A Dramatic Decline Which Nobody Predicted
The Lowell Sun reports from Massachusetts. “In some respects, it can be argued the housing bust still hasn’t ended. October marked the eighth consecutive month that petitions to foreclose a home in Massachusetts rose when compared to the same month a year ago, according to The Warren Group. Timothy Warren Jr., CEO of The Warren Group, said in a statement that lenders are continuing to work through a ‘backlog of long-delinquent mortgages and push the legal work through a pipeline that was clogged for all of 2013.’ Richard Howe Jr., register of deeds for the Middlesex North Registry of Deeds, called the current environment ‘the residue of the housing bubble.’ Howe wrote in a blog post that 60 of the 72 foreclosures completed in Lowell this year (through Nov. 30) involved a mortgage that was originated in 2007 or earlier.”
“‘Those foreclosures that occurred right after the bust, those were people who put nothing down,’ he told The Sun of Lowell. ‘Now we’re seeing it happen to people who were able to stick it out a little longer, before perhaps something traumatic occurred in their lives.’”
The Houston Chronicle in Texas. “The collapse of crude oil prices is stirring fears that several oil companies could tumble into bankruptcy, possibly triggering broader economic pain, if they default on risky debt fueling the shale energy boom. Because the energy sector makes up the biggest portion of the high-yield debt market, a surge of defaults could resemble earlier telecommunications and real estate busts that infected banks and hit other quarters of the U.S. economy, said Oleg Melentyev, head of U.S. credit strategy at Deutsche Bank in New York.”
“A rout in the oil industry could cause energy bond prices to fall, prompting nervous investors to cause collateral damage in other sectors, ‘but my guess is you probably won’t have too much,’ said Larry Whistler, president and chief investment officer at Nottingham Advisors. ‘I don’t see systemic risk like you had with the mortgage market.’”
The World Property Journal. “A million dollars will still buy what’s considered a luxury home in most parts of the country, but there are of course places where this price point will buy nothing more than the average home. ‘Houston was a clear standout, with a 42 percent increase in sales of homes costing $1 million or more since last year; the average increase for the 385 cities that had million-dollar-home sales in the third quarter was 17 percent. ‘The luxury home market in Houston is thriving in large part because of the strong and diverse job market,’ said Redfin agent Tara Waggoner. ‘Energy and technology companies like Exxon Mobil are hiring employees away from the coasts. Those people are shocked at how much home they can get for $1 million in Houston.’”
“We took a look at seven markets that have heavy international buyer activity: Los Angeles, Orange County and Riverside-San Bernardino in California; Miami, Orlando and Fort Lauderdale in Florida; and Las Vegas. Though home sales for $1 million and more in these markets remain strong, year-over-year growth has plummeted in the past year, going from 46 percent to just 5 percent. There has also been a precipitous drop in all-cash buyers: About half of all transactions in the seven markets with heavy international investor interest were cash at the start of the year, but that fell to 22 percent by the third quarter.”
The Palm Beach Post in Florida. “It’s been a good year for the sale of homes priced at $1 million or more, but the increase in volume may be waning. According to Redfin, Florida’s third quarter sales of high-end homes measured 1,004, up 6 percent from 2013 and 115 percent from the same time in 2011. But that’s a decrease in momentum from 2013, which saw a 34 percent hike in million-dollar homes compared to the previous year.”
“‘That’s no surprise, given that the luxury housing market was the first to recover after the crisis and has been going strong ever since, benefitting from a booming stock market, low interest rates and overseas investment,’ Redfin said in a press release. ‘But that overseas investment is beginning to wane, and markets that are most dependent on international demand are seeing a steady and dramatic decline in sales of million-dollar-plus homes.’”
The Desert Sun in California. “Bob and Dolores Hope’s Palm Springs estate took another hit to the asking price — dropping about $9 million to just shy of $25 million. The approximately 23,000-square-foot home had the asking price cut to $34 million in January, after originally being put on the market privately for $50 million. The Hope estate went on sale in March 2013. The family’s primary home at Toluca Lake in Los Angeles went on sale for $27.5 million in September 2013. The asking price dropped to $21.8 million in June and had the listing removed in October.”
The Arizona Republic. “Homebuilders are offering bigger deals to try to sell metro Phoenix houses before the end of the year. During December, Shea Homes is selling houses already constructed, featuring stainless-steel appliances, granite countertops and wood floors, for 10 percent to 20 percent off. Ripson Homes won’t charge buyers for 12 months if they purchase a house on an acre lot in Surprise before 2015. Builders began offering deals last summer as new-home sales began to fall below last year’s sluggish pace. In August, most homebuilders were offering at least $5,000 off upgrades and other options for homes, or a similar discount on closing costs.”
“The latest round of incentives from Shea and Ripson comes after homebuilding plunged 33 percent in October compared with the same month in 2013, according to RL Brown Housing Reports.”
From Cronkite News in Arizona. “Phoenix-area home builders are heading for a disappointing end to the year, according to a third-quarter report released by Metrostudy. Rachel Cantor, regional director of Metrostudy, said many factors may have contributed to the decline, which departed from the 30 percent growth her organization has predicted for the year. Michael Orr, director of Arizona State University’s Center for Real Estate Theory and Practice, said the survey’s results aren’t dramatic but are a little surprising. ‘It looks like we’ll actually sell fewer new homes this year than last year, which nobody predicted,’ he said. ‘And I was probably the least optimistic, but even I thought there would be a slight increase.’”
“Cantor said that these numbers are expected to carry through to the end of the year, and she said builders should set their expectations accordingly into 2015. ‘Be more realistic, set some expectations for yourself, don’t expect 15 to 20 percent growth,’ she said. ‘If you’re going to grow, you’re going to have to figure out how to take market share from other builders versus the market actually growing.’”
“……people who were able to stick it out a little longer, before perhaps something traumatic occurred in their lives.’”
Like the trauma of finally realizing you are a complete FB? I am continually amazed at the ongoing wreckage from 2007!
Something traumatic? Like the homebuilders announcing price cuts of 10 to 20 percent off what you bought your house for earlier this year?
Back to 2011 and below.
That’s exactly what I was thinking. It’s gotta make Christmas a little gloomy seeing yer nabe get 20% off their granite counter tops and knowing full well your house ain’t worth what you bought it for. Bummer. Deflation sucks if you paid retail.
The something traumatic was probably the end of the interest-only grace period; i.e. sudden principle payments added into the monthly nut. At the height of the bubble, couldn’t primes get a 5-year I/O grace?
What if you bought in 1984?
“… people who were able to stick it out a little longer …”
… were the chump people who were willing and able to continue to send to their lender large chunks - VERY large chunks - of their very own paychecks each and every month while at the same time continuing to live in and to willingly spend their energy and willingly spend their own money maintaining the house that their lender - THEIR LENDER, not them but their lender - owned.
Bahahahahahaha … and these people willingly - WILLINGLY - did this because …
(bahahahahahahahahahahahahahahahahaha)
People Are Smart.
…..and you are just a gloating idiot. Filthy, amoral idiot.
Ad hominem attack on fictitious character duly noted…
Indeed. He should be flipping houses with an attitude like that.
I’d be angry with Mr. Banker too if I were Jingle_Fraud.
“departed from the 30 percent growth her organization predicted” ?? So they predict 30 percent increase for the year and it’s actually a slight decline? What other area could you get it so wildly wrong and not be out on the street?
And where are the construction job losses in the employment figures? Right around the corner. Enjoy Christmas cause 2015 is the year of the recession.
ft dot com markets
Smart Money
December 8, 2014 8:54 am
Bears tighten their grip as one-way bets disappear
Henny Sender
Corporate bond yields rise as clouds descend on equity markets
More than $21bn of new deals came to the US investment grade debt market on the first day of December, led by a $17bn offer from medical device maker Medtronic. It was the second largest primary market session ever, according to the LCD unit of Standard & Poor’s.
Things were not quite as robust in the high yield market, though, as some deals, especially in the energy sector, were postponed indefinitely and spreads widened in the secondary market. “Plenty of bonds were still trading furiously out of the energy space amid a confluence of short covering and cherry picking by intrepid investors,” noted LCD. Bond prices hovered at a 29-month low.
Credit, especially in the junk market, has underperformed in recent weeks even as shares hit record levels. Moreover, it is hard to see an improvement in the credit market any time soon. So, as end-of-year reports start pouring in from the brokerage and investment firms, the pressing question is whether credit market gloom will infect stocks or whether factors weighing on credit will instead prove passing and the two markets will move happily in tandem once more.
But at least the debate is no longer just about second guessing the Federal Reserve and its monetary policy. There is general agreement that while the Fed has stopped its asset purchases, it will not raise rates any time soon. Most analysts think interest rates will remain negative in real terms for years to come. Indeed, some macro bears are already beginning to ask whether the Fed has exited its asset purchase programme too early.
…
“What other area could you get it so wildly wrong and not be out on the street?”
If every CNBC/Bloomberg/CNN market pundit were held to that standard, the streets would be littered with men in suits.
Everyone knew the day of reckoning was coming. Few would admit it. There are alot more days like this for a long time to come.
Get selling, get slashing, get right with yourself.
“A rout in the oil industry could cause energy bond prices to fall, prompting nervous investors to cause collateral damage in other sectors, ‘but my guess is you probably won’t have too much,’ said Larry Whistler, president and chief investment officer at Nottingham Advisors. ‘I don’t see systemic risk like you had with the mortgage market.’”
Not to worry. We’ve been repeatedly assured a recovery is baked in. And remember, closely-watched pots never boil over.
What was the watch word from the Fed in 2006? Contained? …as in Sub-Prime is contained?
“Subprime will be contained to $200 bn.”
“In some respects, it can be argued the housing bust still hasn’t ended. October marked the eighth consecutive month that petitions to foreclose a home in Massachusetts rose when compared to the same month a year ago, according to The Warren Group.”
2015 = Year of the Crater
Here’s whats telling about MA. Prices are cratering by every metric across the state and the declines are most dramatic in Boston. The point is that this is what happens when foreclosures are delayed by moratorium and other means that result in moratorium-like delays. And how often did you hear right here that Boston was immune from declines? “Oh, it has universities and it’s a ‘life sciences’ city!” is a beaut you’ll find kicking around here. Well here we are…. and it’s coming to every metro area in the country.
Remember…. you can’t hide a house so how did you expect tens of millions of them could be hidden?
2015 = Year of the Crater
Crater denial turns to Craterrage at 10 percent decline in sale prices.
I’ve observed more CraterRage and enragement here in the last 6 months than I did back in 2011.
“We took a look at seven markets that have heavy international buyer activity: Los Angeles, Orange County and Riverside-San Bernardino in California; Miami, Orlando and Fort Lauderdale in Florida; and Las Vegas. Though home sales for $1 million and more in these markets remain strong, year-over-year growth has plummeted in the past year, going from 46 percent to just 5 percent. There has also been a precipitous drop in all-cash buyers: About half of all transactions in the seven markets with heavy international investor interest were cash at the start of the year, but that fell to 22 percent by the third quarter.”
Luckily for San Diego home owners, it is not on that list of arbitrarily-selected markets to analyze. Hence there is no need to worry about a shortage of all-cash international investors in San Diego willing to snap up multi-million dollar homes at unheard-of prices.
‘Shawne Merriman, the retired San Diego Charger and NFL Pro Bowl linebacker, has relisted his home in San Diego as a $1.049-million short sale.’
‘The Scripps Ranch property has been on and off the market for the last four years and was more recently priced at $1.255 million. Public records show Merriman paid $1.465 million for the home in 2005.’
‘Earlier this year, Merriman sold a one-bedroom condo in San Diego’s Gaslamp Quarter for $217,500, less than half what he paid the property in 2007.’
$1.465 - $1.049 = $0.416, which is chump change for a pro linebacker.
He’s retired and he probably pissed it all away. A short sale? The Scripps Ranch house should be paid for … I’m guessing that at one tie it was paid for but now he’s taken out loans against it to keep up appearances, as whatever he’s doing now for a living is chump change. I recall a few years ago when the Broncos suddenly found themselves short on running backs. They rehired a guy (I think his name was Tatum Bell) who was cut that season from teh Detroit Lions. He was working in a cell phone kiosk in a mall in Aurora, IIRC, earning a fraction of the NFL’s “minimum wage”
The average lifespan of a running back is less than 5 years, and agents and taxes probbably take a huge chunk of that (half?). About all they can afford to do is rent until they retire, and then go Oil City. Bet they can split a mean log…
According to Wikipedia he was paid $10M for his last 2 seasons. He played a total of 8. It seems odd that he had a mortgage on a house worth 1/5 of his annual income.
Luckily, help is on the way for short sellers! After all, it’s unfair that homeowners would have to pay taxes on the hundreds of thousands of dollars
of income they never receivedin home equity wealth gains they extracted to pay for SUVs, exotic vacations and other high-on-the-hog Housing Bubble-era frivolities.weren’t things sort of obvious by early 2006?
july 2005 was the peak here in 22151
The only think obvious to Merriman was he was being paid a lot of money. Not so much by 2014. Money-Fool-Parting. It happens.
Should have diversified more.
NYC Metro Area Sale Prices Turn Negative On Year
http://www.zillow.com/ny/home-values/
Enter a city in NY state in the search field first, then select median sale price then sort by “metro area”
In my Village:
Asking prices continue to amaze while sales prices crater.
Resale zestimates track with wishing prices, not actual recent sale prices. About 30% too high.
Rent zestimates are 200% of known actual rents.
I have been thinking about the price of oil collapsing and the housing bubble in Denver…
Replay of the 1980s???
Nah…this time is different.
What part of the 80’s ??
The part where prices cratered back to historic levels.
There was a shale oil boom in the mid to late ’80’s I believe. It was smaller, but still had a bust later.
I think it’s the Western Slope (Grand Junction, etc.) that’s really going to take it in the shorts. Comparatively there isn’t that much drilling on the Front Range. I seem to recall discussing GJ’s collape here the last time oil prices tanked. That said, I’m sure Denver will feel it.
Considering how grossly inflated Denver prices are, they have much further to fall to get back to long term trend. Denver is going to feel some pain. It all depends on how long they want to feel it.
like 1980
ouch !
next up emerging market bonds etc
energy is #1 in leveraged debt………………
It was that era that caused me (an architect) to move to where I now live - ILLANNOY!!! Been pining to get back to the big D - plan to do so but will wait to buy - seems that oil as it slides will hit Denver based on price per barrel (pbl).
I recall at the time (1985ish) a barrel of oil on the NY spot market cost around 50.00 per then literally overnite after the arabs could not come to agreement on price in the Vienna ‘accord’ price pbl dropped to half that to around 20 to 25 bucks pbl.
Me thinks that oil at 110 pbl a few months back needs to be around 55 to 60 pbl to see similar occurence in Denver and other oil patchers.
Imagine you young uns’ watching every week them tall towers turning out the lights more and more week by week until the great part of downtown towers were ……. dark. This occured from the Canadian provinces just north of the border all the way down to the Gulf Coast ports. Wildcatters really took it in the shorts and the equipment supply cos. - um…..gone.
Washington, DC Metro Sale Prices Evaporate YoY; Down 2% MoM and 7% QoQ
http://www.zillow.com/washington-dc/home-values/
That +1% YoY was 12% last spring.
could ?
Because the energy sector makes up the biggest portion of the high-yield debt market, a surge of defaults could
Here’s what I keep thinking about. Houses are at the top of the price pyramid. They are the summation of all possible inputs; energy, commodities, labor, manufactured goods. In this bubble they are priced at 200% of the sum of the inputs. 300%, 400% in some cases. And it’s all overblown with too much debt and speculation.
Oil is at the bottom of the pricing pyramid, and it too is all overblown with debt and speculation. Commodities are the layer just above oil, and their extraction is a direct reflection of the cost of energy, plus being overblown with too much debt and speculation, and so on.
Not to make too much of this simple thought, but with the price of oil collapsing by almost half already, and it could go down half again like last time, commodities are also crashing. The layers above will crash in turn as their support is knocked out. Sort of like the World Trade Center in slow motion, with housing bearing down on all of it.
I’ve no doubt that we’ve already crossed the Rubicon. This is possibly the worst possible time to be in debt of any kind.
Don’t forget land prices. An acre in Topeka costs a small fraction of what an acre would fetch in Malibu or Palo Alto. If anything will bring down the ridiculous prices in places like California, it will be the collapse in land values and not the drop in prices in lumber or drywall.
Good job cherry picking two locations out of that hell hole state. Now the rest of it?
The value of land…
There isn’t gold under the surface of all this land. Unless you would give anything to live next to a movie star, what’s the basis for the “value”? Around here the land is productive, timber or farming. The value is some multiple of the yearly income that can be produced. 10x is a solid norm. We are nowhere near that, we’re in a huge bubble, and this is a depressed area. It’s the mania, and the easy credit.
“Not to make too much of this simple thought, but with the price of oil collapsing by almost half already, and it could go down half again like last time, commodities are also crashing. The layers above will crash in turn as their support is knocked out. Sort of like the World Trade Center in slow motion, with housing bearing down on all of it.”
What exactly do you have against affordable housing?
Collapsing oil prices are positively bullish and herald a New Era of growing economic prosperity.
Take housing, for example: Lower fuel prices will reduce construction costs, allowing home builders to pass on cost savings to their customers in the form of lower prices.
Bloomberg News
Oil at 5-Year Low Amid Concern Funds May Resume Selling
By Moming Zhou
December 08, 2014
Brent crude and West Texas Intermediate slumped to five-year lows amid concern that hedge funds and other money managers bet too much on rising prices.
Futures dropped as much as 3.7 percent in London and 3.4 percent in New York. Net-long positions on Brent rose to the highest in four months in the week to Dec. 2, according to data from the ICE Futures Europe exchange, while bullish bets on WTI climbed the most in 20 months. Brent declined 9.9 percent in the period and WTI slumped 9.7 percent.
“People might consider it a buying opportunity but we still have an over-supplied market,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “New lows will be tested. We are in for a volatile market. You have to expect very sharp swings.”
…
Oil is only down 4% so far today. ‘Tis a mere flesh wound.
Lower fuel prices will reduce construction costs
Asphalt shingles come to mind.
Are the touted benefits of high oil prices a myth?
Cheap oil’s economic benefits may be a big myth
Published: Dec 4, 2014 2:05 p.m. ET
Plunging oil prices could be a bad omen for the economy
Is falling oil, and gasoline prices, an economic boon?
By Anora Mahmudova & Mark DeCambre
NEW YORK (MarketWatch) — Cheap oil is awesome, right? Most economists describe it as a sort of tax cut for Americans at the gas pump. Even Larry Fink, a hot-shot Wall Street money manager, declared oil’s decline “spectacular.”
“This is an incredible tax cut for Americans and everywhere else around the world,” Fink told CNBC Wednesday, referring to the startling plunge oil has seen in recent weeks.
The cheap oil argument goes like this: consumers and businesses save in heating costs and in fueling their cars and those savings will be spent on discretionary items, fueling consumption.
A recent article in the Washington Post indicated that Americans would pocket a $230 billion windfall, if prices stay at their current levels, compared to where they were in June. Read: Filling up at the gas pump is about to get even cheaper.
However, some financial experts argue that a decline in oil isn’t all that it’s cracked up to be. In fact, it could be a bad omen for the U.S. economy.
Lance Roberts, Strategist for STA Wealth Management, said the idea that declining energy prices are good for the economy is wrong.
“[When] an individual fills up their automobile, there is not an extra $10 bill that shows up in their wallet, therefore, the incentive to spend really is not recognized and the ‘savings’ get washed within already tight consumer budgets,” Roberts argued.
…
Pop quiz: How many 4% loss days are needed to bring oil down to the imminently affordable price level of $30 / barrel?
To find the answer, solve this equation for n:
$65 X 0.96^n = $30.
The answer is n = log(30/65)/log(0.96) = 19 — less than a month of trading days!
Still dropping like a rock after hours … now down to $63/bbl!
CRATERRRRRRRRR!
I wonder how long it will take for plummeting oil prices and other basic commodities that are inputs to home construction
to show up as a reduction in construction costs and sales prices of new homes.
Any thoughts on that?
So far as I can tell, this precipitous drop in home construction costs should be a great boon to both prospective future home buyers and home builders, who will split the surplus due to falling input prices.
The losers will be owners of existing homes who bought at bubble valuations, including owner-occupants, landlords and flippers alike.
While I like to consider fundamentals, I expect that falling prices and business models based on high prices and marginal debt service will be a mania meets brick wall event. That would mean cascading defaults bring down the house of cards. We’ll have to work through tremendous excess supply before organic replacement costs are a driving force. Just a thought.
I am glad I do not have tickets on the Titanic.
“That would mean cascading defaults bring down the house of cards.”
Has a nice ring to it…
Makes me want to buy an RV for those surf trips to Jalama.
http://tinyurl.com/lrv59sd
Ahhhh, it’s 2009 all over again.
Shale oil = short term profit at retail price. Crater.