‘A Clear Pattern Of Slower Home Sales’: NAR
The realtors association has the May numbers out. “Sales of existing homes experienced a minor decline in May with home prices rising near normal rates, according to the National Association of Realtors. Total existing-home sales eased 1.2 percent to a seasonally adjusted annual rate1 of 6.67 million units in May from a pace of 6.75 million in April, and were 6.6 percent below the 7.14 million-unit level in May 2005.”
“David Lereah, NAR’s chief economist, said conditions are mixed around the country. ‘There’s now a clear pattern of slower home-sales activity in many higher cost markets, which are more sensitive to rises in interest rates, and higher home sales in moderately priced areas which have experienced job growth,’ he said. ‘Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability.’”
“Total housing inventory levels rose 5.5 percent at the end of May to 3.60 million existing homes available for sale. Existing condominium and cooperative housing sales were 6.6 percent below the 912,000-unit pace in May 2005. The median existing condo price3 was $229,300 in May, up 1.9 percent from a year earlier.”
Looking at the PDF file from the link, here are the regional YOY sales percentages: Northeast,down 2.9%. Midwest, down 2.6%. South, down 2%. West, down 11.5%. The US as a whole, down 4.3%.
Inventory of existing homes:
2,556,000 May 2005
2,678,000 June
2,756,000 July
2,841,000 Aug.
2,772,000 Sept.
2,868,000 Oct.
2,924,000 Nov.
2,846,000 Dec.
2,883,000 Jan. 2006
2,985,000 Feb.
3,198,000 Mar.
3,415,000 April
3,604,000 May
That’s a 5.5% increase over the last month, a 41% increase over the same month last year and a 51% increase in YOY months supply.
To be updated.
As some on this blog predicted, the months supply that the NAR hid behind, now becomes the worst number when the contraction really begins.
That is the great thing about the confidence game Lie-reah and other real estate shills have played — when the truth becomes impossible to hide any longer, the correction to realign perceptions with underlying market reality will make the inevitable crash all the more severe.
If ONLY Ben Bernanke had stopped raising rates.
Inventory data is easy enough to find, but number of sales per month, especially per region, those numbers seems hidden in a safe safe place.
Number of sales per month is the figure that I’m looking for also and it appears it’s being hidden .I want to know how many sales closed year to date for 2006 verses the first 6 months in 2005. Did I miss the NAR reporting those figures?
OT, but still very scary…why isn’t anyone else reporting it?
BUSINESS
Fannie Mae insolvency possible, official says
ASSOCIATED PRESS
Times Staff Writer
199 words
27 June 2006
St. Petersburg Times
2
English
Copyright 2006 St. Petersburg Times. All Rights Reserved.
The massive portfolios of government-sponsored enterprises such as Fannie Mae and Freddie Mac could become insolvent in a period of “significant interest rate movement,” U.S. Assistant Treasury Secretary Emil Henry said Monday.
“Unless the portfolios are hedged properly, in a period of significant interest rate movement, there is a risk to the GSEs that their assets and liabilities will … become broadly mismatched, which can lead to insolvency,” Henry said in a speech prepared for delivery to the Housing Policy Council of the Financial Services Roundtable.
Henry likened the potential for problems to the savings and loan crisis of the 1980s. To hedge against interest rate movements, the entities must anticipate borrower behavior and deploy risk-management strategies, much like other large companies invested in mortgages, he said.
But Henry said the massive size of the portfolios - at more than $1.5-trillion - combined with a lack of traditional market discipline pose a unique systemic risk.
“Aggregating each of these attributes under a single entity that also carries with it the broad misperception of a government backstop or guarantee creates a ‘perfect storm’ scenario,” Henry said.
Holy Cow ;-0…this is even scarier:
Investment banks, such as Goldman Sachs, do extensive business with Fannie Mae and Freddie Mac. For example, investment banks handle GSE debt, buy and sell mortgages from the GSEs’ mortgage portfolios, trade GSE derivatives, and can serve as investment advisers regarding the use of capital.
GS is considered by some the be the mother of all hedge funds, unregulated, yet having their top chiefs running the US financial system: Mr Rubin and Mr Paulson with Mr Corzine not that far behind, but he’s “only” a State Governor.
But I thought Fannie Mae was the mother of all hedge funds?
Fannie’s hedge fund system is truely amazing. It may be that the sun grows cold and the last creature dies on this planet before that things runs out of money.
lei-rah said it was booming in the middle of the us
cinci and ablq were 2 examples and shiller,that pussy ,didn’t chalenge him at all
If prices fall $1,000 in June we’ll have flat yoy prices. How quickly the 12% yoy appreciation can evaporate.
“If prices fall $1,000 in June we’ll have flat yoy prices. How quickly the 12% yoy appreciation can evaporate.”
Prices up $8000 from April, back to their summer of 2005 peaks. That’s depressing.
when the NAR has to report flat yoy prices, I will be pleased, no matter what has happened in the last couple of months.
Nothing ever goes down one way. there is bound to be rallys, albeit small. no need to loose heart
News and Views
Jun 27, 2006 9:15 am
Homies Randoms
Fil Zucchi
Jun 27, 2006 9:15 am
Across the board I suspect that within 6-9 months, homies will be hoping for ’07 EPS of about 50% of ’05 numbers.
Revisiting yesterday’s New Home Sales, the almost 100k unit upside came at the cost of m/m price declines of 4-5%, and still did little to absorb the ever rising available inventory which fell only 4k units. I am writing this on Monday night, so let’s see what existing home sales figures bring. Just to quickly recap, I believe the first leg down in housing is about done. The next phase will start when the marginal buyers of the last 2-3 years will be forced / panicked out of their homes, just as the caving by trapped speculators begins to accelerate. The race to liquidate will result in a vicious price spiral. My guess is that this scenario will probably unfold late this year to early 2007.
Last week Morgan Stanley (MS) took a swipe at the homebuilders slashing estimates and price targets, and forecasting a “hard landing.” As a point of reference, MS reduced Lennar’s (LEN) ’06 EPS to $8.36 from $9.03. Monday, LEN gave new guidance of $8.00 – 8.25. For ’07 MS is guessing EPS of $7.18. My guess is that if LEN makes $5.00 in ‘07 (after buying back every share they can afford) they will be lucky. Across the board I suspect that within 6-9 months, homies will be hoping for ’07 EPS of about 50% of ’05 numbers.
MS’ note also addressed the issue of Book Value, suggesting that many homies currently trade at about 1.2 BV, but that the BV is understated by land inventory worth well above book. I could not disagree more. Today LEN announced a write-off of $22M of land options that it no longer intends to exercise (not an insignificant amount), and that process is not even at the end of the first inning. Let’s see how understated those valuations will be twelve months out.
Position in homebuilders
‘Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability.’”
Does margin of affordability mean a buyer should or should not purchase that 1.5 million dollar home in OC or that more affordable 198 thousand dollar home in west Salina, Kansas.
Too bad for David that final prices are set by the marginal buyers. The fact that the affordability index has been so low in so many places was screaming, “Danger!” to anyone that cared to listen. Easy credit, folly and hubris have been drivers of the American housing market. All three have been, and always will be, temporary conditions as David will relearn.
“Too bad for David that final prices are set by the marginal buyers.”
Too bad for David that the marginal buyers are really, really marginal…
“the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability”
translation
“that damned fed is affecting my members ability to suck the last remaining non-owners and late-night flip show watchers in”
‘Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability.’”
With affordability indexes in many markets hovering around 10%, I guess he’s talking about only 90% of the population.
They not only shouldn’t have bought that $1.5M home in OC, the way they financed it is financial suicide. I recall reading on SoCalMtgGuy’s blog (which I miss) that he would see people buying homes in the $1.3M range with no money down! They would take a mortgage for the first $1M and then use a HELOC for the remaining $300K. I didn’t realize this type of “creative financing” was even possible until he pointed it out in his blog. I wonder how these people sleep at night.
“I wonder how these people sleep at night.”
Ambien, with a martini.
Ambien, with a martini
A suicide cocktail to go with their suicide financing.
That’s not too bad, provided you have an income in the range of $400k to $500k or better, and a few hundred thousand cash as a liquidity buffer in case you need to sell in a downcycle.
I’m sure this is true of most OC buyers.
Yes, as many a troll has reminded us, *everyone* in the OC earns in the BIG 6-figures, incuding cops, teachers, secretaries, Wal-Mart cashiers, gardeners, maids, etc. Don’t let all those crazy government “median income” stats fool ya! And most people have PLENTY saved up for a rainy day. Don’t let all that B.S. “negative saving rate/borrowing to maintain current consumption/record consumer debt” media propaganda fool ya.
Everything here in the Ownership Society/Goldilocks economy is “just right”. Anyone who disagrees with this completely logical assessment is a bitter jealous Amerika-hating type.
C’mon HARM, what’s with the last word in that post being “type”? You of all people should know it has to be “renter” :D.
You get a new *Hummer, **Boob job and ***60″ plasma every year, just for living here in the OC. Didn’t you know that?
*May be substituted with a ‘91 Corolla after first default notice.
**May be substituted with Cher’s infomercial beauty products at first foreclosure notice.
***May be substituted with Sony Walkman (Cassette) after Lien sale.
“Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability”
So Mr Lereah, how many people fit into this category?
Crystal ball says… 90% of the buying public!
Given the runup and the dimensions of the bubble there’s hardly a sucker left.
Those inventory numbers are bad news. Realistically prices are a lagging indicator of market conditions; inventory is a leading indicator.
Amen…
People don’t realize that. Prices are 6-12 months behind.
What I am starting to notice is signs up and advertisements all over Orlando from desperate sellers offering homes “well below appraised value…” Stating things like 35K instant equity and so on. Well if homes are selling for 35-50K or more below the appraised value then 6-12 month from now the appraisals will reflect those sale prices based on comps.
It does not matter what something is “worth” it only matters what someone else is willing (or able) to pay.
And as an added bonus I get to pay tax on the phantom equity!
The lead story at finance.yahoo.com at the moment is this housing release; they say that this 6.5 months of inventory is the largest since may of 1997.
Just wait until sales volume REALLY drops off. Even though volume is slower, its still pretty high overall. And with this level of inventory, 6.5 months can turn into 12 months in an instant.
With less buyers , I do not believe the realtors can be accurate with the figures on what the supply is in any given area . Are the realtors stating the supply figures based on the demand of last year ? In other word , if realtors are stating a 6 month supply ,what figure of level of demand
determines the demand figure that determines how many months of supply? I’m not clear on how the NAR /realtors determine how many months of supply . If buyers aren’t buying they could have a three year supply verses the 6 month supply claim .
Conversation with Realtor:
“So we have 6 months of available inventory?”
“Yes, not too bad.”
“And that’s based on current listings and recent demand.”
“Yes.”
“And how is demand holding up.”
“Demand is still pretty high, though it has moderated. I expect we’ll see a leveling off.”
“If demand returns to normal won’t that increase the ratio beyond 6 months?”
“Ummm….”
“And if demand “returns to normal” (slows), won’t the number of houses on the market also start to rise faster, further increasing that number?”
“Well…”
“And wouldn’t this in fact be a self-reinforcing process as buyers become more and more aware they have nothing to lose and quite a bit to gain by waiting?”
“But… but… there has never been a national housing bu-”
“Oh shutup. I’m done with you. But my friend Bubbles the Clown is waiting outside and he wanted to say hello. Behave yourself, he’s had a couple drinks and I think he was carrying a crowbar.”
I went to msnbc.com. It’s looks like the strong sales numbers in May are for the McShitBoxes:
http://www.msnbc.msn.com/id/13554596/
sales of existing homes (i.e. something that won’t collapse in a couple of years) are declining:
http://www.msnbc.msn.com/id/13572256/
if homes are selling for 35-50K or more below the appraised value then 6-12 months from now the appraisals will reflect those sale prices based on comps.
Bubblefucius say:
Housing comps like instant coffee; both good until the last drop.
RM, you’re killing me. I need to put plasic wrap over my keyboard before I get started reading this blog, just in case.
LOL… I don’t know about the instant coffee though.
Nonetheless, the data seems to show the real estate market is still healthy in non-bubble areas, with a high level of sales. It is only the builders who seem to be having problems in flyover country so far. So perhaps the bubble was in fact blogged down before it really got out of hand in much of the country.
Who’s buying all those homes in the “non-bubble areas”? The same people who turned other areas into bubble areas, perhaps?
Agreed,
I contacted a realtor in Rochester, NY because of relocation. The first thing she said to me was “you are an investor correct”.
That’s why new luxury condos in downtown Rochester–a war zone–sold for $600K+ last year. Investors. People there don’t even know they exist, but the realtors do.
That aside, though, I highly doubt Rochester will be much affected. It has consistently ranked among the highest on affordability indexes, because wages are not bad but housing is dirt cheap. You can pick up a stunning Victorian or ’20s-era house for a song. Stay away from Pittsford, which sells at bubble prices.
Isn’t the population of Rochester declining, with stagnant wages? That seems like a recipe for disaster if one buys real estate there, even cheap real estate.
I think the marginal buyer in flyover land is a bubble-zone homeowner looking to invest his ill-gotten home equity gains in “more attractively priced” real estate. These guys do not recognize the huge wave of like-minded fools who are helping to turn flyover country into another bubble zone.
Hey, not all home equity gains are “ill-gotten”. Some people are still living their lives without having the bubble control them. These people bought houses with normal mortgages, lived in them for years, sold them when the time was right for them, and moved to somewhere else.
By “ill-gotten”, I meant that home prices were rising due to loose money and rampant speculation. I realize that this is beyond the owner’s control (I was the owner of a money tree myself until recently, and had no hand in the fact that the value tripled while I was the owner).
as much as i wish the downturn unfold quicker, i have to agree that a lot of postings, including mine, have been full of wishful thinking. the sellers are still holding out and they have data to support their claims. at some point, the inventories will stop rising and we may have to wait longer for the prices to adjust to our wallets or get our wallets get fatter somehow….the latter is not that easy of a task, though, but it can be done.
I agree this is going to tkae time to play out, as every RE cycle does, but everything is going just as it should. Sellers may be holding out, but these guys are currently at their breaking point. You can feel it. And inventories are not going to stop rising. We’ve had a little lull in the market the last couple of days, but wait until post-July 4th. This next Fed hike is really going to shake things up and push a lot of “fence sitters” over the edge. I think by August we’re really going to trip out on where our inventories have climbed to.
Someone posted above that this was the first leg and now we move onto the next. The way I see it, if this were a book, we’ve only just read the introduction and no we’re aboout to move in to the meat of the material.
I’m starting to feel a lack of patience by some of the posters here. But really, this thing is going down exactly the way it should, and it takes time. If you’re just chompin’ at the bit to get back into the market,……well, sorry, it’s going to take some time. Remember the ancient proverb: “Expectation postponed is making the heart sick.” Maybe we all need to realisticly adjust our expecations.
I would refer impatient bubbleonians to the Itulip site to reread their roadmap. An illiquid market like residential RE does not crash like the stock market with immediate price discovery.
Process for a credit crunch (margin call) in the stock market:
1) Trader obtain 50% loan-to-value to buy stocks.
2) Price drops.
3) Traders margin level increases above 50%, ie: the equity drops below 50%.
4) Trader gets a “margin call” to inject equity. I think they get 24 or maybe 72 hours.
5) If they do not inject equity, stocks are automatically sold at market price until they are back within their equity ratio.
For housing:
1) Person obtains 95% or 100% financing.
No joy in the buyer department. Miss a payment.
2) Price drops.
3) Person continues to make payments. If they don’t need to sell, they don’t! If they do need to sell, they look at market conditions.
4) Realize they have no equity. Wait a couple months for the market to come back.
5) Realize they still have no equity. Hit the credit cards to make up the difference.
6) Realize they still have no equity. Borrow a couple/three months of payments from Mom and Dad. You’ll be able to sell in Spring for sure.
7) Spring comes, list house. Sell the jetski while you wait for the buyer who’s “sure to show up”.
9) Tax refund/work bonus! Make up last payment and get current.
10) Miss another payment. Ask yourself why are you paying for this POS when you are underwater anyways?
11) Miss a payment. Two months behind.
12) Miss a payment, 90 days. Start to feel a bit scared.
13) Foreclosure notice. Suddenly a sense of relief washes over you so you won’t have to carry this albatross anymore?
14) Start congratulating yourself on living rent free.
15) Foreclosure complete. Pack, take everything that isn’t nailed down, and write F- you Washington Mutual on the side of the house.
16) Move in with Mom and Dad while you pay them back.
17) House ends up REO since no one will pay what you owed on it. Sold at auction.
Process for a stock liquidity crunch: Less than one week.
Process for a house liquidity crunch: About 18 months.
That is why stocks are “scarier”. But that does not make investing in homes “safer”.
I can’t wait to slurp up one or two investment properties that are (truly) positive cash-flow from day one — but I have to keep telling myself to be patient.
Excellent comparison!
Thanks for writing it.
I will add to my comments that IMO, the optimum time to get back into RE will not be until after 2009-2010. If you can’t wait that long, then go get your house. But, if you’ve been reading this blog, I believe you know what’s at stake. Is the risk worth it?
“But, if you’ve been reading this blog, I believe you know what’s at stake. Is the risk worth it?”
The right point. This blog’s version of Dirty Harry’s famous one liner.
I think it still may be possible to find good deals. For example, it may be possible to find a deal on a probate sale sometime in the end of 2006, where the estate must sell the real estate. They will sell at best offer.
Is that scenario accurate?
Remember the ancient proverb: “Expectation postponed is making the heart sick.”
My favorite: ‘Pleasure delayed is pleasure increased.’
If you can just hold out a while longer, you’ll bask in the satisfying afterglow of substantial savings on your purchase.
Housing blue balls - if you will…
Housing “blue balls” probably better than housing castration.
(smile)
I want to get back into the market, but I am not going to pay 340K for a crack house in Sacramento. I mean the prices of some homes in Sacramento for the neighborhoods they are in is nuts. If you moved into this neighboorhood your house would be robbed, your wife assaulted, and your dog would be pregnant. I knew some people in there early twenty’s who moved into a high crime neighborhood because it was only thing they could afford and now life is hell for them. Sacramento murder rate could be a record this year.
If we can agree this is a bubble and it is just a matter of time, then we are dealing with something that has been created by perception. Only perception will kill it. Unfortunately this perception is not easy to change in the general public. Those of us on this blog already know the obvious and will cheer the first YOY declines, however, until things REALLY fall apart (due to affordability - interest rates/job losses) only then will perceptions change and the bubble pop. Each event will be followed by a lag, but it will be severe.
BTW - your wallet gets fatter if everyone elses gets thinner. (no philosophical arguments past this point?)
“Only perception will kill it.”
Yes. It could well be that the wailing to emit, from the throngs of ARM re-set-ees in the next two years, will generate enough media coverage to fully light the fires of panic.
You’re dreaming if you think wages are going to be increased through inflation.
What is needed is a good dose of inflation in wages outside of this country. Bar that, end the globalisation nightmare with a nice fat tariff on all low labor cost countries. When the best arbitrage game left for business is in the global labor market, humans are reduced to chattel in this world. Financial globalism leads to slavery of which many of us accept those chains willingly.
There is rapid inflation in wages for the educated in India (I heard somewhere 5-10% every 6 months?). I haven’t heard of other places for educated workers, and certainly not for the uneducated.
In the US, based solely on demographics, there will be a labor shortage. All else equal, less labor supply=higher labor costs. The real question will be what the magnitude of job loss will be, and whether it will dwarf any labor shortages that we have.
I might have to add that if you impose tariffs on products imported from low cost labor countries, then inflation here would run rampant. The reason is that those “cheap” products imported from these countries have helped keep inflation checked here.
There is a reason for high cost labor here, and it correlates directly with high cost housing. Everything else is dirt cheap compared with other countries, and our tax base is not all that bad…
Lets say that 50% of your 100K take home pay goes toward decent housing. That is 50K a year. Now reduce that by 80% and you can live on 60K… With the same standard of living!
In most of the world, higher education is reserved for the elites. In very few places you will have as many educated people as there are in Japan, Western Europe, the old Soviet Union, or the US.
When you go to India, the percentage of the population that is educated is very small compared to the total population, and it is certainly less than what there is here, or in europe.
The fact of the matter is that India for a very long time actively exported their brainpower to the US in order to aquire experience that it could not do any other way. In order to get permission to come to the US they had to have a higher Education. Lately the jobs are going their way, but the resource pool is drying up fast.
Witness the abismal service call rating for Dell. They are one of the companies that is heavily involved in ousourcing their support out there. I invite anyone to place an order, and then get it wrong in the mail, and then have to explain to a nice gentleman/lady (they do tend to be very nice people) why you are returning the keyboard when you had ordered a monitor (True Story). Even worse when you have to actually spell a name… Ohh the humanity!!!
Y’know I had whole tirade about money, wages, foreign reserves, wealth effect, and commodity prices written as a reply but…..it truly doesn’t matter. The financial world has so many of us believing that the world will stop funtioning without there precious industry that they are probably right. What a shame that paper games played by folks with no other skills than manipulation and confidence games are play the strings to which the world dances. We are all globalists now. It’s for the greater good right? Right?
No, it is for the good of a few. Unfortunately for you and me, we are not part of those few, but society tends to over-correct imbalances. Funny how both Bill gates, and Warren Buffet are trying to raise the worlds education level using their fortunes.
The US as a whole is fairly well educated technically. It lacks in cultural understanding, but this pales with the ignorance prevalent in the rest of the world.
Those folks that are good at manipulation are often the ones that get rewarded. The straight shooters, often end up on the wrong side of the tracks. Such is life.
Well put Pinch and thanks.
The panic will really set in with some sellers when their ARMs adjust. This is the timebomb. ARM rates are today about 1.8% higher (50% higher) than last year. Something like $1 Trillion (the lowest number I’ve seen) of these mortgages are set to adjust for the first time in 2007.
Does anyone have a current link as to ARM status? e.g., what fraction of mortgages out there are in the “traditional ARM” mode (reset once a year) and such? IIRC, the mortgage market is somewhere between $6 and $8 Trillion (on $12 Trillion of RE). Thus, $1 Trillion resetting will rock the market.
Neil
IF I did my math correctly, $1 Trillion in re-sets “averages” out to $318 million per county in the U.S. There are 3,142 counties in the U.S., if you include WashDC as a county. Unfortunately, that average is straight calculation; it is too much of stretch to apply it to any one area because county sizes and population density vary so greatly, but it gives a super-crude approximation of the effect of these re-sets.
Source of county info, including details by state if you click on the state name:
http://www.n9jig.com/counties/county.html
I don’t know where you can find specific data on what percentages of ARMs reset each year. But I do recall that the $1 Trillion number was in the WSJ and they were saying that these loans were set to adjust for the first time in 2007 (from $300 Billion in 2006).
In short, if we have begun to see pain in the markets already (with, say 50% of $300 Billion already beginning to adjust), then the pain yet to come is 7+ times that.
Many can withstand the payment shock (I know of many who are in this situation, and will go to fixed rate with a simple sigh that the era of cheap money is over), but the first time buyers who barely got into their home are in deep.
IMO - this will be “the straw that breaks the camel’s back” so to speak. But what do I know, I’m a renter.
Benjamin Franklin, while living in London, was a renter in a boarding house, I believe.
RE: Ben Franklin, renter
His roommate was John Adams; they argued constantly about whether the window should be open or closed at night. There must be something there…..but I haven’t grabbed on to it yet. Metaphor thinkers, announce yourselves.
I think you are referring to when he was living in Paris, and charming the ladies.
What, pray tell, will make the inventories stop rising?
My guess: When inventories have reached a quasi-permanently high plateau, it will be due to the fact that price declines are common knowledge to both buyers and sellers. Downward adjustment to the selling price will bring supply and demand back into balance, and at that point, inventories will stop correcting.
The one thing to consider is psychology. People are generally very averse to selling at a loss, unless they absolutely have to, even when it is the best course of action. There will be a shadow inventory of units for years that will jump in and out of being a rental, jumping on and off the market many times as these people try to hold their price the best they can (they will ultimately need to concede defeat).
I suspect that what this means (ie. my guess) is that after the initial dumping of properties and foreclosures, we will settle into a period of pretty high inventories that will stay more or less constant (your quasi-permanent plateau?). Asking prices will slide downward with the plateau of inventory being roughly constant, but generally still be higher than what a true market price SHOULD be.
“at some point, the inventories will stop rising and we may have to wait longer for the prices to adjust to our wallets or get our wallets get fatter somehow”
There are three sources for the rise of inventory:
1. Speculators no longer buying in bubble areas.
2. New starts coming on the market.
3. Foreclosures.
And soon a fourth…
4. People choosing to rent rather than buy given the horrible investment that homeownership now represents.
So, inventories still have a while to rise. And the bubble-money buyers have to get mopped up eventually… though, we see no evidence that lending standards have tightened very much.
If previous time-lines hold in regards to overvalued property periods, 4 years from the peak(Summer/Fall 05) would be the correct time. Thats right in 09ish as many here have predicted for a long while now.
This of course being the mother of all Houseing Bubbles(worldwide liquidity bubble), and the US debt and geo-political environment being less than stable, predictions must be taken with a grain of salt. The time will be right, when the time is right.
Just my humble opinion.
The time will be right, when the time is right.
Best way I’ve ever heard it put. It’s not like calculating (true) cost-to-own vs cost-to-rent is all that difficult. And if it then continues dropping after you buy? So what? You’re paying less than (or close) to renting anyways!
They had an article about the increase in forclosures and falling home prices in the midwest in the Business section of the Sunday Chicago Tribune. Haven’t seen any drops in the suburbs of Chicago yet.
BTW, existing home prices are only 0.4% above their June 2005 peak. Factoring in inflation this is a significant real value loss. Factoring in inflation and fees and maintenance it’s even worse.
Don’t forget taxes, that’s -1.25% right off the start.
And IIRC, wasn’t October ‘05 the pricing peak? So that if prices hold steady we’ll see increasing YOY price declines anyway?
Neil
are you an economist..cause that is exactly the right way to look at it…..
‘Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability.’
It astounds me how Lereah continues spins this as though it’s the buyer’s problem of the current economic conditions. His sad attempts at making the buyers feel if they missed some kind of boat is just sad. If he had any conscience, he would be saying that the rising interest rates are affecting those OWNERS who are at the margin of affordability. We future buyers are the ones who are feeling pretty good right now…
That’s the same crap they’re feeding themselves on the SDCIA board. That the people who are bearish or won’t buy here can’t because we are priced out by higher interest rates.
It helps them get through their pathetic days without hallucinogens, which they probably can no longer afford.
txchick: what is the sdcia board link?
San Diego Creative Investors Association….ya know, the masters of the universe and such. Have a look for a laugh….
http://www.sdcia.com
Some really worried F****d
buyers on that forum.
Unbelievable how little thought some of these idiots put into their future indentured servitude…
http://tinyurl.com/7vupn
SDCIA message board.
Who’s Robert Campbell? Does he visit us here?
I’m a recent SDCIA member (joined the last meeting) and have had great advice from members - especially Bill Tan. Although I cannot speak for him, in our conversation he told me things to look for to indicate the end of a real estate cycle, all of which came to pass.
The last meeting speaker was Robert Campbell who was an excellent speaker and I doubt any of the Ben Jones fans would have disagreed with him much. He looked at median household income, rent vs. own costs, affordability (by %), % of income needed for housing, and P/E’s, to come to the conclusion that the San Diego market needs to fall about 40% in order to be back in line with fundamentals. Many members in the audience seemed to agree with him. Many others seemed very uncomfortable with the numbers he was presenting. I completely agreed with him, but only time will tell if he and I and most of us on this blog are correct.
IMHO, SDCIA is like a lot of real estate groups. Some members are very bullish, some are very bearish, and some just look for real estate that is properly priced because it is their favorite asset class. However, some of the people I have talked to (not so much the people on the forum) have been out of real estate for awhile now. These investors have been through cycles and know (or at least suspect) what is coming.
I do not feel that anyone at the meeting was trying to force a pro or con belief in RE down my throat and that there were a variety of opinions. The speaker was extremely negative on SD prospects but the audience, although many may have disagreed with him, was respectful, asked great questions, and listened. Nobody was rude or hateful because another person did not disagree with them, nor did anyone cruelly torment a newbie who made a mistake. (Again this is from the meeting not the forum which I don’t spend much time on. Maybe it is easier to be hateful in writing than in person?)
Altogether I am very happy to attend SDCIA events because I have gotten some great advice from members and everyone has been nice to me. I can tell from some of the ads that there are sharks (corrupt mortgage brokers for example) but there are also people willing to tell you who one can trust. I would trust Bill Tan’s opinion in an instant.
I know that many on the forums are very bullish and will continue to invest until they lose everything. But please don’t assume they are all like that. It’s a very educational group and if you are near San Diego I highly recommend visiting. The price is right. I have no doubt there will be speakers in the future I disagree with (but not Cambell!) however, I want to listen to them too because even those whom I disagree with may have something for me to learn.
We’ve got an asset (sfr’s) that’s doubled or tripled in value (in many areas) over the last, say, 5 years, without commensurate increases in population, incomes, or other conceivable fundamentals. Yet, these guys never present a credible economic explanation of how, sustainably, this can occur, without mania and speculation being a significant part of it.
I’m not an economist, but I don’t think things quickly and permanently become worth two to three times what they were once worth, do they?
You are right on, Skip. IMO, there is no way that the recent price run up can be anything other than a bubble. To form a bubble, you typically need 1) lots of inexperienced buyers, 2) easy credit, and 3) uncertainty about the future.
I suggest that all three were present during the current price run up. There were new “investors” who wanted to be real estate moguls, lending standards and interest rates tanked, and after the dot.com era, perhaps people felt that “this time it’s different” in real estate.
IMHO,the only thing that may have caused a “permanent” increase in demand and a permanently higher price level is lose lending standards. I know that the Fed and Treasury are trying to tighten up oversight of mortgage lending standards, but I doubt exotic loans will disappear. To me, this is the only thing that would prevent real prices from falling all the way to 2002-03 levels.
Exotic loans will start to disappear when the trashholders start getting burned and they become unsellable. There’s a reason why they had 20% down and fixed rates in the good old days, and the financial markets are going to wake up to it again.
I’m not an economist, but I don’t think things quickly and permanently become worth two to three times what they were once worth, do they?
worth
2 : the value of something measured by its qualities or by the esteem in which it is held.
PLUS
mania
2 : excessive or unreasonable enthusiasm.
PLUS
ignorance
1 a : destitute of knowledge or education; also : showing lack of knowledge or intelligence of the thing specified.
EQUALS
Yes.
That is the same kind of question I asked when I saw prices going up all of a sudden. I wanted to know why.
I was not satisfied with people saying that it was because of increased demand. I wanted to know what was behind the demand, who was demanding, etc.
This blog and a few other sources have helped to identify more details on what was causing the spike in prices.
And from what I understand, several of those reasons for causing a spike, can be removed.
Housing is supply and demand. At one point, there was a lot of demand but not enough supply. Combine that with easy credit and the values of homes were rapidly driven up.
When you have too much supply and not enough demand, the prices go down. Particularly when you couple that with tighter credit.
Look at what happened to Beanie Babies years ago with regard to supply and demand.
“supply / demand” can be manipulated in such a way that it could take down those that are not aware of it.
drive up prices by a media campaign and throwing cash into buying strategic real estate, getting the fire started, cause interest rates to be lowered. Drive a media campaign inticing potential buyers, especially first timers, lowly educated, with good credit, that the over priced real estate is a good thing, with lots of leverage.
Then pull the carpet from those buyers by withdrawing the media campaign. Causing interest rates to rise. Capitalize on rising interest rates with another media campaign, going from mixed messages to a message that the market is dead and sellers are in trouble. Then wait. Then watch those over extented buyers go into forclosure, and eventually lose their houses in bankruptcy. Then buy those REO properties for pennies on the dollar from the banks. Then rent those properties back to these previous owners at subprime (further monopolized real estate board) rents, two plus families per unit, with a big positive cash flow.
“It astounds me how Lereah continues spins this as though it’s the buyer’s problem of the current economic conditions. His sad attempts at making the buyers feel if they missed some kind of boat is just sad.”
That boat sailed in 1999. I understand that Jim Cameron will be doing a film about the recovery efforts. Working title is “Ghosts of the Abyss II: the Unwinding”. Crews are using robot subs to raise loose chunks of granite countertops and broken doors from Sub-Zero refridgerators. Viewers will be treated to 3D “virtual tours” through submerged homes.
Oh, wait. That’s already happening
‘Although mortgage interest rates remain historically low, the uptrend in interest rates this year is affecting those buyers who are at the margins of affordability.’
This statement is true, if properly interpreted. Last year’s FB could not purchase at this year’s interest rate level — they have been priced out, unless the sellers drop their prices!
Hopefully someone can shed some light on the following, b/c I am struggling with it:
If it is widely accepted that New Home sales are currently taking share from existing home sales by aggressive pricing/incentives, then how can it be that existing home sale prices are rising sequentially? I just don’t buy that there is a seasonal adjustment in prices (due to mix) that can weigh that heavily. Possibilities:
1. The NAR (in March) revised pricing methodologies to (my take) incorporate new/different locations. This could be masking the declines by shifting the price measurements to areas that are still hot (though I’m not sure which if any areas are still truly hot)
2. Buyers are getting more for their money these days, and the 6% year over year growth is just a rounding error where the true story is, for example, that price gets you a 2500 sq. foot house where last year it bought you a 2100 sq. foot house
Any thoughts from the deep thinkers on the board?
Inflated prices due to straw buyers and cash kickbacks, faulty reporting of asking prices as final sales prices. They are gaming the numbers but they won’t be able to hide the facts much longer as Fannie and Freddie will soon bite the dust.
There are two theories we like here:
– A higher median can result from the lowest-priced houses being unaffordable to the most marginal buyers, i.e. fewer sales at the lower prices raises the median
– On the flip side of the last-marginal-buyer coin, let’s say every house on the market is marked down by 10% because they aren’t selling at the original price. But anybody who is qualified for the “original” price now buys the nicer house that was just marked down into his range. This gives us the combination of a slower market “unconfirmed” by a flat median.
thanks cabinbound, that’s what i suspected.
maybe it has something to do with the fact that panicky first-time buyers no longer have this urgent feeling that their entire future wellbeing hinges upon them rushing out and buying themselves a tiny $hitbox fixer that they previously never would have even dreamed of living in even as a rental due to its decrepitude.
In other words, I am voting on your “answer number 2″. With so much inventory, people are getting more for their money.
Your spot on . It was clear to me when I examined the listings from the area in L.A that I sold out of that people were getting more for their money , For example, a 900K house in 2005 was selling for 750k to 800k in the last 3 or 4 months . in the 400K condo range they went down to about 385K . You could see real bargins in the over 1 million price range . I saw houses that sold for 1.2mil last year listed for around 950K to 1 mil .
So, you got alot of sales in the higher price range bringing the average up . I’m sure in the higher price range buyers wanted to get in before the interest rates went up .
The other boom areas that have sprang up are bringing the averages up also .
In addition ,and most important , the sales incentives are not being recorded as a price reduction with builders and resale used home sellers ,( even when the sellers are getting 10to15% less in their pocket at closing due to these kickbacks ).
This week I have begun to sense that asking prices on Craigslist ads coming down.
I sold a house in Menifee, CA in May ‘06. I lowered the price a little bit ($5K) according to comps, but I put in $20 in rennovations (new carpet, painted inside and out, new tile and shower, new fence, etc.) and gave the buyer $8K cash to cover her closing costs. A year ago those homes sold “as is”. So essentially the price of my house was $5K + $20K + $9K = $34K less than a similar house the year before not even taking inflation into account. This is a about a 15% discount. I did this because a horde of new homes are also on the market right around the corner and inventory is going crazy.
Here’s what the realtor told me a few days ago:
(there were 300 homes for sale in Menifee when mine was on the market)
“The market is about the same. We have over 474 homes for sale in Menifee and not a lot of buyers. In Murrieta there are over 1,000 homes for sale. Lots to pick from and fewer buyers. With interest rates going up, huge inventories and fewer buyers it has cause the market to be slower. What sellers are doing are offering larger commissions to get their homes sold. I had the biggest month in my real estate career last month — I closed over $2,800,000 dollar volume. I have 8 listings now and 3 already in escrow.”
At 6% commission, that’s $168,000 gross income in one month.
5% = $140,000
4% = $112,000
3% = $84,000
For ONE month gross income.
With that much money on the line, no wonder realtors are such scum.
Trust no one, people kill for less money than that.
Doesn’t it explain a lot .
my g/f is taking a required class for her AA in Real Estate. Its for new realtors (she has no desire). The teacher, who is a realtor asked the class yesterday.
“Do you think with the market how it is today that being a realtor is busy or slow?”
“The class all said slow, bad time to be a realtor”
“Exactly wrong” he said. He said he is selling more housese now than at anytime in the last 4 years.
So realtors, at least established ones, seem to be making out very well right now. Still no where near what the loan officers at my girl’s company made in the last few years (the worst employees made $150,000 / yr the last few years).
Makes you head spin how you don’t really need an education and make tons of money working very little.
It is a shame that none of the associations post numbers in $ per square foot. That would go a long way toward answering many of these questions, but I suspect the numbers are not totaled in their computer systems.
An easy way to see if prices are rising is to follow zip codes of your choice on sites like realtor.com or livingchoices.com — I do and in all of the areas I have been scouting for more than a year, prices are NOT rising on the individual listings that remain active (with the occasional exception of a wacky “let’s try this” increase once in a while, to get into a different search bracket).
“That’s a 5.5% increase over the last month, a 41% increase over the same month last year and a 51% increase in YOY months supply.”
Exactly. The most significant finding in this report is the large increase in inventory! Great job Ben!
David
http://bubblemeter.blogspot.com
“The most significant finding in this report is the large increase in inventory! Great job Ben!”
It is a shockingly large increase–40% YOY! Funny how I didn’t hear one mention of it on radio news reports this a.m. Yet *this* fact should be the headline from the report…
Right , it should be headline news regarding the inventory glut instead of this rah rah that it’s a buyers market .
Even more damning would be regional sales volume. If it hasn’t changed much nationally it could just mean that that the bubble has moved from the coasts to flyover land. We need local sales volume to fully understand median price as well as inventory numbers.
“It does not matter what something is “worth” it only matters what someone else is willing (or able) to pay.”
Interesting point. I’ve had RE bulls say the same thing to me the last couple of years, totally ignoring cash-flow, inflation, rents, and other metrics in determining valuation.
When considering the ultra-low interest rates, no underwriting standards, and the psychological impact of a full-blown financial mania, I would say that RE is definitely not worth what someone would pay for it. At least, not yet!
OT, but the markets are engaged in a classic flight-to-quality move ahead of the Fed meeting — only Treasuries, gold, and utilities are up strongly this morning, and the rest of the stock market seems to be finally taking notice of just how much long-term Treasury yields rose over the past nine days…
http://www.marketwatch.com/tools/marketsummary/default.asp?siteid=mktw
Some Wall Street folk are wondering whether it might be time to revert to the historic Fed practice of tightening by 1/2 pt…
I remain unconvinced they are that serious about their inflation saber rattling.
—————————————————————————-
THE FED
Could the FOMC raise rates by a half-point?
By Rex Nutting, MarketWatch
Last Update: 6:29 PM ET Jun 26, 2006
WASHINGTON (MarketWatch) — If the Federal Reserve is so worried about inflation, why doesn’t it supersize its rate hikes?
That’s a question that’s going around the trading desks on Wall Street. The Fed is expected to raise rates by a quarter percentage point to 5.25% on Thursday, just as it’s done at each of the past 16 meetings dating to June 2004.
…
“The last two Fed tightening cycles both ended with 50 basis-point moves,” said Michael Gregory, an economist for BMO Nesbitt Burns. “As in a symphony, should not tightening cycles end with a crescendo so market participants know when it’s time to applaud?”
http://tinyurl.com/fplxk
The most relevant recent historical rule of thumb for the Fed IMO is that it will do the least aggressive action that is politically possible, and only after telegraphing it loud and often. I don’t think there’s been any jawboning whatsoever from the Fed itself on any 50 bp raise out of this meeting or in the future.
That jawboning, which is simply a case of “lowering the bar, IMO, is all coming from outside, only in the past week or so, and in the face of data (durable goods orders last Friday, existing housing sales today, for example) that the economy is slowing down on its own. I wrote the other day that we’re being set up for a big “relief rally” / short squeeze Thursday when the Fed raises by “only” 25 bp and I think that’s still the most likely scenario.
I also think that Wall Street is clamoring for a 50 bp raise to definitively indicate the end of the tightening; a la Greenspan. Bar that, you might have an adverse reaction to a 25 bp increase (Wall street assuming that there are more increases in the horizon).
My, Wall Street makes Woody Allen like a calm and tranquil guy…
There’s been a lot of jawboning. Every Fed governor and his brother has made hawkish public comments over the last month. Sure seems orchestrated….
Jawboning about inflation, yes indeed. I’m talking about specific mentions of a 50 bp hike. I don’t think they even give numbers for potential hikes in their speeches (probably against policy).
So per the AP release today, demand for existing homes is down, and the Northeast is leading the way. Are the new homes snatching all the deals from under the FBs?
“Are the new homes snatching all the deals from under the FBs?”
I would think so, at least in bubble areas. With the deals that are being offered, if someone has to buy a house now, it seems logical that much of the time they will be able to cut a better deal on that new house than on a similar used one. For one thing, the agents selling the new ones are inviting prospests to make an offer or a demand, whereas it is likely far fewer used-home agents and owners are — at this point in the game. IMO.
may and june are as good as it’s gonna get for the sellers. watch the momentum shift beginning july
Absolutely! People with children needed to find a house to buy by June to move in intime to get there kids into school. By July an Aug, it’s over.
Nitpick: There is a bit of an overshoot that covers into September from those families.
My bet is that by the ides of October, its over.
Neil
In my area, at least, last year bore that out. Closings were relatively high in August and the first half of September, then fell off a cliff. Those would have reflected, mostly, contracts made in June, July and early August.
I can say that at the end of the 1980s a sucker’s market in NY lasted two years. The median existing price stopped going up immediately after the stock market crash, but remained flat (but fell relative to inflation) through 1989. It was only in 1990, with the onset of a recession, that there were nominal declines in value. Fair value relative to income was not reached until 1993 or 1994, a seven year wait.
Now there are some who believe the adjustment will happen faster this time due to flippers/ARMs/new units/fool me twice shame on me. We’ll see.
All the real estate talking heads (NAR etc.) say you need recession to have price declines. I was thinking that if the market stays flat for an extended period of time there is a good propability we willl have another recession during that period since recessions are cyclical. And I’m not even considering the fact that real estate slowdown might trigger a recession.
The American economy has been eating through platefulls of “seconds” (mortgages) quicker than Rosanne at an all-you-can-eat buffet.
Construction companies, appliance retailers, mortgage companies, real estate agents, SUV dealers etc. have ALL enjoyed this bounty.
Now, like tainted mayo in the (now crusted) ambrosia salad, the great “purge” will begin.
And at that point, the consumers will go BK, and (with the new laws) have their stomach stapled by none other than the justice department.
Interesting times indeed…
Niice!
We all agree prices will return to the mean. How fast is any body’s guess. You are right about the 80s-90s collapse in NY (some prices down as much as 60%). The difference is that this bubble is exponentially bigger it’s hard to say how that will affect it’s collapse. Also the 80s bubble was due to money from Wall Street, and the burst happened from a Stock crash.
This bubble is self generating, it’s real estate itself that drive it. Now that prices have stopped increasing, it’s a question of how fast, or slow, it will go down.
Behold the yield curve inversion — recession is on the way…
http://www.bloomberg.com/markets/rates/index.html
I know 3 guys here in the OC who won’t budge on the price of their house, because “I don’t have to sell, I’ll keep it until the market gets better. I will make 250K profit or just keep it…” I ask if they have been to thehousingbubble2.blogspot.com? they say, hand me another beer.
I say when it becomes apparent the market is tanking—which it already is according to ziprealty # going up weekly, and Price Reduced going up weekly—then they will put their house on market too.
New Florida numbers out:
http://media.living.net/releases/May%2006%20Stats%20Release.htm
Sales down all over the place, prices up 11% statewide but beginning to decline in some markets.
“…prices up 11% statewide…”
IMO, median prices have reached the point of near-uselessness. Too many factors can skew them, including the significant one that buyers at the low end are priced out of markets a lot faster than buyers at the high end — that’s because it is increasingly harder for them to qualify for adequate financing. When high-end houses sell at a greater rate than low-end ones, the median price number will rise, but it is not useful, at least to me. What really matters now and for the foreseeable future: inventory and ARM re-set numbers. Secondarily, as noted by several posters early on, watch for other signs of distress like a zillion Hummers and Beemers for sale, as well as other toys that were “affordable” when times were good in real estate.
Damn, we missed the boat so to speak on shorting Carnival and Royal Carribean. They dropped 20% in early May with virtually no warning whatsoever.
Harley-Davidson might be worth a nibble but only as a long-term play IMO. Over the past year it’s hardly moved except for one cataclysmic overnight surprise.
“Of the state’s smaller markets, the Pensacola MSA reported a 1 percent increase in existing home sales in May, with 589 homes sold compared to 582 homes sold a year earlier. The area’s median existing home sales price rose 8 percent to $170,600; a year ago, it was $158,600. Sixty-seven existing condos sold in Pensacola last month compared to 70 condos sold in May 2005 for a drop of 4 percent. The market’s median existing condo price rose 31 percent to $196,700; a year ago, it was $150,000.”
That jives with what I am seeing on the MLS. I am watching like a hawk and prices have just not budged, although in the last month I have seen the “motivated seller” and “bring serious offer” tag line added. On positive note inventory has ballooned over the last 12 months. I expect prices to start to weaken by late summer.
“Home inventories grow, stocks slide”
“The supply of homes for sale hits the highest level in nine years.”
At least MSN.com isn’t trying to spin it positive - this is their financial headline and subtitle. Nice to see they are headlining the inventory rise as the “bad news” - nine years is a nice punctuation mark and hard to ignore. If other MSM outlets trumpet this, sentiment may start to finally change among the masses.
Great stuff — ya’ gotta love the honesty in that byline…
http://articles.moneycentral.msn.com/Investing/CNBC/Dispatch/060627markets.aspx
“There was a 6.5-month supply of homes for sale at the end of last month — based on the average rate of home sales — compared with a 6.1 months’ supply in April, the NAR said.”
Wow — I wonder what the “days on the market” is at this point — must be up to 30 days or so?
“Lereah, Lereah” so goes the popular refrain. “A hundred thousand foreclosures were not enough for Lereah.”
I’ve got an interesting story about visiting an open house this last weekend here in the OC. An elderly “flipper” bought a 3700 sq. ft home in Santa Margarita in Jan 06 for $ 980 k - Current price after granite countertops, new doors, trim work, travertine, etc. is now $ 1.4 million. What’s interesting about this story is that all comparable properties in the area are selling for $ 400 k less than this house. As my wife and I walked through the house, we had a very anxious seller following us the whole time offering us every talking point in the NAR bible.
Confirmation that flipping isn’t restricted to just condos here in the OC.
What # of a lowball did you throw out?
A friend of mine sold his primary residence in Rancho Santa Margarita (aka Beigeville) last year for 1.3 mil. It was heavily upgraded, including an add-on, pool, outdoor kitchen, etc., and exquistely decorated by his wife, but I still couldn’t see that price for a tract home in a commuter neighborhood. Now 1.4 mil for a few cosmetic upgrades? Is being next to Coto and Dove Canyon a selling point? There are alot of pluses to living in this county, but I’m afraid common sense got rolled up and smoked. This place was not immune to the downturn in the early nineties, and these people are in for quite a hangover as they come down off their high.
LOL — “Suzanne’s Ex” — great screen name.
If that reality show on Bravo is truly representative of what lives in Coto, I wouldn’t live within 20 miles of it.
Coto de Caza was originally an enclave of custom homes, and was rather exclusive. It has since been built up with tract homes on small lots like everywhere else (triggering a lawsuit by the original residents). Many people in this county, not all, are most interested in their social image and impressing neighbors they don’t know, and will stretch rather far to do so. Heloc wealth is what you’re seeing on that program, and I see on a daily basis. I find it mildly amusing to watch as I know a few truly wealthy people, and their behavior is completely opposite from those who are trying so hard to impress.
A topic I haven’t seen discussed yet, is what is going to happen psycologically to these somewhat shallow people when they discover someone not only moved, but ate their cheese (equity). I’m sure this isn’t an issue in most parts of the country, but SoCal is driven by image, not substance. Are we going to be able to ride the backside of the wave down this time, or wipe out?
“but I’m afraid common sense got rolled up and smoked”
LOL - lots of great phrases being coined on this blog
The danger that all these non-professional flippers are going to run into is that they improve the different rooms to THEIR taste, then try to sell. Many buyers (including myself) would 9 times out of 10 prefer to have the unimproved house. Buying an improved house that you don’t like just makes you feel like you are wasting money on the improvements.
‘There’s now a clear pattern of slower home-sales activity in many higher cost markets, which are more sensitive to rises in interest rates, and higher home sales in moderately priced areas which have experienced job growth,’ he said
I hate to say this, and I’m sure that I’m going to be labelled a troll now…
but my area of Mpls is booming. I can’t avoid that word any longer. Almost every house that is coming up in my neighborhood is selling, and pretty quickly too. Over the winter, things were DEAD DEAD DEAD. Now, a listing comes up and sells quite quickly.
I helped a friend who is moving here to Mpls find an apartment this weekend. I went up and down all the avenues in the East calhoun neighborhood looking for rentals (Aldrich, Bryant, Colfax, Dupont, Emerson, Freemont, Girard, Hennepin, Holmes, Humboldt, Irving, James, between 27th st and 50th st).
I would say that at least 50% of the for sale signs had “sold” on top.
We had 3 houses for sale on my block for MONTHS (6+) and just sat there. They all sold within 2 weeks of each other in early June. (although one of them sold for $100,000 under asking to a flipper due to divorce, the other 2 did not)
I talked with my realtor (who is also a good friend). He owns Lakes Area Realty. He closed on 4 homes this week that sold in the $2 Million range. He is hiring more realtors.
Perhaps this is a dead cat bounce? Or are we in Mpls a year behind the coasts (since our RE is “cheap” compared to the coasts)?
Clouseau
Closeau — have you asked your agent friend, why are people are buying? Are new jobs/manufacturing facilities/call centers pouring into the area? If new jobs aren’t happening, I’d be leery of deducing a boom market. Also, a naive Southerner like myself would assume that people are loathe to househunt when the temperature is way below freezing, so it would seem that summertime shopping skews greater the farther north you go. That last point is just a wild guess, though.
Nah, we know you’re not a troll. What are the links to your local major media? They should be trumpeting the “boom.”
the bubble is still rolling around a bit. eventually people will learn to stop comparing every place to San Francisco, and fundamentals will come back.
maybe a handful of equity nomads showed up.
You are definitely not a troll.
In one of the two areas I track, there was a 10%+ decrease per square foot pricing in March and April. All of those houses are sold, and the new listings are almost (maybe 2 1/2% off) at last summer’s prices.
I think those people who had to buy in summer for school reasons, etc., capitulated.
As the NAR report itself noted, prices tend to be seasonal. It is not surprising that there would be a spike in summertime.
If I have the time, maybe this weekend I will list the YoY increases in median price from Jan thru May. I suspect that each month the increase is less and less.
Trust me, we just moved into Rancho Santa Margarita on Jan. 31st and we rent a nice 3-bedroom apartment. $ miles from work, a pool, and no responsibility to the place, in terms of up keep. There is no way in hell these places are worth 1.4mil. Secondly, the people buying these are def. using creative financing because anyone who could actually afford a 1.4mil would look to buy mortgage free or buy somewhere closer to the beach. These homes, at best, and depending on upgrades, are worth maybe in the 400-500K range. For perspective, these homes were going for 175K-200K just 10 years ago and now buyers are getting a 700% increase. Wow! There are some crazy buyers right now.
I checked out some of the Rancho Santa Margarita listings on Realtor.com. Many of those places wouldn’t get a second look if they were in Dallas. The tiny rooms and closed-in feel would turn most buyers off, even if the homes were priced well. I can see why it’s aka Beigeville. Is there a regulation restricting exterior color choices?
I meant to say 4 miles from work, not $ miles.
I still think people are buying because they think interest rate increases will price them out of the market of the price range they are interested in .I’m sure the realtors are selling homes based on the interest rate going up pitch .
Also, the “buy a home!” psychology is still very much at play in people’s consciousnesses right now
I think the general public can’t connect the math in their mind that a lower price trumps a lower interest rate every time -
ie: consider if prices tanked and rates went through the roof - you would still be better off …
500K mortgage at 6.5% = $3,160.34 month
250K at 13% = $2,765.50 month
Not to mention the possibility of refinancing when rates come back down.
I would much rather stretch my payment dollars to buy a home when rates are toward a cyclical high than a cyclical low anyday. People would be more afraid of ARMs, and my income dollars would go a lot farther with less risk than today.
It is a hell of a lot easier to make extra principal payments on 250K than it is 500K. I would rather chip away at 250K than 500K any day.
talked to a relator in Redondo Beach, CA over the weekend..and she tried to get me to buy right now based on the interest rates are definitely going up storyline…..I was waiting for her to mention that mortgages are bonds…when rates go up the price comes down (aka..the house price will also have to come down to compensate of the higer interest rate)..but alas..she never made it that far.
fyi..she was really hot..maybe she just says that like a parrot.
Like most of you, I want the crash to happen now, but even the stock market in 2000 took time to unravel. The smart money needs to extract itself from a risky situation and trust me, the majority of the smart money never gets smoked. Once they unwind positions and protect themselves, this will get ugly fast.
Right now, everyone thinks the smart money is done but there is so much cash tied up in land banks, new construction, reits, etc that it will take at least 6 more months for the smart money to fully unwind. People who jump in to RE now are fighting common sense. they know they are paying too much but it is human nature to ignore common sense-its called emotion.
My wife and I make way over the national median income combined(or so we think) and cannot fathom how people are paying for a 700k house. Who are these people and how much cash do they make? I did not realize there were millions of people making 300k a year all over the country to buy these houses. Could it be that there is a new paradigm where someone making 100k gets to own a crappy house for 700k?
NO!!! The paradigm has not changed, perception has and reality has a way of changing perception quick. Starter homes will return to traditional prices of 200-400k within a few years and there will be whining bagholders suing everyone including Countrywide, the Title company and the illegal alien landscaper looking for a way out.
I agree with you 100%. The reality is that people cannot afford these houses, and it will be just a matter of time before they end up in foreclosure.
It could also be that a lot of these people are working themselves to death. For example, mom works Amwayand/or Avon or some other S&*^ products out of the house while dad is doing 30-40 hours of serious overtime at $40-$50 an hour. Even with the taxes, they could still make it. Let’s say mommy earns $500 week take home. Day takes home, with OT, another $2,000, that’s $10,000 a week. Now, subtract the SUVs and the groceries and the utilites, if they have been frugal with everything else (I know, probably not, but let’s be conservative here), they probably have $8,500 left for the mortgage, which would get them into a 1Mil home.
Sadly, the real questions that have to be asked are:
1. How long will mommy want to keep her Amway, Avon, or whatver job with the kids growing up so fast?
2. How long can daddy keep putting in the 70-80 hours per week without killing his health and sanity?
3. How wacky are all these kids going to be because mommy didn’t have the time for us and daddy was only here to sleep?
4. Why don’t these people save some of the income for the rainy day or retirement or the kids’ college funds instead of putting it all into the house?
5. If you buy a 1mil home, you know how long it will take to turn any kind of decent return? Years!!!
OC: getting a job doing anything for 40 or 50 an hour is going to be extremely difficult. Just getting a primary job at that rate is not easy. I think that a more likely scenario for J6P is:
Work 40 Hours at termite mill: $650-700 Per Week
Work additional 20-30 at Ant hill: 250-350 Per Week
Wife “works” Selling RE or Avon (same MLM): 250-500 (good week, conned all her friends)
Total:1150 Per week low, and 1550 per week on the high side
This is assuming joe makes the average 52K income, and has a 10-15 dollar an hour second job.
Total per month is 4830 to 6510 Still a way to go to afford the average crackerbox around here. Throw in the H2, the Jetski, the vacation to Costa Rica, and all the mall excusions, and he has almost no take home pay…
This will not end good.
What # of a lowball did you throw out?
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I must have been throwing off bad karma since the guy didn’t even suggest “making an offer”. I got the impression that he had set his price and wasn’t going to move on it.
By the way, Zillow is great! That’s how I found out about the original sale in Jan 06 and comps in the area.
Wednesday before the stock market opens we have the weekly Mortgage Applications Survey.
This Survey includes a summary of interest rates for the various typical home loans. I’m looking for all of them to be up another 0.10% across the board from last week.
Chillin’ - that guy needs his price in order to pay for his quadruple bypass surgery when he finds out that his $1.4M McShitbox isn’t worth anywhere near that.