Paper Money talks about NAR's November Pending Home Sales.” The highlight "nationally the index was down 11.4% as compared to November 2005." Remember, by November 2005 the housing market was already declining.
Is Wall Street Souring on SubPrime Loans? at The Real Estate Bloggers.
Macroblog features a 'Mixed Bag' of recent economic news.
Optimism on the Menu for 2007 for Seattle. Uber Blogger Timothy Ellis discusses the local cheerleading by the housing industrial complex.
Patch Tuesday, mocks a local Realtor who sends out bubblicious postcard. The Realtor claims regarding the house "this home could be thbeginningng of your financial independence."
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Thanks for the link! "Uber Blogger"... I'm flattered!
ReplyDeleteBTW, I notice you're still on the "old" Blogger. In case you're wondering, the switch to "the new Blogger" was mostly painless. I had only a few minor issues:
- it took 5+ hours to fully migrate (despite the fact that it claims it will only take minutes), during which time the blog displayed a "this blog is migrating" message.
- A few dozen comments left in the days before I migrated were mysteriously converted to "anonymous"
- the comments page is now an https, but the images that load on it are http, which results in a "this page contains both secure and non-secure items" message to pop up for some IE users each time they load the comments page.
Other than that, it's been great. My favorite thing is the addition of tags (aka "labels"), but instant publishing is pretty nice too.
http://www.bloomberg.com/apps/news?
ReplyDeletepid=20601039&refer=columnist_baum
&sid=aaAugiM40C_w
Housing Data Yield a False Sense of Complacency
Caroline Baum
-The sense of complacency may be premature. For starters, the unseasonably warm weather is probably distorting the housing statistics. Seasonal adjustment factors, which, as the name implies, adjust actual data for monthly variations -- historically more homes are started in June than in January -- weren't exactly anticipating the balmy weather experienced by the Northeast in December.-
-Earlier this week, Lennar Corp., the fourth-largest U.S. homebuilder, said it suffered its first loss in at least a decade in the quarter ended Nov. 30 after writing off the value of land it no longer intends to purchase. Chief Executive Officer Stuart Miller said market conditions continued to deteriorate throughout the period, with``no tangible visible evidence of a market recovery.''-
-``Inventories of completed homes continue to increase, both in absolute terms and relative to their total inventories,'' he said. ``Historically, until the relative inventories of completed homes begin to decline, the starts of new homes continue to decline.''
Because the Census Bureau, keeper of the new home sales data, doesn't capture cancellations in the monthly statistics, sales are probably being overstated and inventories understated.-
http://business.bostonherald.com/
ReplyDeleterealestateNews/view.bg?articleid=175000
Mass. Realtor group twists truth on low home sales
By Scott Van Voorhis
Boston Herald Business Reporter
-It’s the same outfit that criticized talk of a “housing bubble” back when people were talking seriously about million-dollar “fixer-uppers” in toney towns like Newton.
Now the Massachusetts Association of Realtors has another news bulletin for you: The housing “correction” may soon be over.
That was fast.
With serious buyers scarce, that observation may be at odds with what many would-be home sellers are experiencing in the current market.
And it is also at odds with an even more telling measure: the Realtors’ own statistics.
The monthly sales numbers are grim enough to challenge the most optimistic person to find a shred of a silver lining.
Yet the tougher the numbers, the happier the talk in the trade group’s official press releases.-
"after writing off the value of land it no longer intends to purchase"
ReplyDelete"Chief Executive Officer Stuart Miller said market conditions continued to deteriorate throughout the period, with``no tangible visible evidence of a market recovery.''"
Don't worry... any minute now Lance and VA_investor will be here to discredit this bubblehead, "Stuart Miller."(if that is even his real name...)
Doesn't he know that there is no bubble?
Doesn't he know that prices are about to start climbing again?
This is just a small correction before prices begin to climb, the worst is already past!
lol
is there a Colorado bubble blog?
ReplyDeleteyou'd think w/ all the foreclosures (i think leading the nation) and mortgage fraud there'd be a CO or Denver blog...
Anyone believe the Fed's overnight rate will be raised to 5.50% at the next meeting? What would this mean for housing?
ReplyDeleteDespite all the news it baffles the mind why these sellers are not slashing their prices in larger amounts. I have only seen small reducation 10-20K max. Any predictions on when DC area homeowners will slash prices by 10-20%?
ReplyDeleteWhen are the sellers going to drop their prices 15-20%? I still see a ton of inventory but way way overpriced in the DC metro area. Any predictions? The listings on craigs list make me laugh!
ReplyDeleteAnonymous said...
ReplyDelete"Despite all the news it baffles the mind why these sellers are not slashing their prices in larger amounts. I have only seen small reducation 10-20K max. Any predictions on when DC area homeowners will slash prices by 10-20%?"
Because housing used as a home isn't an investment (i.e., asset as in "store of wealthy") but rather an expense, large declines in price never happen. the bulk of all homeowners can just continue to own their homes until prices return to normal. The few that can't don't affect the pricing mechanisms enough to cause more than a small sway downward. As economists like to call it, house prices are "sticky downward" They can rise quickly, but can't correspondingly fall much or quickly ... Don't let yourself be swayed by some BHer's arguments that you can just count on prices taking a nosedive and you buying cheaper with no effort required on your part. You stand a better chance of winning the grand prize in your state lottery. And more importantly, you stand a better chance of buying at that "10% - 20% discount" just by being thorough in your property search and a good negiatator. You can also get that 10% - 20% discount just by examing your needs. For example (and I read this earlier today) you might want a garage with a house with 3 bedrooms so that you have an extra room for those relatives that come by every 5 years ... but do you really need 3 bedrooms? Couldn't you shave more than 10%-20% off the price of a house just by looking for a 2 bedroom vs a 3 bedroom?
"Anyone believe the Fed's overnight rate will be raised to 5.50% at the next meeting? What would this mean for housing? "
ReplyDeleteNobody is predicting that. Looks like you'll have to work a little bit harder to afford that house. Bummer.
Lance said...
ReplyDelete“Because housing used as a home isn't an investment (i.e., asset as in "store of wealthy") but rather an expense, large declines in price never happen.”
Large declines never happen? Come on Lance, you can do better than that:
http://www.bubblepic.com/displayimage.php?album=9&pos=4
I disagree Lance-with the medium home price at $400,000 in Northern VA inside the beltway(and that is a two bedroom townhouse we are talking here probably one built in the 70's or 80's and many are priced just above that)the market is way overpriced. My husband and I make just over $100,000 a year, we are in our 30's, young professionals, and we still cannot afford to buy. I refuse to do an ARM and I will only do a 30 yr fixed mortgage. I am not willing to commute in bumper to bumper traffic from Centerville or Manassas to downtown DC everyday nor am I willing to be housepoor and live on rice and beans to purchase something at 1/2 million dollars. So yes sellers do need to lower their prices or first time homebuyers like me will continue to wait on the sidelines.
ReplyDeleteWow... it is funny joking about Lance showing up and saying stupid things... but then to see him actually do it just as predicted? Wow...
ReplyDelete"Because housing used as a home isn't an investment (i.e., asset as in "store of wealthy") but rather an expense, large declines in price never happen. "
Large declines in price never happen? What happened to "declines never happen?" Did that go out of style? Large declines DO happen. They are happening right now. Open your eyes. The median home in the area is already down ~$50k from its peak.
"You stand a better chance of winning the grand prize in your state lottery. And more importantly, you stand a better chance of buying at that "10% - 20% discount" just by being thorough in your property search and a good negiatator."
Newsflash... prices are already down in excess of 10% in many markets and they are still falling. For someone who camps out on a real estate blog you sure don't pay much attention. You were giving this same advice last year... and it was wrong... now you are still giving it, and it is still wrong.
"you might want a garage with a house with 3 bedrooms so that you have an extra room for those relatives that come by every 5 years ... but do you really need 3 bedrooms? Couldn't you shave more than 10%-20% off the price of a house just by looking for a 2 bedroom vs a 3 bedroom? "
LOL...
Good point Lance! No one here ever thought of that! Here we are all waiting to buy 26 room mansions when what we should really be doing is buying one bedroom condos in transitional neighborhoods using exotic mortgages.
Lance:
ReplyDeleteI live in Southern California and I'm seeing 20 to 30% declines already. California leads and other states follow. Simple truth.
David-
ReplyDeleteI recommend you put up that article originalDCer posted for discussion. Basically, it points out that while rents rose 4.7% last year (a little more than inflation- but not a lot more), renters now have a lot more choices due to so many bubbleheads being unable to sell.
Also, again, I would point out that homeowners are facing higher property taxes and/or higher utilities (which, in some apartments, are completely covered). So homeowners' costs were probably up close to 4.7%- or maybe even more- as well.
A Redskins fan
The Washington Post
ReplyDeleteThe Tide Is Turning
By Kenneth R. Harney
Saturday, January 6, 2007; Page F01
" ... smart shoppers should recognize that the game is changing, the spring buying season is just on the horizon and lobbing lowball offers at already marked-down properties isn't a winning strategy. If you are seriously in the market, be prepared to pay a price that may not be as low as you had hoped, but that just might be your last shot at a particular house before it sells for closer to the asking price a few weeks from now."
www.washingtonpost.com/wp-dyn/content/article/2007/01/05/AR2007010500839.html
Because housing used as a home isn't an investment (i.e., asset as in "store of wealthy") but rather an expense, large declines in price never happen.
ReplyDelete????
Home prices are sticky. But I've seen homes sell for 40% below their prior purchase price in the last downturn (a neighbor). :( While looking at homes over the last year, I've seen whole neighborhoods drop their asking price (here in Cali) by 300k.
DC is trailing the most overpriced markets. Since DC has less to fall (comared to say, Sacramento) it will fall later and at a more glacial pace.
Wait for mortgage credit to tighten anon. The best time to buy a home is when its hard to get a mortgage. :)
Neil
I recently went to place an offer on an awesome house. This house is a preforclosure/shortsale. My agent and I arrive and the "homedebters" aren't there for the showing? The bank is giving these morons one last chance to sell without losing everthing. The way I see it, if they won't let people in to take a look inside the house, the sheriff won't have a problem throwing them out, here in a few months. The ironic thing is, the homedebtor was a house appraiser and lost his job. I'm finally able to swoop in at 2002 prices on this one. There are and will be many more great deals to come in '07 '08 '09 I couldn't pass this one up with a 50% price reduction.
ReplyDeleteOne could say pennies on the dollar.
Because housing used as a home isn't an investment (i.e., asset as in "store of wealthy") but rather an expense, large declines in price never happen. the bulk of all homeowners can just continue to own their homes until prices return to normal.
ReplyDeleteWhile there is some truth to your argument, what you're missing is that real estate has been nothing more than an investment for a large percent of buyers the last few years. The speculation was rampant and those speculators can't keep their negative cash flow investment forever.
One other thing you're missing, the loose lending is absolutely necessary to maintain the current prices. The mortgage industry is tightening as I write this. The pool of qualified buyers is shrinking daily. Read recent comments from those in the mortgage industry for evidence of this...
In addition, the builders will keep building as long as they can make money on the houses. You don't need a homeowner to lower prices... The builders will gladly do it if necessary. This is one reason the outer suburbs are going to take a huge hit.
Real estate falls slowly but there is plenty of historical evidence supporting prices drops. There are even local cases with tremendous prices drops (see Florida 1925) and cases with slow declines for over a decade (see Japan).
Just shotup the Phoenix Report and changed the entire thebubblebuster.com website.
ReplyDeleteAdditionally, the NEW thebubblebuster.com contains historical data for another 20+ cities. Check it out...
The Tide Is Turning, By Kenneth R. Harney
ReplyDeleteWho is this guy? David, I think this guy needs to be investigated and exposed just like David Lereah and the rest. He also seems to be Managing Director of the "National Real Estate Development Center". Check out some of his "objective" comments. These comments are as harmful to ordinary readers of his newspaper as David Lereah's comments are.
as the latest sales data show a small but unmistakable uptick in activity and declining unsold inventories. In late December, the National Association of Realtors reported that existing home sales were up by a hair in November, 0.6 percent, the second straight month of modest increases off the cyclical trough in September.
0.6 percent. "Unmistakable" uptick?
That same week, the Commerce Department reported that sales of new houses rose 3.4 percent in November over the prior month, while builders' unsold inventories dropped.
All of which suggests that the 18-month market correction that followed the four-year housing boom has just about run its course.
How can he make that statement? How can he possibly know?
Shoppers also need to understand that today's prevailing mortgage rates -- a little above 6 percent for 30-year money, and the high-5 percent range for 15-year loans -- are less than a point above 40-year lows. They won't be around indefinitely, so a fairly priced house combined with a low-cost mortgage adds up to a potentially great deal.
This is tantamount to blackmail. Buy now, or you won't get this great deal. Does he work for the newspaper or the Real Estate agents? Doesn't he understand that if interest rates rise, it spells doom for the housing market. Never once does he mention that.
Check out another article he wrote in March, 2006 at the height of the boom:
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/10/AR2006031000857.html
In this he says:
The number of unsold houses listed for sale has swollen to 2.8 million, up 580,000 in the last 12 months.
It seems like a tough time to be a seller. But here's where things get confusing. The latest federal and private-sector statistical reports suggest that price inflation in dozens of metropolitan areas is still chugging along at a double-digit clip.
So shoppers, it looks like it is like bad data, but just look at all these cool numbers. Prices are still appreciating.
Of course they are still appreciating that was the crest of the boom. He was quoting numbers from 2005, when all the easy lending drove house prices through the roof.
Check this out though, this is hilarious:
The recent statistical measures of prices may be misleading for would-be sellers and buyers. Even David Lereah, the chief economist of the National Association of Realtors, hinted that fourth-quarter national and local median price changes may have reflected tighter inventories coming off the summer months that "still favored sellers." But "the good news," he says, "is that the supply of homes on the market has been trending up" -- opening the door to more "balanced" bargaining strategies for buyers.
Here he is quoting David Lereah, who is sympathizing with buyers. Great news. We are at the height of the boom. It is the perfect time for buyers to now step in now and take up all the excess inventory.
Then he quotes another NAR employee:
Lawrence Yun, the association's senior forecast economist, puts it even more bluntly: Looking ahead in 2006, he says, "double-digit price appreciation mostly is history. Home sellers will have to adjust their expectations and sell at more competitive prices."
Put another way: The breathless fourth-quarter 2005 price appreciation numbers are not necessarily a smart guide to pricing your real estate this spring. If you're selling in one of the 72 markets that saw median prices jump by double digits, don't expect to add on a double-digit increase over what you might have commanded last spring.
Divide by three. Maybe four.
"Rather than putting a home on the market at a 15 percent higher price than last year," said Yun, try "for 5 percent" more this spring.
This is really outrageous. He is openly suggesting in his article how much appreciation a home owner should expect. And he is quoting a NAR employee! How can this possibly be objective journalism?
After this there is just one outrageous thing after another.
If you're a buyer, bargain hard. But don't expect miracles.
Yes, thank you very much for your advice.
I recognize that bubbleheads are still in denial, and that there are still a lot of people in the market getting those crazy ARM loans. I also recognize that we are not in a recession, and in cities with an overemphasis on government, academia, and finance, the economy is still o.k. (Not so for cities that actually produce things, but that's another story).
ReplyDeleteSo I am not going to lob lowball offers. I concede that right now that would be a waste of my time and sellers. I am just going to enjoy life as a renter, look to protect my assets from being expropriated to bail out the idiot buyers of the last 3-4 years, and when and if the market does become sane again, then I may decide to start lobbing lowball offers. But I am in no hurry. Renting is a good life.
A Redskins fan
Anon 1:38,
ReplyDeleteIt sounds like you are more than a little nervous ... Who is he? uh ... A real estate expert! And who are you? Ouch! It must hurt to be following the advice of twenty-something year olds with NO real estate experience ... that's "no" as in "zilch", "nada", and "none" ... and find out you've made a very wrong and expensive decision in the process! But, wait! You think that advice from an expert is "tantamount to blackmail"? ... but advice from a twenty-something yr old with NO experience has value? You've got a lot more problems going for you than figuring out how you're going to buy a home if you honestly don't see the falicy in your logic.
Lance said...
ReplyDelete“It sounds like you are more than a little nervous ... Who is he? uh ... A real estate expert! And who are you? Ouch! It must hurt to be following the advice of twenty-something year olds with NO real estate experience ...”
Sure Lance, this stuff is so complicated.
Let’s see, yet another median YOY price drop. Then, miraculously, sales increased 0.6%.
Humm, prices goes down, sales go up. I don’t know, we might need an expert to explain that one.
You think that advice from an expert is "tantamount to blackmail"?
ReplyDeleteAs usual you step around all the arguments made in the post, and pick and choose lines with no context whatsoever.
It is general consensus amongst not only twenty-somethings, but economists and "experts" that a rise in interest rates will be very harmful to the housing market. However Mr. Harney is goading buyers to buy now to prevent being "locked out". This is totally irresponsible. Why doesn't he point out the other side of a rise in interest rates. Atleast a warning. Something.
Mr. Harney may be an "expert" in real estate, but to present just one side of the issue (see my other points too, and don't just keep saying he is an expert like a wound up toy), and not present any warnings or caveats whatsoever is irresponsible journalism, to the point that it smacks of there being an ulterior motive.
"Renting is a good life."
ReplyDeleteKeep telling yourself that. For your sake, I hope your landlord doesn't get up one morning and decide to kick you out of "your" home.
"twenty-something year olds with NO real estate experience ... that's "no" as in "zilch", "nada", and "none" ..."
ReplyDeleteLance must be getting desperate if he is resorting to attacking David's age. Last time I checked Real Estate agents don't even have to have a college degree and much experience-Lance must be one of them.
David keep up the great work-its people like you that are helping to promote a shift in thinking and forcing the mainstream media to take notice. Thanks for your wonderful blog!
NOVA renter
Very interesting data on DC-area asking prices from the housing tracker website:
ReplyDeletehttp://www.housingtracker.net/old_housingtracker/location/DC/Washington/
One year ago, the median asking price was 3.1% higher.
HOWEVER, the interesting part is that the 75 percentile home is down 7.7 percent (from 649.9K to 600K) while the 25 percentile home is down 4.5 percent (from 334,900 to 319,900). (Please check my numbers if you wish- I could be wrong).
This seems to suggest that the pain is more intense in the upper and lower ends of the market.
A Redskins fan
" advice from a twenty-something yr old with NO experience has value? "
ReplyDeleteLOL. Let us compare the value of listening to a real estate expert in 2006 versus listening to a 20-something old housing skeptic at the same time.
If one had listened to the 20-something housing skeptic, one could now purchase a DC-area house for 3.1% less than a year ago! And that's 3.1% in nominal terms- in real terms, you are probably getting something like a 7% better deal.
Says something about real estate experts, I guess.
A Redskins fan
Yes, Lance we are all very nervous. But perhaps Harney can take a tip from the following writers, who are also looking at the same data, but presenting both sides of the story (i.e. David Shill Lereah's and everybody else's)
ReplyDeletehttp://www.usatoday.com/money/economy/housing/2006-12-28-existing_x.htm
http://www.washingtonpost.com/wp-dyn/content/article/2006/12/28/AR2006122800259.html
http://money.cnn.com/2006/12/28/news/economy/homesales/index.htm?postversion=2006122811
As usual, Lance and VA shy away from a debate on the real issues, and hang on the coattails of some obscure journalist.
ReplyDeleteLance, VA if you think the idea of a bubble is amongst some isolated group of hardcore people, think again. Check out:
http://en.wikipedia.org/wiki/United_States_housing_bubble
The article quotes Time, Economist, NYT and other magazines and respected economists. It has 114 references to bubblicious behavior reported by other sources. It appears that you guys seem to be excited on discovering this Harvey character, who to be honest, was very unconvincing in his article. Also the fact that you guys seem so excited about this silly article hints in the direction that maybe HHs are now a minority? Hmmm...
What we are witnessing is a normal RE cycle and, according to sources referenced above, the worst may be over. I see no evidence suggesting a bursting of any bubble.
ReplyDeleteVA, you make more sense than Lance. Your points are certainly appreciated. However this was the chart that Robert posted earlier.
http://www.bubblepic.com/displayimage.php?album=9&pos=4
Obviously the price increases since 1997 are unprecedented. The previous similar rise was after WW2. What are your thoughts to the increases, and why do you think the prices will stay as such?
More good news for all of us living and work in the DC area:
ReplyDeleteLocal Job Market Rebounds
'Real Jobs' at Profitable Firms Buoy Confidence
By Amy Joyce
Washington Post Staff Writer
Monday, January 8, 2007; Page D01
The Washington job market is expected to be robust enough in 2007 that companies say they're beginning to reminisce about the late 1990s -- a boom time that now seems so distant as to have taken on the aura of an urban job-market myth.
The region is full of growing technology, sales and legal industries and has a low unemployment rate -- just 3 percent, down from 3.1 percent at the same time last year -- making it a job-seeker's market. Last year, the region added 66,200 jobs compared with 64,700 in 2005, momentum that is expected to continue despite concerns about a slowdown in the housing market.
www.washingtonpost.com/wp-dyn/content/article/2007/01/07/AR2007010700899.html
"For your sake, I hope your landlord doesn't get up one morning and decide to kick you out of "your" home."
ReplyDeleteI'm under no illusions that the property I rent is my home. For example, I know that I am not legally responsible for its upkeep. I also have a contract with my landlord, and he can not just wake up one morning and decide to kick me out.
Since you wished me well, let me return the favor. For all the failed-sellers-turned-would-be-landlords' sake, I hope you don't end up with bad tenants who trash your property and don't pay on time or at all.
A Redskins fan
The latest spin from the housing heads seems to be that since prices only came down about 3-6% in one year, and we did not see a one year complete collapse, that therefore the housing market is alive and well and ready to resume its upward trajectory.
ReplyDeleteI've been reading housing bubble websites for a couple years now, and I don't recall seeing very many- or maybe even any- bubble believers who thought that house prices would immediately collapse downward. Most predictions by bubble believers were that there would be a year of stagnation followed by multiple years down, resulting in significantly lower real prices after many years.
A little more than one year after the 2005 peak, that prediction seems to me to be coming true. There could be years of pain for recent homebuyers, if the bubble believers are correct.
A Redskins fan
Lance said...
ReplyDelete“More good news for all of us living and work in the DC area:”
-The Washington job market is expected to be robust enough in 2007 that companies say they're beginning to reminisce about the late 1990s -- a boom time that now seems so distant as to have taken on the aura of an urban job-market myth.-
www.washingtonpost.com/wp-dyn/content/article/2007/01/07/AR2007010700899.html
Thanks for the link Lance. Curious though, the article does not mention salary increases in step with the housing prices of the last few years.
the only true bubble heads on this board are lance and va. because only a bubble head does not realize that they are in a bubble! they offer no arguments they are shrill at best. as the good ship "USSHOUSING" slowly sinks beneath the waves they will simply disappear...and it will be no great loss. just a lot of hot air released into the atmosphere.
ReplyDeleteRobert asked:
ReplyDelete"Thanks for the link Lance. Curious though, the article does not mention salary increases in step with the housing prices of the last few years."
It doesn't need to. Most people know that when you have relatively few people available to fill relatively numerous positions (i.e., demand exceeding supply), that salaries rise. And this of course is pretty evident to anyone living here. Just look at all the conscipuous consumption going on around you. Everyone with a new SUV, the crowded malls, the overflowing restaurants, even the surreal amounts spent on decorating one's McMansions with holiday lights this last holiday season. There's a lot of money flying around this town ...
Robert asked:
ReplyDelete"Thanks for the link Lance. Curious though, the article does not mention salary increases in step with the housing prices of the last few years."
It doesn't need to. Most people know that when you have relatively few people available to fill relatively numerous positions (i.e., demand exceeding supply), that salaries rise. And this of course is pretty evident to anyone living here. Just look at all the conscipuous consumption going on around you. Everyone with a new SUV, the crowded malls, the overflowing restaurants, even the surreal amounts spent on decorating one's McMansions with holiday lights this last holiday season. There's a lot of money flying around this town ...
VA_investor,
ReplyDeleteWhile expecting major price declines might be foolish...
My company is talking about moving 3,000 to 12,000 jobs out of this bubble area (not DC) due to their inability to hire at today's salary. Its cheaper to move than anything else...
Lockheed has already commited to move 1,700. Boeing 1,000+. It will get intresting. And the first moves happen in June.
As to the downside risk being lower than 2005? Why? ARMs are just begining to reset. The downside risk has never been greater! Every week one of the top 25 subprime mortgage lenders fails. Individually, none matter. But if this keeps up, there won't be any more sub-prime mortgage lenders after February. (Ok, Wells Fargo will survive, but who else?)
Equity bubbles are created by credit bubbles. This credit bubble is almost done. This is like 1993 yet most of the price drop was 1994.
I'll wait. My fiancee told me yesterday "I'm so happy we've decided to rent for a year or two." So we'll wait. :)
Neil
Note that the only two contributors who cite Lereah and Harney in positive fashion are Lance and VA_investor. Both Lereah and Harney have the skills and years of experience to qualify as "experts" in the macroeconomics of residential real estate. However, both Lereah and Harney have industry ties that inherently bias them towards reporting and analysis that favors the residential real estate industry. To put it simply, neither passes the smell test.
ReplyDeleteAs an example, let's look at Harney's recent directive to potential buyers to make their best and final offers now, or be lost in the wake of higher mortgage interest rates and the Spring buying boom. Harney assumes both that mortgage interest rates will rise significantly, adn that there will be a Spring buying boom. There was not a Spring buying boom in 2006, at least not in NoVA. The Spring surge of buyers never materialized, and thousand of properties languished -- some continue to languish -- on the market. Mortgage rates have not risen to the extent predicted in 2006. Could the possible link be that thousands of potential buyers were priced out of the market? As many contributors have noted, the rise in wage income over the period 2002-2006 in the DC metro area did not come close to the rise in housing prices. Unless a potential "serious", i.e., non-speculative, buyer had a large amount of equity to usea as a down payment, few potential buyers could afford the inflated housing prices. What the bubble housing markets of 2002-2006 did was to sow the seeds of their own demise by freezing out first-time buyers who didn't have the cash to afford a decent down payment, and who were uncomfortable with non-conventional mortgages.
Will more properties be listed in NoVA in Spring 2007? Probably. However, that surge of listings, if it occurs, will add to the already high level of inventory currently on the market. In other words, the glut of available properties will get larger. That should increase the leverage of potential buyers. Contrary to Harney's predictions, any Spring surge should favor buyers, not sellers. If sellers remain stubborn in their pricing, the NoVA housing market will likely see a repeat of 2006, with a glut of listings, many of which never move, and trends in sales numbers of median prices comparable to those of 2006. In such an environment, assuming that macro inflation factors remain relatively stable, there should be a good pool of mortgage money at good rates available for qualified buyers. Why? Because there will be fewer buyers competing for the pool of available mortgage money than during the overheated days of 2002-2005.
Lance said...
ReplyDelete“It doesn't need to. Most people know that when you have relatively few people available to fill relatively numerous positions (i.e., demand exceeding supply), that salaries rise. And this of course is pretty evident to anyone living here.”
Oh, OK Lance, so salaries have kept up with the rise in real estate? Show us some numbers please. Where did you find such information?
“Just look at all the conscipuous consumption going on around you. Everyone with a new SUV, the crowded malls, the overflowing restaurants, even the surreal amounts spent on decorating one's McMansions with holiday lights this last holiday season. There's a lot of money flying around this town ...”
Lance, is that money or debt flying around? Last I read, consumer savings was still in the negative. You have something showing differently?
va_investor said...
ReplyDelete”I think that it is quite possible that prices will drift lower in 2007, but I have no crystal ball and won't pretend to be any sort of "fortune teller". This spring season should be very interesting.”
Last spring was pretty interesting too.
“When rates went through the roof in the early 80's, prices did not tumble. The market simply ground to a halt. This is my memory, at least.”
You might want to rethink the 80's:
http://www.bubblepic.com/displayimage.php?album=9&pos=4
Lance said...
ReplyDelete“It doesn't need to. Most people know that when you have relatively few people available to fill relatively numerous positions (i.e., demand exceeding supply)”
Funny Lance, that you mention “demand exceeding supply” when you rant about how inventory levels mean “absolutely nothing”.
Courtesy of Bens Blog. A little reality for the two tooth fairies (Lance and VA (housing never goes down) Investor. News flash for the tooth fairies...
ReplyDelete--The Sacramento Bee. “If you doubt there’s a frosty trend in the local real estate market, look no further than a five-month-old local Web site. At Sacramento Area Flippers in Trouble, more than 470 Sacramento area homes are listed for sale at prices below, sometimes way below, what their owners originally paid.”
“One example: A Folsom home purchased a year ago for $518,500 that’s now on the market for $360,000. Another: A Sacramento home purchased for $371,500 in fall 2005 now offered for sale at $249,000.”
“The local site was launched last July ‘to counter the positive spin (from Realtors and others) about how great real estate is in tems of appreciation,’ says its founder, a state worker who identifies himself only as ‘Max.’”
“Why won’t he reveal his last name? ‘A lot of people (in the industry) aren’t very happy about what I’m doing,’ he says.”
“Several local real estate experts say the site’s information is an accurate reflection of how far the market has declined in certain areas. ‘It’s a very real situation,’ says Mike Toste, a real estate agent in Antelope. ‘I’m seeing sellers take those kinds of losses.’”
“But he also points out that many sellers won’t bear the full brunt of the loss, because lenders sometimes agree to forgive whatever debt remains after a house is sold to save themselves the costs of a foreclosure. ‘It all boils down to loss mitigation,’ says Toste.”
"Oh, OK Lance, so salaries have kept up with the rise in real estate? Show us some numbers please. Where did you find such information?"
ReplyDeleteMine has.
I love when people on this site tell stories like threadkilla's and then don't seem to understand why nobody takes their opinions seriously.
ReplyDeletethe real bob said:
ReplyDelete"Meanwhile, rents are relatively cheap compaired to buying so I would suggest that most people don't buy and save money while rents catch up to the cost of ownerships."
While I agree with you and Va_Investor that at least in real dollar terms prices may not increase substantially over the next several (or even "seven") years, I disagree with the conclusion you are pulling out of this. If we all agree that prices aren't going to drop much more than they have, what is the incentive in waiting? Is it having plenty of houses to look at because you have more time to look? Isn't the inventory out there already out there large enough for a reasonable person to find something that suits their needs? Do they really need to hold off another 2, 3, 7 years to be sure they've seen everything they could possibly see? The upside to waiting isn't the opportunity to buy for cheaper as the three of us seem to agree. However, the downside to waiting is that if the market goes anywhere, it isn't going down ... it is going up. And what happens if while you are waiting to view everything that could possibly become available, price suddenly start escalating quickly? Remember, we've already agreed that a downward trend really isn't in the cards ... Instead that prices will eventually go up. In my opinion, given those shared beliefs, there is really little to gain by "looking around for the next 1 to 7 years" and a lot to lose by not locking in at the relatively low prices and low interest rates that are out there now. So, given our shared belief that prices aren't going down, why do you think it is worth the risk waiting for the "perfect" home? I have to admit, you're reminding me of a 40-something female friend of mine who is still waiting for that "perfect" husband.
originaldcer said...
ReplyDelete"David,
Just a short WaPo article on expected pay increases for those in the DC area..2.6% increase I believe has already been enacted for federal workers..while this article mentions around 3% for private sector workers."
OriginalDCer, I don't think your 3% for the private sector workers takes into account "raises" individuals get when they change jobs. Most private industry people I know are changing jobs much more often then their parents did. I know more than a few who have substantially increased their earning this way ... without ever "sticking around" long enough to ever get a regular raise. As for the government worker increase, I wouldn't give that too much weight in the equation. Government is slowly but surely moving away from a federal workforce to a contracted goverment workforce. It's not surprising that raises there are lower than average given the government's end goals in respect to the ratio of govt vs. contractor workers it wants doing the business of government.
mister methane said:
ReplyDelete"Unless a potential "serious", i.e., non-speculative, buyer had a large amount of equity to usea as a down payment, few potential buyers could afford the inflated housing prices."
Most home buyers ARE "move-up", existing homeowners. So, YES, they do have the large equity needed to move up ...
"If we all agree that prices aren't going to drop much more than they have, what is the incentive in waiting?"
ReplyDeleteOk, first off... we don't all agree that at all. We are in for at least another 10% drop over the next year or so.
Second, if even IF housing stagnated for the next few years that wouldn't support buying soon. Because rents are so much lower than purchase prices right now it would make the most sense for a potential buyer to save up a significant down payment by investing their money wisely and buying a house a couple years from now.
"OriginalDCer, I don't think your 3% for the private sector workers takes into account "raises" individuals get when they change jobs. Most private industry people I know are changing jobs much more often then their parents did. I know more than a few who have substantially increased their earning this way ... without ever "sticking around" long enough to ever get a regular raise. "
ReplyDeleteYou don't have a clue how those numbers are calculated... not even the slightest hint...
Those numbers are work force wide. They aren't tracking a single individual, they are tracking the whole population. So yes, they do take into account that people change jobs. They account for the fact that one person has a new job that may pay more.... and they account for the fact that someone else took over that person's original job and is making roughly what they used to plus a few percent... What happens to the people making the most at the top of the ladder? Generally they retire... and slightly younger people move up into their jobs. This happens every year all the time... at the end of the day how do things balance out? Well... this year they balanced out roughly 3% higher than last year.
Are you really that clueless? Or are you intentionally trying to mislead people by playing dumb?
However, the downside to waiting is that if the market goes anywhere, it isn't going down ... it is going up.
ReplyDeleteWow, finally you got it! Yes, Lance that is what this blog and other similar blogs are about. This blog and others are based on the premise that housing prices are going down in real dollar terms for the next few years. If it is not going down, then even us BHs, not having your vast financial knowledge are smart enough to understand that it doesn't make sense to wait.
Also please check Robert's chart posted earlier about declines in housing markets. Would you have bought a house at the top of the market in 1989? What would have happened if you would have had to move in 1997 when prices finally started going up? You would be down 10% after 8 years. Note also that the chart is a national average. Local markets that moved up higher, will have greater price declines, essentially destroying all the equity you have built up and putting you in negative territory.
Do you think it makes sense to buy now in California or Florida where prices in many areas have TRIPLED over the last 8-9 years? You think prices will stay flat inflation adjusted in these areas? We think prices will decline in these areas. In fact they have already declined in 2006 and will continue doing so.
So please stop posting nonsense, unless you have valid points about why housing prices will not decline.
I think it's worth pointing out that housing prices declined in this country and this area during 2006, which was a period of strong economic growth and very strong wage growth. If an asset's overvalued, then it's gonna go down, and that's what we've seen with housing. So people like Lance who say that good economic conditions are a guarantee that housing prices won't fall have already been proven wrong.
ReplyDeleteAnd Lance and Investor make total asses of themselves when they write David off as some know-nothing kid. The fact is, David's given much better advice during late 2005 and 2006 than the self-interested "experts" like Lerah or this Handey (or whoever he is) loser. I don't always agree with David myself, but some very heavy hitters in real estate, guys who foresaw the housing price runup and made buku dollars by investing in housing stocks back in 02, have very pessimistic beliefs about housing prices in bubble markets like DC.
Investor and Lance need to listen more and talk less. At the very least, they need to stop looking like morons by dumping on David while approvingly citing somebody who gave far worse advice.
Va Investor wrote, "I notice that David has backed-off of his most outrageous predictions."
ReplyDeleteSuch as?
harney is nothing but a hack for the RE industry. i suppose that marc faber, sir john templeton, robert schiller, robert prechter (etc) are just a bunch of shoeshine boys. VA you walk like a clown, you act like a clown, you talk like a clown. you are a clown.
ReplyDelete"Look for price declines of up to 50% in certain markets over the course of a few years (inflation adjusted)."
ReplyDeleteI still believe this!
Keith said:
ReplyDelete"So people like Lance who say that good economic conditions are a guarantee that housing prices won't fall have already been proven wrong."
And I never said that housing prices won't fall. I said that good economic conditions ensure that longterm housing costs will rise and your best bet for minimizing those costs for yourself is to buy when you can and quit waiting for a general depression to give you 50% price breaks. In my opinion that 50% reduction in house prices is only possible under the conditions of a depression. And that is NOT going to happen in the foreseeable future.
Lnace writes, in response to my previous post:
ReplyDeleteMost home buyers ARE "move-up", existing homeowners. So, YES, they do have the large equity needed to move up ...
The macro logic of Lance's statement is that the residential real estate market is a giant pyramid in which participants start out at the bottom, in "starter" houses/condos, them progressively leverage their equity to trade up to more expensive properties.
For the pyramid to work over the long term, prices must enable buyers to obtain conventional financing with modest down payments. If extreme down payments are required, there will be no buyers entering at the bottom of the market. If non-conventional financing is requied to move up, many would-be buyers will opt out, or be closed out by lenders. The result is that the residential housing market loses the liquidity it needs to keep moving owners up the housing pyramid.
This is exactly what has happened as the bubble has spring a leak. It may not collapse, but it has brought speculator-fueld appreciation to a halt. While median prices may not drop 35-50% in the DC market, we may well see a reprise of the 1988-1995 period where housing prices hardly rose at all in real terms.
If so, those who bought at the peak of the market will watch the real value of their down payment and equity decline as the opportunity cost of the purchase far outweighs any appreciation benefits.
mister methane ... you keep forgetting a home is a place to live in ... NOT an investment!
ReplyDeleteCome on ... how can you say "... as the opportunity cost of the purchase far outweighs any appreciation benefits." ??? Why is it BHers can't seem to understand that housing is an expense ... and not an investment/asset. I don't hear anyone going around saying "I won't buy gas until the price drops!" ... No, people learn to cope ... By driving less, buying more efficient cars etc. And, yes, a few even start taking mass transit ... But most realize that for most people, mass transit doesn't provide the same benefits as owning a car ... and for many (for example suburbanites), the overall cost of NOT owning a car would far exceed just buying something cheaper/more efficient. It's the same thing with housing! Yes, for a few people, renting makes sense (e.g., those not staying put in an area), but for the vast majority, the way to reduce housing costs is to own a house/condo ... Just like to best way for most people to have transportation is to have a car and not rely on public transport. Stop pretending a house/condo is an investment, and might start to understand why you (i.e., BHs) don't understand real estate and why there will never be a big bust in prices.
methane,
ReplyDeleteI agree with everything you say except your last sentence:
If so, those who bought at the peak of the market will watch the real value of their down payment and equity decline as the opportunity cost of the purchase far outweighs any appreciation benefits.
In a traditional market, opportunity cost = rent. That's why the talk about real price declines is somewhat meaningless. Because one must live somewhere, you can't use the same rationale you would use to, say, borrow money to invest in stocks.
Now, if you want to limit the definition of "opportunity cost" to the montly difference between renting and owning then you have a great point!
lance,
If prices remain flat for several years and I can rent for 1/2 the price of buying, why would I buy?
Thread didn't admit HE made a mistake. He asserts he was cheated! I lost money in the dot.com blow-up, but I don't blame Henry Blodget or Abbey Joseph Cohen or CNBC. I blame myself. This pervasive BH crap that the vast REIC "cheated me" is tiresome, to say the least. Realtors are in business to sell houses. They are salespeople, not financial advisors. Duh.
ReplyDeleteThis may be obvious to you VA, but it is not obvious to a majority of the population. Proof of this fact? The 2005 run up was purely based on easy credit. If everybody thought like you, then people would have stayed away from those loans and prices would not have increased as much. What do you say to those owners who are losing their houses now due to foreclosures? Sure it was their fault, but it was easy lending combined with cheerleading that drove them to buy those houses they couldn't afford.
Harney gives basic nuts and bolts information and education on many topics relevant to RE. For example; respa issues, 1031's, sale of principal residence, cancelling PMI, illegal lender charges, fraudulent appraisals and on and on.
ReplyDeleteSure, no one is arguing that Harney doesn't know this. BTW I have no idea what you said and whether it is even important. You sound like the kind of person who likes to throw in complicated words in order to intimidate people.
The point though is that his role as Managing Director of the "National Real Estate Development Center", biases him towards advising people to buy homes. If people stop buying homes it is bad for his business. It is as simple as that, nothwithstanding Respas and 1031s, whatever the heck those things are.
Excellent points Methane. It is obvious that Lance is referring to home owners that have already benefited from the housing boom of the last few years. To argue that these people will drive prices higher endlessly is false like you correctly pointed out. The house prices went higher because there were people who were willing to pay higher, because of cheap lending. When people at the bottom realize that they have been priced out, it will have a ripple effect across all price ranges. People in a starter home will be unable to sell their home and move higher, because no one is willing to buy their house at the current price.
ReplyDeleteLance said...
ReplyDelete“And I never said that housing prices won't fall. I said that good economic conditions ensure that longterm housing costs will rise and your best bet for minimizing those costs for yourself is to buy when you can and quit waiting for a general depression to give you 50% price breaks.”
Lance by not buying when I could, and given the multiple YOY declines, I have already saved on the purchase price of home, thus minimizing my cost. Furthermore, I have more homes to choose from, there is more inventory on the horizon to look forward to, I can now get an inspection with no worries of a bidding war, and there is a great chance that all my closing cost will be paid. No need to wait for a 50% price break, my waiting has already paid off.
I don’t recall any BH’s advocating renting forever and I doubt the economic conditions long or short term, are all that great for the 2.2 million sub-primes possibly facing foreclosure.
"mister methane ... you keep forgetting a home is a place to live in ... NOT an investment!
ReplyDeleteCome on ... how can you say "... as the opportunity cost of the purchase far outweighs any appreciation benefits." ??? Why is it BHers can't seem to understand that housing is an expense ... and not an investment/asset. "
Wow Lance !
You sure are smart!
Not one of us ignorant bubble heads thought of that!
Here we were... comparing rental prices to purchase prices and coming to the obvious conclusion that the current market favors renting but somehow we did this without realizing that housing is an "expense."
WTF is wrong with you? "BHers can't seem to understand...blah blah blah."
Of course we understand that housing is a necessary expense.
Why can't YOU understand that just because it is a necessary expense doesn't mean that a buyer should overpay?
Housing is an expense... Houses are an investment... There is nothing that says something can't be both.
Anon 6:24 asked:
ReplyDelete"lance,
If prices remain flat for several years and I can rent for 1/2 the price of buying, why would I buy?"
Because you can't be sure that they will remain so ... And the price to pay if they do end up rising instead is far greater than if they don't. I.e., the costs associated with the dual risks of higher costs AND higher interest rates far outweigh the benefits of putting away the difference in rent and waiting around while you "shop". An inherent factor here which those without a finance background may be missing is that a few isolated gains (i.e., several years of "rent savings") pale by comparison to the devestation that can be wracked by an ongoing smaller period loss that goes on forever. I.e., you might save $500 - $1000 per month for 2 - 3 years by renting vs. purchasing under today's conditions, but the $20,000 to $50,000 you might save would be more than wiped out by a $100 monthly mortgage increase that runs the length of your standard 30 year loan (effects of compounding and tax savings magnify the difference even further). Those that are fiscally conservative --- and financially savvy --- realize this. Hence, as I've heard Va_Investor say "renting is smarter than owning, that is why most weathly people rent, right?" Those that aren't, think they are getting a better deal renting.
"Because you can't be sure that they will remain so ... And the price to pay if they do end up rising instead is far greater than if they don't. I.e., the costs associated with the dual risks of higher costs AND higher interest rates far outweigh the benefits of putting away the difference in rent and waiting around while you "shop". "
ReplyDeleteThis is absolutely not true of course. There is virtually zero risk in renting while waiting for the market to return to normal provided the renter in question is in fact investing their money. When the market's fundamentals begin to make sense again they will be well possitioned to make a purchase with a huge down payment thanks to the fact that the money they have been investing will have grown far faster than the housing market.
The simple fact is that the housing market just doesn't move that fast. There will not be an overnight shift to another bubble situation.
"An inherent factor here which those without a finance background may be missing is that a few isolated gains (i.e., several years of "rent savings") pale by comparison to the devestation that can be wracked by an ongoing smaller period loss that goes on forever."
Lance, you don't have a finanace background, that is obvious as hell to anyone who does. Please don't misrepresent yourself in such a manner. It is extremely dishonest.
Why don't you tell us your day job?
Also... while we are talking finance... A "few years of isolated gains" is nothing to laugh at. Historically the stock market, and for that matter pretty much everything else, has beaten real estate. If you have an opportunity to invest money elsewhere while the RE market drops or stagnates you are doing very very well. Once the market begins to show the slightest sign of life you can simply buy again and will be well possitioned to do so.
You seem fond of suggesting that anyone who rents does so for their entire life. This is not what I, or anyone else, on this blog is suggesting.
What I am saying is that right now the RE market is --DROPPING-- Buying into a dropping RE market is one of the stupidest financial decisions that you could possibly make. Do ANYTHING else. If you are smart you will invest some money while renting, but even if you don't, don't make a highly leveraged investment in a falling market.
Once the dropping is done the market will stagnate for at least a full year before any meaningful upward movement begins again. There will be ample opportunities to buy.
but the $20,000 to $50,000 you might save would be more than wiped out by a $100 monthly mortgage increase that runs the length of your standard 30 year loan
ReplyDeleteHow so? $100 * 12 * 30 = 36000. If I pay $100 more for my interest like you suggest, then I will pay $36000 more OVER 30 YEARS. If house prices come down 10% on a $500,000 house in the next TWO YEARS, I save $50,000 in the next TWO YEARS. Saving $36000 over THIRTY years vs saving $50000 over the next TWO YEARS... hmmm I think we need an expert like Larney to evaluate this.
Also note that the Government gives me a tax benefit by paying interest. So if anthing, if interest rates go slightly higher, it benefits me because the Government will subsidize this.
I've already saved $200k waiting...
ReplyDeleteYet my savings haven't even started. Since me and my fiancee will have a large down payment, I'm not too worried about interest rates (people are maxed out on their mortgage payments as is).
All of the stats say we've had such a run up in housing prices that affordability is an issue. All of the stats also point out to how much equity the majority of homeowners have extracted. Due to their debt loads... I'm not competiting against them to buy a home in two or so years...
If we are priced ok... that's ok too. There is so much land left is the USA that companies that need to hire young workers will relocate there. Think of how DC, Phoenix, and other locations started. Heck, for all I know Huntsville Alabama is the next big city... ;) (Due to the rocket facilities.) But I do know that there is huge resistance to people transfering locations due to real estate transaction costs being such a high fraction of income. When you buy a home that is 6X+ income, one spends 36% percent of a year's gross income on the transaction! Four months gross... Maybe two years savings...
All the statistics say wait. I'm a big proponent on nondimensionalized ratios. When some start to say buy... I'll buy. Long term it is better to own.
But for every person I know who bought in 2003 through 2006 who is doing well... I know 3 or 4 who are in deep trouble.
There are also too many people that I know with investment properties who will eventually need their equity. Will they sell? Not if they can HELOC. But will they be able to HELOC enough in two years? Hmmm...
Got popcorn?
Neil
Lance said,
ReplyDeleteLance said: Because you can't be sure that they will remain so ...
Lance,
I was responding to your original post where you said:
If we all agree that prices aren't going to drop much more than they have, what is the incentive in waiting?
The theoretical situation we were discussing was one of stagnant prices. You implied that even with stagnant prices it is still better to buy now. I responded that rent is 1/2 cost of buying so why would I do that? Your only response was that prices may rise.
You can't frame the theoretical any way you like it. If we're assuming stagnant prices for a few years and you still say to buy you have to justify that decision based on the initial assumption. But of course you can't so you essentially changed the rules.
If you want to argue prices may rise, then I'll argue they will fall and then there is nothing left to debate....
By the way, I'm not worried about rising interest rates. In fact, I welcome them. With affordability an issue right now, if rates rise significantly there is no way prices could possibly remain steady. You may disagree but I'm betting my real money on it.
And, by the way, I also have a good amount of money for a downpayment and, therefore, I am not quite as sensitive to higher rates as some others.