‘A Psychological Umbrella Of Fear’ In Phoenix
The Arizona Republic asks ‘how low will it go?’ “Greed drove metropolitan Phoenix’s home prices and sales to new records in 2005. Fear is driving the market this year. Home buyers are worried about paying too much and are waiting to purchase. Concerned about dropping home values, some owners are trying to cash out. Builders, struggling to sell even deeply discounted new homes, are scaling back production and warning of lower profits.”
“Each day more people, from contractors and mortgage firms to real estate agents, are losing jobs or money in the metropolitan Phoenix’s rapidly slowing real estate market.”
“Until recently, the market’s slowdown had been considered a necessary, short-term hardship to offset last year’s wild run-up in prices. But now many analysts and economists say it looks as if the slide will continue for at least the next six months, possibly pulling down home values as much as 10 percent before it’s done.”
“‘There’s a psychological umbrella of fear in Phoenix’s housing market now,’ said Tim Sullivan, a national housing analyst. ‘Buyers are uncertain.’”
“New data that includes used and new houses shows Valley home prices are down as much as 20 percent from last year’s high. Prices aren’t down all over, but some areas are showing steady declines. The median price of a used home in Pinal County fell to $211,500 in this year’s first quarter. That’s down from the $220,000 the typical existing home was selling for at the end of 2005.”
“The median price of an existing Valley home was pushed nearly $60,000 higher last year by investors, according to Jay Butler.”
“Owners who used adjustable loans just to afford a house may be unable to pay the higher mortgage. If they can’t sell in the slowing market, where the number of homes for sale climbs to a new high each month, they could wind up in foreclosure. Many other homeowners who tapped the equity that last year’s run-up brought also will be vulnerable.”
“Home builders began offering incentives early this year to try to sell their backlog of new houses in metropolitan Phoenix. The deals keep getting better, signaling the market isn’t. Late last year, investors began walking away from deposits on new homes because they couldn’t flip houses for quick profits as they did early in 2005. Regular buyers can’t sell their houses to clear the way for them to close on new ones.”
“Builders are offering incentives worth as much as $100,000 to unload them. Recently, a few started offering to buy existing homes from buyers as a way to free them up to close on their new houses. That hasn’t happened since the market crashed in 1990.”
“Because buyers aren’t biting, builders are downgrading their sales forecasts, laying employees off, backing out of some Valley land deals and seeing their stock prices plummet. A recent study from Hanley Wood Market Intelligence showed metro Phoenix ranked in the top five U.S. markets for new-home cancellation rates. Some Valley builders are reporting cancellations as high as 40 percent. ”
“The Valley also has a glut of condominiums, with at least 8,000 units planned and under way. Some apartment complexes that were converted to condos last year are being ‘reapartmented,’ or turned back into rental units because buyers don’t want them.”
“Metro Phoenix led the nation for new-home building in 2004 but slipped to No. 4 last year. Housing analyst Barbara Allen, who is based in Scottsdale, said home builders are calling the Valley a ‘good long-term market,’ which she says means ‘they’re worried’ right now.”
Looks like the AR decided to cry fire in the theater. With prices up $60k in 2005, what’s the big deal with 20% off? Here are some related quotes:
‘ Vest warned the engine of the state’s economic prosperity has been population growth, ‘with real estate growth as the turbocharger.’ Californians cashing out of their state’s over-heated housing market has meant a steady influx of people “buying twice the house at half the price and retiring on the difference.’
‘Yet, ‘anything that’s too good to last, will come to an end,’ and Vest said the influx of California money is slowing down, as the housing market, including the California market, slows under the weight of higher prices and rising interest rates. As a result, ‘the economy here will slow fairly dramatically in the second half of 2006.’
Building an economy on housing doesn’t look so bright now….
“Building an economy on housing doesn’t look so bright now…. ‘
LOL! No, it doesn’t. Too bad a house can’t be shipped overseas. Of course, if it could, we’d be buying houses at Walmart.
But now many analysts and economists say it looks as if the slide will continue for at least the next six months, possibly pulling down home values as much as 10 percent before it’s done.”
What about all the analysts who think the slide will go on for years? Oh they try to spin anything. Building an economy on commissions for a bunch of highschool drop realtors is know way to go through life. It is engineers, research and development, increased educational opportunties, and the infrastructure to support them that creates a real economy. Not some lame realtor, mortgage broker, or appraiser that makes a bunch of money off some hard working Americans.
AMEN! Lets create a real economy, not one based on flipping and refinancing homes!
I’ve said that before. If we are going to compete, we will have to provide/make things that people want/need. Unfortunately, that means we must compete with folks who make the same or better quality goods for about 1/10th the price (factoring wages and benefits). Folks on the blog said “Yeah, but I’m not doing it for slave wages”. I still say that whether you want to or not, it’ll be tough to avoid. Unless the US comes up with something the rest of the world really needs (other than US dollars), puts it under wraps, and charges the rest of the world enough to cover our deficit spending (other than oil…that one has just about run it’s course), it isn’t going to happen. The rest of the world has just about had it in letting us tax them while we mostly pass real estate and paper dollars back and forth. Look at the countries getting away from buying oil in dollars, and you’ll see how we’ve been able to tax the rest of the world. The game is just about up. Real economy? Careful what you wish for. I don’t think most Americans have any idea what it is to work anything but banker/realtor/broker/stock market hours anymore.
“I’ve said that before. If we are going to compete, we will have to provide/make things that people want/need.”
Great point, Kerk93. America does some things well. Arts and entertainment are exported all over the world. Agricultural products - America still does well, although other countries’ produce have been on store shelves for years. I cannot remember when the only oranges I saw were from the United States. America also has a good tourist industry taking in money from foreign tourists. Like it or not, our weapons are exported to all sorts of countries. We are good in the defense industry. America has the best health care in the world, although perhaps the most expensive, but I think the expense is partly due to the enormity of illegal aliens getting subsidized emergency room treatment and the like in our hospitals. America has the best universities in the world, but its public schools are mediocre (riddle me that?). I’m a recreational cyclist and think America has some good bicycle manufacturers. So we can at least export entertainment, food, higher education, bicycles, quality medical treatment and tourism. America ought to build more nuclear power plants and produce a surplus of power, exporting excess to Mexico and Canada. America should export its coal to China. I met a young gal a few months ago who is getting into Physical Therapy (in a masters program now) and will get her doctorate. PT is one thing that won’t be outsourced. Smart young gal!
Earning a living and investing are both similar in that we hope to use those ways to generate income. So it would be wise, to use a cliche, and think “outside the box” and invest abroad. A good value international stock fund such as Dodge and Cox International (open to investors) will put 36% of the money in Europe, 24% in Japan, 12% in the United Kingdom, 7% in Latin America, 7% in Pacific, and 5% in the U.S. It invests in companies such as Honda, Nestle (Switzerland), Royal Dutch Shell (UK), Banco Santander Central Hispano (Spain), Sanofi-Aventis (France), Central Japan Railway, Nokia (Finland), Bayer (Germany), and Unilever (Netherlands). Think of yourselves as world citizens and take heart, everyone!
First it was wait for after super Bowl. Then wait for spring. Then wait for summer. Now is Oops… we are screwed now and for the next 6 months. I’m sure in 6 months the news will be we are screwed for the next 2 years. What a bunch of bozos.
If they don’t like ‘us’ buying twice the house for half the price what will ‘they’ think when people like me buy 4 of the same house for 1/10th the price and kill municipal revenues at the same time? It’s gonna be wierd in these neighborhoods when these things appear to sit empty for years or I rent to a single caretaker college student type until I sell them to my kids if they need one. It’ll destroy the sense of community and hamper any possible recovery. Heck, if the advances I expect in photovoltaics occur I’ll be making money selling electricty for more than the carrying costs.
But surely if prices go to 1/10th, an immigrant family from a family-oriented culture could buy up half-a-dozen or so even on stoop labour wages, and instantly have housing waiting for when the kids grow up.
These kids (”American citizens and already homeowners - think of that”) are going to look pretty good as marriage partners (if not in the US, then certainly in the parent’s country of origin).
Instant family compound.
You’ll finish up with a pretty good ’sense of community’ actually, but perhaps for current Phoenicians not a familiar community …
If by “immigrants” you mean illegals, that argument might work if all things were held equal. But things are getting ready to change in a big way. When Americans stop spending their “free” housing ATM money and are essentially broke and in deep debt there won’t be gobs of equity money sloshing around like in the past 5 years or so.
Think about where the majority of illegals work…construction, tourism, restaraunts, gardening, entertainment, etc. These industries dry up when an ecomony’s in a recession. Lending standards will tighten and illegals who formally could just fog a mirror will no longer be able to qualify for suicide loans. Plus, many legal and illegal immigrants will be burned badly in this downturn.
Essentially, when the housing engine grinds to a halt and the economy tanks, the whole “argument” of why we need cheap foreign (i.e. illegal) labor goes away. If the economy isn’t roaring full-steam and we’ve got lots of unemployed Americans, how can anyone argue we need more workers?
The real question in my mind is what does a broke country do with 11 - 12 million poor people with less than a high school diploma when we can’t even support ourselves? Believe it or not, attitudes change when people start loosing their jobs and their houses. People aren’t so welcoming or pollyanna in their outlooks. We’re going to have enough of a tough time figuring out what to do with all our poor American citizens.
This is a real problem looming in my opion. In the best of times (over the past 5 years) I personally saw “immigrants” digging through the trash on a daily basis in the allies of the coastal community I just left. What happpens when we get to the “worst of times”?
This subject may be politically uncorrect to bring up in polite conversation but in my opinion it’s a reality most are choosing to ignore. This administration has tried to advance globalization on the backs of the middle-class of America. The next few years is going to be a severe test to see if the emerging markets can sustain their growth without the American consumer.
I didn’t necessarily mean illegal immigrants, but I do take your points.
I was considering the possible ghetto effect, which could happen no matter where the residents came from.
My UK relatives (my parents emigrated themselves to Australia when I was 11) tell me that very cheap RE was one of the big drivers behind the creation of large immigrant communities in northern English cities. There are now severe societal strains.
The short answer is that they probably cannot. The emerging markets are largely export driven, and have not worked to build domestic consumption.
No offense, but you’ve fallen prey to listening to the “experts” on TV/radio. Read again what the second sentence says, and I think you’ll see that it makes no sense, although that is what you hear on TV all the time. An entire country is based on only being able to sell off their resources and labor in exchange for paper money. They haven’t been able to figure out how to convince their own people to go into debt to buy stuff that they don’t really need. Hmmmm.
If emerging markets had been selling their goods for oil or gold, they’d have had something to show for their troubles instead of US dollars that are based on our politicians doing the fiscally smart thing to ensure their prosperity. Whether you are a fan of gold/oil or not isn’t the point. The only point is getting compensation for their goods in a form that isn’t so much dependent on the FED.
I hear that all the time and have to shake my head. Why would a country have to work to convince people they need to purchase things? I think an ape with enough bananas could figure out what they really need and what they don’t need.
This is so right on. As the housing continues to spiral downward it is going to effect jobs in almost every sector. This government manufactured housing boom may be the last for this country fo quite awhile. Exactly what does the government do to falsely pump the economy up again?
Wouldn’t it be amazing to see future home prices based on “exposed rooftops” or “open areas for solar panels”? Prices could reflect the quality and regularity of sunlight to have the Grid pay $ back to the landowner/homeowner.
“the influx of California money is slowing down, as the housing market, including the California market, slows under the weight of higher prices and rising interest rates. As a result, ‘the economy here will slow fairly dramatically in the second half of 2006.”
unfortunately Phoenix depended too much on California refugee’s. Now that everything in Cali is grinding to a halt, the guys that wanted to move can’t cuz he can’t sell anymore (at his price that is, yet his not willing to lower). The entry level Californian will continue to move over, but they come without that $500,000 profit from the last sale. So they’ll be much more careful and hopefully will not bite at the first house they see (afterall, they got 50,000+ homes to check out!).
40 percent of preconstruction buyers flee…
http://tinyurl.com/gazot
richmond condos for everyone!
Eeek! Full video Virginia Beach advertisement! My tax dollars at work!
There is a large project in Norfolk called Granby Towers… It was supposed to be under construction, but oddly they are still doing very simple things, and no real construction yet.
I wonder if they are having problems.
Reconcile this: “No one is calling for the Valley’s housing market to crash as it did in 1990 because the rest of the area’s economy is so strong now.”
With this: “With the housing industry accounting for at least one of every three dollars generated in the Valley’s economy, any slowdown will hurt.”
I’m guessing that it’s not the journalist’s responsibility to connect the dots. Just as an aside, Catherine Reagor is percieved by many on this blog to be “soft” (and she is), but she’s taken flak from bloggers on her paper’s site, when a blog was attached to her column, for contributing to the Fear (but perhaps not Loathing) created by her constant “negative” reporting.
link please,
let the Phx bubble blog posters go to bat in the local media.
I would be interested to see how their experience goes, since OCR’s has gone quite badly.
“With the housing industry accounting for at least one of every three dollars generated in the Valley’s economy, any slowdown will hurt.”
“Because buyers aren’t biting, builders are downgrading their sales forecasts, laying employees off, backing out of some Valley land deals and seeing their stock prices plummet.”
AND…
“The combination of two ingredients makes housing markets go bust: overbuilding and job losses. Metro Phoenix has just one: overbuilding. The Valley has one of the most robust economies in the country, with an unemployment rate below the national average. So it can likely weather the housing market’s downturn, economists say.”
I am a bit confused. Maybe I should just shut up and drink the kool-aid.
This is one of the best articles yet out of Phoenix. It has denial and fear written all over it and it contradicts itself from paragraph to paragraph.
But not too worry, John Foltz is assuring us the worst is all behind us now. Phew, that was close huh Phoenix?
“My sense is the worst is behind us, and the housing market will have stabilized with smaller jumps in listings and more steady sales by October,” said John Foltz, president of Realty Executives.
What’s odd is the attempt to paint buyers with ‘fear.’ I haven’t talked to one potential buyer that expressed anxiety. Now sellers may regret losing that which they didn’t do a single thing to earn, but where is the fear in that?
“My sense is the worst is behind us,…”
I DO NOT THINK SO, NOT SO FAST.
You know, you can go into any major grocery store in the Valley and get a thick glossy paperback of apartments for rent. My apartment in Ahwatukee is considered a luxury apartment but in the last few years I noticed some apartments have added quite a lot more amenities. Attached garages in some apartment complexes, for example. Usually, standard features for Phoenix apartments are full sized washers and dryers. I figure you may as well go for extreme luxury in apartment complexes - no maintenance worries and everything is always clean - while earning interest on your T-Bills, municipal bonds, savings bonds, and gains on other investments. If you have $250,000 in T-Bills, municipal bonds, savings bonds and money market accounts, your interest will pay for the top luxury apartment in Phoenix with attached garage and resort style pool and gated entry. Some of these apartment complexes are more luxurious than what you get in new starter homes. These days with stagnant home prices and lower downside risk investment choices than real estate, renting is the way to go. I think this is even more so for the next 5 years in Phoenix
Bill and other AZ dwellers, is it just me or are the real estate signs already getting out of control? My God, they’re becoming public eyesores. I don’t want to think what it will be like in a year when one out of every six or seven houses is either on the market or in the process of foreclosure.
I always felt that all the empty houses in N AZ are eye-sores, especially when working folk can’t afford to buy a modest place.
The Economist this week has several articles about social unrest and the growing disparity of wealth in America, growing violent crime rates etc.
http://www.economist.com/printedition/
They also touched on Mortgage Equity Withdrawal (MEW) as the salve that has smoothed over the lack of wage increases for most Americans since 2000 and the fact that it is ending.
And The Economist isn’t a liberal commie pinko rag.
Not that there is anything wrong with liberal commie pinko rags, just trying to head off that critique before it starts.
Can anyone please post that article? Thanks.
Where is their story on France and their Muslim riots, and then the youth&Muslims who rioted when the government tried to sell out their job security to please the Muslims rioters?
Social unrest in the USA? Ha, we ain’t seen nothin’ yet.
plenty of ammo- bring em on !
When we were in Phoenix over part of Memorial Day weekend, there were thickets of for sale and open house signs. This was probably my 23rd or 24th trip to AZ in 30 years, and it could be about as bad there as when copper prices bottomed out and everyone lost their jobs in the 1980’s. Another industry you couldn’t depend on. As I have posted before, my husband & I are looking to bottom feed when things get really bad there in 3-4 years, when he graduates from pharmacy school. We want a paid-for retirement home ready when we retire. We will live in our modest home here in our brokedown Midwestern state, and pay a lot into our “retirement” home in AZ. I will be trolling for foreclosures in either Sedona or Scottsdale. There’ll be plenty of them, lol. Not worried about finding a good deal.
“Bill and other AZ dwellers, is it just me or are the real estate signs already getting out of control? My God, they’re becoming public eyesores. I don’t want to think what it will be like in a year when one out of every six or seven houses is either on the market or in the process of foreclosure.”
I’ve seen it worse in 1996 in the part of southern California where I moved from. Far more % of for sale signs per block. Last I cruised around to look a for sale signs was 2 weeks ago, when I drove through Queen Creek just for grins (and I literally grinned, being a renter).
Exactly. I was leery about renting an apartment, but wasn’t sure about my work situation when I moved here last year and knew enough not to get into a housing market where every house had 15 people stuffing bids under the front door. I took a six month lease on a place in SW Chandler (I’m right next to Ahwatukee) and it’s been great. Very quiet, extremely well maintained complex, nice pool and fitness center, and a long walking/jogging path around a lake. The commute into downtown PHX could be shorter, but since they opened the new section of the 202 last week traffic on I-10 hasn’t been as bad. Even at its worst it only takes me about 40 minutes to get downtown. I’ve been looking to rent a house closer in, but I’m in no particular hurry, and if I don’t find something in the next couple of weeks I’ll just sign on for another six months here (who wants to move in 110 degree heat anyway?)
“(who wants to move in 110 degree heat anyway?) ” Not a pleasant thing to do. And I did it a couple of years ago in 108 degree heat in a U-Haul truck without air conditioning. My sister moved a few months previously to North Phoenix. I downsized my Scottsdale apartment (moved because I was burglarized) and rented a storage unit. 108 degrees and no air conditioning in a hot truck! Drank lots of water that day! Ha! Now I share a 2 bedroom 2 bath luxury apartment in Ahwatukee. Price is right. I feel sorry for those people who bought houses in the last 2 years. But then when I think most of them bought them out of greed, I don’t really feel that sorry! After all, the previous R.E. bubble was within the lifetimes of these buyers and they should have known better, but greed got the best of ‘em.
Forget about 110. The forecast is that in the next 10 years, 130 degrees would be norm in Phoenix. Who the hell wants that?
Amen to that!! I never could understand why people continued to flock to such a miserable seven months of weather in the “sweatiest city in America”. My sister is always saying “the winters are so great here”. PHOOEY. I like the 4 seasons. But to each their own. Phoenix, I wouldn’t pay $1 for a house there.
Good. 3 million people in the Phoenix metro area. 5th largest city in the U.S. Prices are not like California prices (still). Hmm…3 million people? There must be something about Phoenix to keep them coming here! What is it? Ha! Air conditioning at $300 per month in summer is much cheaper than buying a house that costs 4 times the Phoenix price just to be on a beach with cooler air. I guess America has to go through a deep depression to get rid of emotionalism such as those who sour on hotter temps. I spend 4 minutes of the day every day in hot temperatures in Phoenix. 4 FREAKING MINUTES! And I guess it must be worth $6,000 more per month to get 4 minutes of cool temperatures in the outdoors in California on the beach? GOOD GAWD! What folly! I lived in New Jersey 3 years ago in the winter and I was always glued to the weather channel in the winter, terrified about any hint of ice storms. In Phoenix we don’t have that. We don’t have earthquakes or hurricanes, and very rarely are there sightings of funnel clouds. We have lots of sunshine and I am addicted to seeing blue skies. And Paul (2 posts above): Where did you come up with 130 degrees? The temps never got up to 130. As for 7 months out of the year, that is a gross exageration. 90 degree high days are actually comfortable in Phoenix. But I guess Paul and Banteringbear live in humid places and never know what dry air is like, so they can say whatever their dreams are like. I’m not being a pest, nor am I intending to be mean to the posters above, but I just love Arizona, and I was born and raised in California!
p.s. My 108 degree U-haul moving van ride (see 4 posts above) was 2 hours of the day. And you folks think 2 hours of misery was not worth it and I should have moved it all to a beach side house and paid $6k to $10k per month so that I can have ocean air? Good golly Miss Molly? 2 hours of my life in a hot van! Boo hoo!
I agree with you. I was in Phoenix on Friday (111F) and Michigan this weekend (upper 80’s to low 90’s and humid). I will take Phoenix weather as it is more comfortable. Not to mention, I am covered in mosquito bites after cutting my grass.
Ditto on the ice storms–I moved from Iowa HATED driving in those things. A 45 minute commute would take an hour and a half if you didn’t want to spend the night in a ditch. And when you got home you were lucky if your power wasn’t out for several hours. The only season I really miss is fall–October was my favorite month there, because of the color, smell of burning leaves, pick your cliche but I loved it. Of course, that’s what airplanes and friends back there are for. The low humidity does make a difference. On Friday I had lunch outside at Park Central–it was quite pleasant behind the misters, despite the 105 degree temps.
Welcome to Phoenix ladies and gentleman, the new HOMOGENIZED America! Where every street corner is virtually identical with the same strip malls and chain restaurants buffered in the rear by tract home developments as far as the eye can see! We don’t believe in culture, no, just CORPORATISM! We boast 110 degree temps for 7 months of the year and specialize in bleach blondes and skin cancer! Careful not to drink too much or you may never find your way back home. And please when driving, watch out for those BLUE HAIRED SNOWBIRDS GOD LOVE EM’. They love to enter busy intersections at the rate of 5 mph and many times in their golf carts! Our claim to fame is Sheriff Arpaio and his pink prison duds. Why is this important? Because we have lots and lots of crime is why! Yes, partially due to a staggering number of illegal aliens!! Fun, fun fun! Our wages are low, but housing costs are high! There is much more info to be had so check us out at nocultureusa.com!!!
This Q4 ‘06 - ‘08 bubble burst is going to make 1990 look like a cakewalk. Speculators, interest only loans, unqualified buyers holding multiple properties. This looks more like 1929….
“psychological umbrella of fear” ………..yep, it’s everywhere now.
It’s interesting, for the last couple of weeks I’ve noticed the housing bulls are no longer arogantly proclaiming prices increases for the foreseeable future. Instead, it’s a call to flattening home prices, or single digit appreciation that keeps up with inflation. Sounds like someone trying to protect what they have, huh? If that aint fear, I don’t know what is.
“Umbrella” is the wrong term. Umbrellas shield us from the rain and elements. For the FBs, the fear will be an all-pervasive miasma, with no shield in sight.
It is fear. I go to the chat rooms and talk to some realtors they say anything. Its all they know. 6% commission, 5 points, ARM 1% NEG AM LOAN. Higher prices go the more they make, it does not help home owners. They hook suckers, thousands now with this crap and they go out and buy new cars and eat at fancy restaurants. Bleeding your neighbor is just plain wrong. REALTORS AND THERE CRONIES ARE SCUM!!!!!
Bleeding your neighbor is just plain wrong. REALTORS AND THERE CRONIES ARE SCUM!!!!!
Yep, and I think the idea will move from abstract moral lesson to teeth-grinding pragmatism with some alacrity. Bubbles take with them fond hopes and beliefs. The biggest psychological blow will be to those unthoughtful millions who have swallowed hook, line and sinker the right wing myth of “I-Got-Mine,” which they thought insulated them from all but their own satisfactions. Now watch as they discover the joys of “I-Lost-Mine” without the social safety net their own greed helped destroy. And if the crisis approaches the magnitude some expect, there is a potential for a seismic cultural shift. For better or worse? Heh: with no real politicial leadership in sight, most New Deal institutions dismantled, a servile national press, Rapture-dreamers everywhere, the government broke and imbeciles at the reins, you might want to hold off planning on a new Enlightenment.
“But now many analysts and economists say it looks as if the slide will continue for at least the next six months, possibly pulling down home values as much as 10 percent before it’s done.”
I think an editor substituted “months” for “years,” and a “1″ for a “7.”
Yeah, the 6 month slide prediction is beyond ridiculous, it is delusional. I imagine all the realtors clicking their heals together three times and repeating over and over, “…there’s no place like home, there’s no place like home…”
LOL
I find it amusing that the article’s use sensationalist words like “umbrella of fear” to describe these horrific downturns that could be “as much as 10%.” I wonder what words they’ll use to describe the downturn when values have lost 25% after two years of declines?
Maybe that’s when the “poncho of despair” or “tarp of suicide” are used to describe the downturn.
A six-pack of pain.
what makes it even more weird is that the same article also very casually alludes to 20% price declines that have already happened.
“Good long term investment” is a phase that’s been poping up lately. It looks like real estate agent’s accept that speculators have dried up and now they have to try and sooth the fear’s of real buyer’s, that they’ll be OK in the long term.
“Good long term investment”
Yeah, but what is the term ? 10 years ? 20 ?
Exactly — And even at that, it isn’t a good present-day “investment,” IMO. If prices continue to fall, why buy now, regardless of future “potential?” And if, as it should, the term “used” (or “certified pre-owned!”) housing, as opposed to “existing,” takes root, people might consider that they can rent a new place until new housing prices show signs of rising again, waay down the road.
“Good long term investment” and “rents are rising” are the talking points for Realtors now.
But now many analysts and economists say it looks as if the slide will continue for at least the next six months, possibly pulling down home values as much as 10 percent before it’s done.”
you gotta love analysts and economists. they can predict what will happen in six months and give a percentage rate to that event. And if it doesn’t happen who cares and if it does happen only they care.
Sort of like fortune tellers with University degrees.
It’s like the weather guy using the “50 percent chance of rain” prediction. He’s never wrong, and gets a paycheck for that B.S. I need to finish up those econ classes so that I can get the economist/analyst gig. It really is a great job with absolutely no accountability.
Hi all, here is a question, (maybe it’s been said before, so sorry if Im going over some basics. I’m mathematically challanged). It has to do with differeny scenarios where the interest rates can take you down (or not). Thanks ahead for any response
First case: If a person bought in 2003 at 300 thousand (California price)with 10% down payment and a 30 year fixed, but cashed equity in 2005, when the value of the property reached 500 thousand, how affected can this case be by raising interest rates? I would guess zero because it’s a FIXED, although the morgatge would be higher than the pre-finincing time. Right?
OR
Second case: Someone bought in 2004 at 450 thousand, with an adjustable I/O . Cashed out equity in November 2005 when value reached 520 thou (adding a second mortgage, which I believe is something fixed until Novemeber this year). THis person whould be SCREWD in the very near future, but stiull would be able to pay the mortgage as of right now. Right? Wrong? What am I missing?
You’re right about both cases, as long as the person remains in the home. When they try and sell, with either case, they’ll have to bring some money to the table in order to close. So if you owe $500k, and you can only sell it for $450k, you’ll need $50k at closing.
How many people do you know who have $50k in the bank?
Let’s take it one step further.
It supposidly only takes having 4% of the homes in an area on sale to “break the market.” ~1/3rd of the homes are on ARMs. A subset of those (who knows how many) *need* a rate reduction and a HELOC to keep going.
Also, Please don’t forget that in CA 11% of purchases were declared investments. I cannot imaging that Pheonix doesn’t have a much higher fraction. Plus, we have a huge amount of “unintentional speculation.” e.g., people who bought their next home and are just now coming to terms with selling their last home…
Neil
Marie …Any time you have a adjustable in a rising interest market ,your screwed . Even if you have yearly payment caps in most cases on Arm”s you are still being charged the uptick in interet rates in the form of neg. interest ,( that is added to your loan balance ).
What is crazy about recent lender underwriting is that they make you qualify if you go on a fixed loan ,but on a ARM loan you can get in with low qualifying standards .
So on the risky ARM loan ,(that is likely to go up in payments ),lenders have low qualifying standards , but on the fixed note ,( that doesn’t go up ), you have regular underwriting .
So your right that the person in your second example is screwed .
The question is ” why was the underwriting easy on a loan that could go up in payments and not easy on a stable fixed loan that doesn’t go up in payments “?
The answer is >……The secondary market ,(that buy loans in bulk) , like loans that can go up in rate , and secondary market is not aware of how poor the underwriting was on them and how much fraud has taken place also pursuant to the poor underwriting .
This secondary market is so mysterious. I understand hedge funds and foreign investors like the Bank of China are the primary buyers.
I would love to get more information on who are buying these forms of junk bonds.
Going along with what Max said, all other things being equal, rising interest rates mean lower prices, and the current housing bubble will amplify this effect (due to forclosures, etc.). This means that holding real estate is now a riskier prospect, because if you are unable to keep up the payments due to an adverse life event, you in much greater danger of being upside-down, etc.
As for cashing out equity, it probably doesn’t have much effect, as long as you take that cash and invest it something liquid with a reasonable return. Somehow I doubt most people are doing this, though.
Is a cigarette boat a liquid asset? It sure returns lots of fun.
It seems like Realtors/Brokers/Agents spend a lot of time in these news articles blaming someone for either “not bringing a serious offer” or not “updating their thinking” on how to price their home. My question is, how are you supposed to know what offer to bring, or how to price, without timely market data? Their answer is, “You don’t, that’s why you hire an agent!” But why would an agent take a listing that they know won’t move or take a buyer who only lowballs? If you knew a house was priced too high, why waste the time?
In a market with no sales, you could still plot the rise to the top (where sales ended) and then plot an equal sloped line down.
Or you could determine the cost-to-build of a new home (which is probably pretty good and getting better with the guilders sweating) and calculate a substitution value.
Or just hire an impartial appraiser for $350 to do all this for you, and not have to listen to any sales pressure.
“But why would an agent take a listing that they know won’t move or take a buyer who only lowballs? If you knew a house was priced too high, why waste the time?”
As my agent told me, the chances of a realtor selling their own listing is actually pretty low. So listing as house for six months and putting no marketing into it if it is overpriced is a cheap bet on the listing agents part that it will sell eventually if the seller capitulates and lowers the price. As far as Low Ball Buyers go, at some point any offer is a good offer and it is the agents duty to present it. Even If I were to offer 20% less the agent would still make a nice commission for essentially just writing up a 1 page offer and faxing it. I really don’t understand Realtors who get in a huff about “Low ball offers”. Take the comission and shut the hell up.
“Take the comission and shut the hell up.”
Testify. Most realtors (and please don’t capitalize that word, since we don’t capitalize more worthy professions like doctors or heck even lawyers) are damned lucky to be skimming off what they do from these sales. And for doing what, exactly? I’ve interviewed two agents, just as an exercise, and it’s been laughable. I keep thinking, your “services” are not worth 3% of the price of any house I would ever buy in CA. Not that I have to directly pay them that 3% (seller does), but it’s tacked onto the price there, now, isn’t it?
Open houses are running rampent in Long Island, N.Y. Street corners on the weekends have signs point in every direction. The last couple weeks I’ve driven buy some of these open houses, no activety! You can see people running to their front window or door, when they see a car coming. Sellers are still asking fantasy land prices though. Last weekend I saw some houses in a area with some nice tree lined streets. However, the houses were small and old. Five yers ago they probaly would have sold for around $200,000. The sellers were asking mid $400,000 for these little single floor boxes that need major renovation. These things should be below $300,000. And you still would need to put $25,000 - $50,000 in renovations to make them nice and get rid of the 40-50 years of wear and stench, of previous owners.
A trend for the last few years has been to build large houses right next to major roads. It’s amazed me that people of been willing to pay close to $1 million for houses right next to major traffic and business. The builders clear cut the land and throw up big white vinyl fake victorians with about 20 ft between houses and no trees left. They take the land that was least disireable for decades , because of location, and people have payed a pretty penny for them, and get a view of major traffic roads and shopping centers. Not to mention the danger these roads precent to people with young children. It’s been amazing.
That VA Beach story about 40% dropout rate for condos didn’t read very doomer to me. The writer slanted it as if 40% pulling out of preconstruction deals was normal. 121 out of 160 condos sold. Sounds pretty upbeat to me. No negative talk here. Is 40% pullout normal in most of these deals, or did the writer miss the main story point:
“When it came time to sign contracts this spring, some people, or 40 percent, bailed — as expected.
Others with reservations have yet to make up their minds if they want to buy into the 18-story building rising at the end of Virginia Street near the Turning Basin.
Last week, 23 condos were available for sale — city side and river side.
In all, 121 condos are sold. The building will have about 160 condos, give or take, because some units can be combined.
That’s what I thought. I thought that 121 condos sold out of 160 units was pretty good, and that the builders were lucky to have that many sold. My father, who is 81, may lose his deposit on the condo he & his wife are having built, because the builder is in trouble. He did all of his due diligence, but at the age he’s at, and his house having sold way too fast, the condo is a year late in being finished, and they are having to wait for the common areas to be finished, I am feeling very sorry for them, and worried about them. Right now, they have come back from Florida, where they stayed much later than usual, and are living in a boat on the Detroit River.
Max, thanks for your response. Also:
“You’re right about both cases, as long as the person remains in the home.When they try and sell, with either case, they’ll have to bring some money to the table in order to close. So if you owe $500k, and you can only sell it for $450k, you’ll need $50k at closing.”
And of course the ones in the second case scenario would be REALLY needing to sell.
“How many people do you know who have $50k in the bank?”
Are you kidding me? The re-fi’s went to tickets to Europe and new SUV’s. Classical. And painful.
Don’t forget the closing costs, usually about 10%. With CC included, the amount needed at closing would be close to 95K.
Yesterdays Mercuty News:
DRHorton: Prairie Trails at Plumas Lake (Save $100.000)
1857 sq.ft was $358,469 now $258,469
2433 sq.ft was $449,451 now $349,451
2925 sq.ft was $487,004 now $387,004
I was in SJ yesterday for a meeting and drove around. Some ugly units for sale, condo types but young people in the sales office looking where it said ‘incentives’. Here in Salinas this am I went walking and saw two properties with sold signs out front so there are still ‘useful idiots’ …..perhaps these are in reality ’sale pendings’ listed as ’sold’ to encourage more buyers….
Wow — that is noteworthy — a 28% price cut for the cheapest one. Now we’re talkin’.
(The combination of two ingredients makes housing markets go bust: overbuilding and job losses.
Metro Phoenix has just one: overbuilding.
The Valley has one of the most robust economies in the country, with an unemployment rate below the national average. So it can likely weather the housing market’s downturn, economists say.
“Phoenix’s local economy should remain fairly healthy. It will help support the housing market and home valuations,” said Frank Nothaft, chief economist with mortgage firm Freddie Mac.)
ha ha. overbuilding=decline in an economy that creates jobs through real estate and homebuilding. less jobs equals less people buying homes. declining or flattening home equity means that every business that relies on people using equity(cars, boats etc.)will be hurt.
is this what passes as analysis from Freddie Mac?
Fannie Mae, the other GSE, has big screen T.V.’s on the walls; the employees were watching as the top executives got their a@# handed to them at the congressional hearings last week.
arlingtonva, that’s a good observation. Did you see it personally? If so, did the employees seem a bit nervous at all as they watched the hearings?
I didn’t see it personally, but I know someone that works there who told me about it. He didn’t seem to care. Most employees below middle management aren’t concerned.
As for employment, half of the goverment workforce will be retiring in the next 5 years-they need employees or contractors badly.
On the subject of government contractors: I would approach every single one and offer to pay them their salary * 1.5 and then have them handle their retirement and healthcare.
Tax payers would benefit because the big contractors Lockheed, Boeing, etc charge 2 or 3 times employees salaries.
This would be a plus to the individual contractors, because they would get paid more. It would eliminate the middle man.
But, this unfortunately may never work: Top government officials go to work at Lockheed, Boeing, etc. This would eliminate the big guys from skimming-legally-off the top.
I think that good employment is the false comfort in all these real estate experts claiming its not going to be bad. For so many local economies, real estate is the industry and there won’t be good employment with unemployed or underemplyed mortgage brokers, brokers, appraisers etc.
It is certain death.
Simmsssays…video cameras for the lazy and forgetful
http://www.americaninventorspot.com/node/1236
>>>”My sense is the worst is behind us, and the housing market will have stabilized with smaller jumps in listings and more steady sales by October,” said John Foltz, president of Realty Executives.
Here is another John Foltz quote from early March in a Reagor article in The Republic: “For resale prices to decline, we would have to experience interest rates in excess of 10 percent and a job reduction of 40,000. Both are very, very unlikely.”
Good find!
This article from the AZ Republic is replete with nonsensical comments and conclusions. The absolute classic line is:
“The next few months are the prime buying season and will give everyone an idea of where the housing market is headed.”
Is the writer nuts?? We are on the cusp on Dante’s Inferno here, with temps at 110 plus for the next 3 months.
The prime selling season has come … and GONE!
I really would not define buying at a market peak price just before this period of slowing sales and record inventory as putting anyone in “good shape,” even if they did not have to immediately sell. They can realize their losses later, I guess. Is that a big positive?
-From a side article/list next to this Reagor article.
Are you OK?
How the slowing housing market will affect you depends on your situation.
Good shape
• Those who bought before 2005.
• Buyers with above-average incomes who were shut out of buying last year by bidding wars.
• Owners, including those who bought at the market peak, who don’t need to sell now.
Bad shape
• Those with mortgages that are about to adjust to higher rates and push up monthly payments.
• Owners who tapped all their equity and have no cushion if housing values fall more.
• Those who bought at the peak and now must sell.
“While attending a real estate conference, Alexander said another attendee asked, ‘What if (the condotel market) implodes?’ Alexander’s response: ‘What if it doesn’t?’
Brilliant logic. Applicable in so many ways.
What if I spend my entire paycheck instead of paying my bills and my creditors come for me? Yes, but…what if they don’t?
What if drinking an entire case of Pilsner Urquell in one sitting hurts my liver? Mm-hm, but what if it doesn’t?
What if I seduce my beautiful neighbor and her karate-instructor husband walks in on us? WHAT IF HE DOESN’T?!?