yet by increasing the money supply (thereby debasing our currency) the BoC is in fact exacerbating the problem by empowering foreign buyers in their ability to purchase RE. Given that the taxpayer will most certainly be on the hook to save our banks if the CMHC cannot fulfill its obigations - which is certain if the property prices experiences even a modest collapse of 20-25%, why would the BoC feed the bubble evermore by implementing the above money supply actions and sticking the bill to taxpayers when the losses are socialized and of course creating the need for further deficit spending? Heaven forbid we even dare cause people to suffer the consequences of their ‘investment’ (I would say ’speculative’ is the more appropriate term) actions.
I believe these questions may need to be brought up when the House of Commons Standing Committee on Finance next meets.
Reply:
The amount of currency in circulation is determined by demand from the Canadian public, via their financial institutions. The amount of currency in circulation fluctuates throughout a typical year, depending on a number of factors. For instance, during the Christmas season, there is a higher demand for currency, and so consequently, the Bank of Canada supplies more notes to the system. It is the Bank’s responsibility to ensure that there is adequate supply of bank notes in circulation to meet a given level of demand.
The growth in the value of bank notes in circulation has been in line with the growth of the economy. The relevant measure in this case is nominal GDP growth, which reflects real GDP growth and inflation.
Thank you for your response. With the events in Ottawa last week I fully expected a delay to my inquiry.
For Q1, your ending response;
The Bank needs to acquire Government of Canada bonds and treasury bills to match any increase in its liabilities, and it acquires these assets at the regular Government of Canada bond and bill auctions, at prices set by the market.
I understand the balance sheet aspect but why are they increasing their liabilities which in turn requires the BoC to essentially create money from nothing in order to purchase the bonds and TBs. I’ve always disliked this aspect of fractional reserve banking and believe it needs to be ceased - a pipe dream I realize. Canada needs to set the example of possessing a CB that looks out for the interests of its people - not the banks it supposedly regulates or to enable government to avoid having to make tough fiscal decisions or to do the bidding of the Federal Reserve.
For Q2, I find this answer unacceptable - sorry to be so blunt.
Canadians are not adverse to using electronic money and compared to Americans we use a relatively small amount of actual cash to make purchases. However there may be a very significant black (under the table) market which does. Any seasonal changes (X-mas) in the money supply should be temporary and withdrawn accordingly when appropriate. Our economy has not grown by 5% each year (nor has the population) in ‘real’ terms in the past 5 yrs and therefore the money supply growth is fraudulent. I agree that inflation is running high but unfortunately economists that devise how we measure data have errroneously decided to incorporate this measure into GDP data. IMO, this is a subversive attempt to make the numbers look better than they actually are. Bottom line is Canadians have been and continue to be squeezed financially and are being forced to use evermore amounts of cheap credit (which incidentally spends like ‘real’ money) to satisfy their desires or for many just make ends meet - this despite the fact that a vast majority of households are now dual income. Very few households actually save for anything due to facilitating BoC policy (which is world CB policy). This is not going to end well. If the government and BoC are truly concerned about the well being of Canadians (at least financially) and thus the country as a whole perhaps they should seriously consider a change in policy which actually rewards savers and the prudent members of our society and perhaps even convert some others who have been living ‘high on the hog’.
Final thought: I was watching a HGTV real estate show and a young couple were obviously in the market to purchase a home. The guys stated that the time was right to purchase a home and that it was a great way to ‘make to money’. I was disappointed at his ignorance and naivety. This is the problem with our society now. A home is looked at primarily as an investment rather than a place to hang your hat. House prices, over the long term, cannot and will not increase faster than incomes or population growth. Sadly many people stubbornly just do not get this. In the UK, homeowners rely on the increasing value of their propety as a source of income. Canada is quickly following their example. We as a society have shot ourselves in the foot and have actually caused ourselves to be lulled into accepting the current RE pricing model (as ludicrious as it is) and the easy money that fostered it. The only winners have been those that garner fees from the increase in value and sale of assets such as real estate and the securities that are backed by them. I was hoping that those we elect (and those that are appointed by them) would be much better stewards of our system and resist international and domestic (people want their free stuff) pressures. Politcally this has been deemed unpalatable and I fear it is too late to alter the course of this ‘Titanic’. I can’t help but wonder that if we do balance our budget and actually start paying down our national/provincial/municipal debts again ( as we began doing several years ago) how long will it last (regardless of any law which forbids incurring debt - which has already been broken for political expediency) and that will we actually have price stability that can be sustained - which BTW means the buying power of our currency does not decline.
Thanks for your time on this matter,
Sincerely and most respectively Rich DeBruyn
Rich..please explain why houses need to depreciate 50% or more for things to be all rosy in America or Canada just curious?
I’ll wait for Rich to reply, but just a thought, sellers give in, they lose many thousands of dollars on their homes, because buyers need a deal?
Now these sellers become buyers and they want the buyers who stole their houses to return the favor, thus houses end up 80% depreciated, does anybody see that scenario happening, and how is that good for the country.
Hello Doom,
Yes that is the predicament we as a society have foisted on ourselves. Unfortunately buyers have paid too much for their homes mainly (but not entirely) due to extremely low interest rates. Now, I truly do not know if interest rates can or will ever revert to past norms. Obviously if they slowly increase asset prices will decline as well - buyers purchase a payment. I mentioned a possibilty of 20-25% decrease in Canada (50% seems excessive - as per your prior comment. Of course no one plans or expects to sell at a loss but there should be no guarantee or right to a profit (at least not one substantially higher than the growth of the population or economy as a whole - if there is in fact any). There can be no denying the fact that prices have increased based on ‘easy’ money and capital inflows from external sources and in some cases VC money ( supporting companies who have yet to make a profit). This will not last and those that purchased at elevated prices will most likely not make a profit or be lucky to break even. They probably don’t care though - they want safety and perhaps have factored in some capital loss. Point is the last 15-20 yrs have been exceptionally unusual and is not likely to repeat in our lifetimes - it certainly cannot continue. Our current world financial and monetary model (been in place off an on for about 300 yrs now) is based on sustained growth, however the planet is of finite size and resources. I would not dare to speculate on what the limit is but I do know there is a limit and therefore this ‘ponzi’ growth model is fundamentally flawed and will collapse on itself eventually - as all PONZIs eventually do. Some savy investment bankers and hedge funds with the blessing of government and regulators have done an exceptional job of leveraging this entire demographically driven malignant aberration to their advantage. Money has truly made more money in the last 20 yrs even though it has mosty been ill gotten. I am not inclined to feel sorry to anyone who foolishly acquiesced to a fraudulent system of money printing and cheap money nor will I bail them out by purchasing their property at more than 3 X my income and thus be left holding the bag so they can realize their dream of making vast wealth from real estate. As for your very last comment. Yes, the financial engineering that has consumed in our world is about to implode and it will not be good for any countries.
Because the price is too high, and it’s twice that in Canada.
Blue Sky isn’t everything to high, last time I looked anything worthwhile is sky high.
Maybe we need to make pay sky hi and then it doesn’t matter cars and houses are overpriced?
Isn’t really that simple, if a burger cost $1 and you don’t have a job to buy it, better that it cost $2 and you got a job to pay for it?
Not better for me. I’ve been working for 45 years. I don’t want to have to keep working for another 10 years so you can have your Double Burger.
“isn’t everything to high”
Cheer up. Housing prices are falling, fuel and gasoline prices are falling and everything else is soon to follow. This is very positive news.
My opinion is that a large part of the problem is the increased demanf for homes caused by the infiltration of immigrants, both legal and illegal.
when you have sudden increases in population for which there is no housing, the demand increases, raising the prices for the lower income homes, the resulting increased prices allowed home sellers to move to bigger and better homes using the equity as the down payment on the newer house. this raises the overall home prices.
Next comes the government assistance to the lower income home buyers, one way or another, making the demand for lower income homes greater, drivig prices up again.
almost everyone is now happy, buyer assistance, realtors commissions up, home builders happy to supply bigger and better,
Now realtors claim houses always go up, guaranteeing you can resell and make profit from home sale,might as well buy a couple as interest and down payment are low.
Presto , excess profit brings speculation and prices spiral up, until buyers disappear , for one reason or another.
chance of change, almost nil, as people don’t think of anything except that they need more and better things as is their right as an American to have everything they need when they want it
“almost everyone is now happy, buyer assistance, realtors commissions up, home builders happy to supply bigger and better,”
Municipalities love those inflated tax receipts too.
That sounds good SFJack but there is no demand for housing. Housing demand is at 20 year lows and falling in an environment of 25 million excess empty houses.