Its been busy, and my posting have been non existant for about a week. Here is a Bubble Sphere Roundup.
HousingTracker offers useful stats that track inventory and median asking prices in a bunch of metropolitan areas. Washington, DC shows year over year median aksing price declines of 14.6%. And an inventory increase of 27.3%.
The Northern Virginia Fallout Bubble Blog is showing dramatic price declines in the outer suburbs of Washington, DC. Prices have declined much more in the outer suburbs then in the inner suburbs or in DC proper.
Housing Panic reports on Jesse Jackson's march on Wall Street to protest the foreclosure crisis.
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David:
ReplyDeleteI've commented on Harriet's NoVA blog about the following subject, which could present an interesting debate on your blog as well:
The Economist's blog has an discussion of Clive Crook's recent article in The Atlantic. [Subscription req'd for The Atlantic's website, but not for The Economist's.] The premise of Mr. Crook's article is that home ownership produces negative externalities insofar as it reduces the mobility of labor, which is a bad thing in a free market economy. Accordingly, says Crook, government subsidies and tax breaks for home ownership are not helpful, or even harmful, to the public interest.
Link: http://tinyurl.com/2nev69
terminator-x said:
ReplyDelete"The premise of Mr. Crook's article is that home ownership produces negative externalities insofar as it reduces the mobility of labor, which is a bad thing in a free market economy. Accordingly, says Crook, government subsidies and tax breaks for home ownership are not helpful, or even harmful, to the public interest."
Hmmm ... one could say the same about marriage and other life-events producing "negative externalities" in terms of their impact on the mobility of labor. Hopefully we haven't gotten to that point in our civilization where the availability of labor upon demand is the end all and be all of human beings.
David,
ReplyDeleteWow... Look at that graph on the 75th percentile. Its a nearly linear slope down! Alas, I'm looking even a little more 'up market' than that and thus must wait.
I don't doubt his numbers. My spreadsheet is getting a redo (I found better sources and thus threw out my year to year comparison until January.)
Terminator: There is a diseconomy with owning. However, labor isn't a perfectly mobile commodity. However, its about to get a lot more mobile. ;)
Now lets see... 25% more inventory... much slower sales. Can we say accelerating price drops? ;) Look at the 'TED spread', we in a major credit crunch that is getting worse.
Got popcorn?
Neil
Thank you David for posting this bubble sphere roundup information and all information relating to real estate, local as well as national. It is much appreciated.
ReplyDeleteWell, if you've ever wondered why the Washington Post's Maryann Haggerty refuses to run a negative story about housing or acknowledge the housing bubble, we now know it's because she views people who don't own as bitter renters. This faux journalist should be canned immediately!
ReplyDeletehttp://www.washingtonpost.com/wp-dyn/content/discussion/2007/12/03/DI2007120300838.html
"Woodbridge, Va.: The real estate market is crashing; homes are marked down by insane amounts and still aren't selling. Why isn't The Post giving more coverage to the real estate story of the decade/century? Is the real estate section beholden to the advertisers?"
"Maryann Haggerty: I think we're giving lots and lots and lots of coverage to this story--articles just about every day, in the A section and Business section. It's not the only topic out there, of course--political campaigns, wars and Redskins games get some ink, too.
The Saturday section focuses less on policy changes and more on consumer-coping-type articles. Thus, for instance, last week had an article about how tight credit affects divorcing/ splitting couples, and one examining how remodeling affects sales speed/prices. It also had page after page of articles dealing with financial and OTHER aspects of homeownership, such as landscaping and home repair.
If all you read about real estate is conflicting statistical studies and the frustrated complaints of bitter renters, you quickly get overwhelmed, I think."
David,
ReplyDeleteI hate to say "I told you so", but I told you so ...
Fannie Mae and Freddie Mac are imposing significant increases in fees for a range of borrowers with down payments of less than 30 percent who formerly were treated as "prime" credit applicants. At the same time, the two largest private mortgage insurers -- MGIC and PMI Group -- are raising premiums on consumers who have low down payments and scores in the mid- to upper 600s on the FICO scale developed by Fair Isaac Corp. The added costs for some home buyers could total thousands of dollars, either at settlement or in the form of higher interest rates.
www.washingtonpost.com/wp-dyn/content/article/2007/12/07/AR2007120701032.html
The marginally lower nominal offering prices you're seeing on some desirable properties is going to be more than offset for most BHs by higher interest rates ... provided they can even qualify at all with the new 30% downpayment requirement.
Like I said before ... how ironic it was that BHs were arguing against the very same lending tools that were there to make it possible for them to buy in the first place! Rather than recognize that non-traditional lending was there to help them cope with abnormally high prices, they blamed the non-traditional lending for the high prices!
You should have bought "then" ... Too late now.
"Can we say accelerating price drops?"
ReplyDeleteHardly. You're waiting for a day that will never come... you guys were predicting accelerating price drops before the previous 25% inventory came on the market. Where was that HUGE price drop?
Keep waiting, and waiting...
David,
ReplyDeleteYou might want to add that the implode-o-meter just hit 200!
So much for easy credit to re-inflate the bubble. We have at least another two years of declining prices until prices get down to what rents justify.
Got popcorn?
Neil
For me, the most irritating thing about the bubble popping aftermath is how, just like after the stock bubble aftermath in 2000, the guilty are still regarded as experts while the prophets are still excluded.
ReplyDeletePeople like Ben Jones, Dean Baker (at cepr.net) and others (including David) who have been calling this a bubble for five years should be the ones designing the policy solutions. They should be the ones on TV talking about the problems and answers.
Instead, we get the same clowns who got us into this mess talking about how to get us out. We have Paulson, who I suspect is still working for Goldman, designing solutions to a problem his previous employer is neck-deep in.
Also, housing tracker (and its older version site, old housing tracker) is a GREAT site. I get very frustrated with people using sales data as an indicator of price levels. Sales are down from two years ago, and more importantly, inventory is up an enormous amount. So inventory prices are really a much better indicator of where price levels are.
The old housing tracker website shows that nominal asking prices are down over 20% since 2005. In real terms, that is probably closer to 25%.
I remember predicting that house prices would fall 40-60% in real terms back in 2005. Even many housing bears thought that was crazy. In two years, we are already at least halfway there. And now everyone admits that we have further to go.
A Redskins fan
Housing Tracker is a great source for this info.
ReplyDeletecheck out this interesting take about what is really going in here:
ReplyDeletehttp://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/09/IN5BTNJ2V.DTL
lance said "provided they can even qualify at all with the new 30% downpayment requirement."
ReplyDeleteYour stupidity amazed me. So, as you state, it will become more difficult to borrow money. I AGREE 100%. Do you really think this wont have an effect on the price of homes? You cant be that dense can you?
The reason prices sky rocketed was easy money. No money down, IO loans, etc. You think that the removal of these tools wont hurt prices? Seriously, how could you not laugh at yourself when you wrote that. The fact is, this will have disastrous effects on home prices. I welcome, 20, 30, 40 or even 100% down on a home. We will have a much more responsbile country, and that strong community ties theory will really be true. When someone has to save and spend 200k of their money, the decision will become more scrutinized and rational.
I mean seriously lance, grow a brain. I cant believe you would even type such drivel. Its very sad.
Bob
And what happens to the pool of potential buyers when lenders start requiring 30% down and higher credit scores? It shrinks. Fewer and fewer people are going to be able to get approval for the mortgage necessary to meet the prices sellers are looking for.
ReplyDeleteSomething strange happened a few years ago. It used to be what determined a home's value were things like, the size of the house, the property, the amenities, the condition/age of the house, the quality of the neighborhood/schools, property taxes, population growth/decline, etc. In turn, assuming the borrower qualified, mortgage sizes would reflect home prices. But suddenly, exotic loan structures flooded the market with "easy" money. So let's say back in 2003 Joe Homebuyer evaluates his salary, credit score, savings, etc. and estimates he can afford a $300,000 traditional mortgage. He goes to the bank, and they tell him they'll approve him for a lO, ARM, etc. twice that size. If the bank trusts him with their money, why should he argue? He takes the $600,000 loan and buys a bigger house than he intended. Homebuilders start to notice that sales of more expensive houses are rising and gear their construction accordingly. Homeowners see comparables in their neighborhood rising in price, and price their homes to match. Investors want to get in the market and buy multiple properties to resell quickly. So much money was pumped into the market that it created a switch: Instead of the size of mortgages being determined by home prices, home prices were being determined by the size of mortgages.
But, the piper had to be paid. Now fewer buyers are willing to pay (or qualifying for the mortgages necessary for) these inflated prices, there's months worth of inventory on the market, lenders are cleaning up their lax lending practices, and fewer investors are willing to buy the MBS, CDOs, etc. that funded the lending boom. And remember the new rule we all live under now: home prices are determined by mortgage sizes. Now a bank will only approve a Joe Homebuyer for only a $300,000 loan. What's that going to do home prices? If you're trying to sell, your choice is either reduce your price to meet the new reality of lending standards, or plan on staying put for a while.
If the bank trusts him with their money, why should he argue?
ReplyDeleteHow about personal responsibility? God forbid that ever come into play.
There's an interesting article in today's Baltimore Sun -- the front page of the Business section. There's a realtor who was quoted as saying she doesn't understand what buyers are waiting for. Um...hello? What the hell does she think we're waiting for? Good grief -- no wonder she doesn't have any clients.
anon 10:42,
ReplyDeleteAll other things being equal, I agree with you that prices will drop by the amount that the cheap money pushed them up. I guess where we might not see eye to eye though is whether "all other things are equal" and the extent to which easy money pushed up prices.
Without getting into a long explanation, I think the easy money is a result of bigger changes happening in the world economy ... and as such not all things are equal. I also don't think the easy money is going away ... The only thing going away is its more "all around" distribution. There'll still be easy money around ... it'll just now be going only to people (homeowners and investors) who already have money. And these homeowners and investors will keep the prices up ... continuing the increase already occuring in the number of 2nd homes and investment properties out there ...
Ironically, many of those same people who wished this would happen will now be the ones left unable to obtain the financing they need when 30% down is required. You may have 30% to put down (or you may not if you are counting on lower prices) and the wealthy homeowners and investors may have 30% to put down but I suspect most people wishing for this credit tightening don't.
The disection of the story:
ReplyDeletewww.washingtonpost.com/wp-dyn/content/article/2007/12/07/AR2007120701032.html
Fannie Mae and Freddie Mac
(Two quasi governmental agencies who have their share of skeletons in the closet, accounting wise)
are imposing significant increases in fees for a range of borrowers with down payments of less than 30 percent who formerly were treated as "prime" credit applicants.
(And what does 'formerly were treated as prime credit applicants' indicate? That in fact they were in reality sub-prime borrowers with fudged paperwork to get a prime mortgage, perhaps?)
At the same time, the two largest private mortgage insurers -- MGIC and PMI Group -- are raising premiums on consumers who have low down payments and scores in the mid- to upper 600s on the FICO scale developed by Fair Isaac Corp.
(Of course, there is no mention of how those with 720 and up FICO scores are being treated, nor how those who have money in the bank, cash reserves, not stretched to the limit to make their monthly payments are being treated.)
The added costs for some home buyers could total thousands of dollars, either at settlement or in the form of higher interest rates.
(If the price of the house declines, say, 10% to 20%, wouldn't the lower price make it easier to make the monthly payments? As far as interest rates are concerned, which banks are raising rates on loans? There is a desire to lend money to stable borrowers who can pay back the loans that are the number one customer for banks to lend to.)
A few points Lance forgot to mention form the story if you choose to read it yourself...
"The MGIC mortgage insurance premium increases, which were scheduled to be announced yesterday, are expected to have the heaviest impacts on borrowers making down payments of less than 3 percent and whose FICO scores are below 660, according to company officials.
On such loans, MGIC is expected to raise premiums to 1.7 percent per $100,000 of the loan amount, up from a premium of 0.96 percent. On a $200,000 mortgage, that would raise the annual premiums from $1,920 to $3,400."
3% down payment, wasn't 20% down payment the average for getting a mortgage many years ago before lending and housing went crazy?
Another detail left out...
"Although Fannie Mae's and Freddie Mac's revised fees won't take effect until March 1, major lenders who sell loans to the two investors began imposing the surcharges on applicants this month."
So Fannie and Freddie are trying to avoid more junk loans getting dumped into their portfolios, and the change is being made towards the lenders who sell loans to Fannie and Freddie.
Looks like you have to read the WHOLE article and decipher the real meaning before jumping to conclusions.
I would like to ask just one question, how many of you reading this blog have a FICO below 620 or 660 or whatever the minimum is?
Those who belittle the 'bitter renters' tend to ignore the fact that just because someone rents doesn't mean their credit is crud.
Anon 10:42,
ReplyDeleteOne last thought: You blame "easy money" but you don't bother to explain why/how you think it came about. I mean, do you think the market just out of thin air says "let's make easy money available"? ... No, there's something out there causing the easy money. I believe (and Greenspan's recent statements seem to agree with) that the easy money has to do with a pan-global economy developing AND the sudden entry into the market place of billions of Chinese, Indians, Eastern Europeans etc. whose talent can now join synergistically into this global economy to produce goods and services at relatively less cost. (The entry of these billions being due to more efficient communications and the collapse of communism. Consequently, there is -- at least for a while to go --- much more money chasing around investment opportunities causing the cost of capital (i.e, interest) to drop. I.e., Low interest rates are here to stay for a while. (And no, I didn't always think that was the case.)
Lance said...
ReplyDelete“The marginally lower nominal offering prices you're seeing on some desirable properties is going to be more than offset for most BHs by higher interest rates ... provided they can even qualify at all with the new 30% downpayment requirement.”
30%. Yawwwn. Is that all?
Lance you are truly a very interesting creature. kh is also interesting, but not quite as interesting as you. Hmm, let's review just some #s in the DC area.
ReplyDeleteNovember YOY from MRIS.
BALT area:
2006 2007
Average Sold Price:
$ 308,477 $ 309,753 - 0.41 %
Median Sold Price:
$ 259,700 $ 270,000 - 3.81 %
BRAR area:
2007 2006 % Change
Average Sold Price:
$ 275,648 $ 300,273 - 8.20 %
Median Sold Price:
$ 250,000 $ 270,000 - 7.41 %
NVAR:
2007 2006 % Change
Average Sold Price:
$ 513,930 $ 523,247 - 1.78 %
Median Sold Price:
$ 425,000 $ 460,000 - 7.61 %
GPAAR:
2007 2006 % Change
Average Sold Price:
$ 339,228 $ 406,805 - 16.61 %
Median Sold Price:
$ 282,500 $ 304,500 - 7.22 %
FAAR:
2007 2006
Average Sold Price:
$ 323,801 $ 355,789 - 8.99 %
Median Sold Price:
$ 300,000 $ 324,900 - 7.66 %
PWAR:
2007 2006 %
Average Sold Price:
$ 339,673 $ 401,956 - 15.49 %
Median Sold Price:
$ 310,000 $ 370,000 - 16.22 %
DC:
2007 2006 %
Average Sold Price:
$ 533,616 $ 497,291 7.30 %
Median Sold Price:
$ 400,000 $ 410,000 - 2.44 %
The only location median & average have gone up!
Grant, Hampshire, Hardy & Mineral Counties, WV (Potomac Highlands)
2007 2006 %
Average Sold Price:
$ 185,643 $ 134,209 38.32 %
Median Sold Price:
$ 150,000 $ 140,000 7.14 %
(OMGoodness, BUY now in WV you'll be PRICED OUT FOR EVER!!!!!!!)
I honest to goodness hope and pray we go back to 20% financing. Why, it doesn't hurt me one bit. Let me see, good credit +820 . . . check, 20% down . . . considering I can tomorrow put down 20% for a median house just about anywhere except DC /Arlington (I don't plan to live there besides) . . . check.
Oh wait did I forget to mention that I've amassed this in the past 2.5 years waiting for the bubble to
come down, while renting some cheap apartment.
Oh yeah stupid me, I guess I should have bought a home in 2005, with a 0% down financing with a 3 year ARM adjusting next year. Wow I was sooo dumb. If you add on inflation to those #s (we'll go with the modest BS government # of ~3%) every general area in the DC area except WV is down.
I plan on waiting for approx. one more year (well, I'll be moving to get a master's for a year, then I'll be back). So I'll evaluate it next year and see what the #s say. Hmm, one more year to save up loads of cash and investing it while renting dirt cheap. Even if housing goes up next year--which I HIGHLY doubt--it would need to go up >5% for it to cost me anything. So what do I lose financially, really nothing. More likely than not, housing will be down 5-10% more this time next year. The ultimate goal would be to put down enough that my monthly payment changes very little going from an apartment to a house.
If interest rates go up . . . so what big deal! my parents dealt w/ +8% interest. I would much rather have a smaller mortgage vs. higher mortgage and lower rates. The monthly payment doesn't really matter, it's the TOTAL amount of the loan you pay over 30 years that matters. Higher interest just gives you more incentive to pay it off and get out of debt.
Yes lance . . . please, oh please make it 30% down across the board for everyone. Unlike the majority of Americans, I'm actually frugal and I KNOW I can afford and make 30% work.
30% just gives me that much more of an advantage over the poor slob who can't even save 10% of his TAKE-HOME pay . . . I laugh at that, I save & invest 50%, and I'm a lowly 11-married w/ a kid on the way working for the government.
Go egg Angelo Mozilo's house Jesse Jackson.
ReplyDeleteThrow one for me.
lance finally has a moment of clarity!!!
ReplyDeletelance said
"All other things being equal, I agree with you that prices will drop by the amount that the cheap money pushed them up. "
So, thanks for agreeing that property values should drop back to 2000 levels adjusted for inlfation.
Bob
Bob said...
ReplyDelete"lance finally has a moment of clarity!!!
lance said
"All other things being equal, I agree with you that prices will drop by the amount that the cheap money pushed them up. "
So, thanks for agreeing that property values should drop back to 2000 levels adjusted for inlfation."
Bob, thanks for being such a simple thinker that you really believe that nothing has changed between 2000 and now.
lance said "Bob, thanks for being such a simple thinker that you really believe that nothing has changed between 2000 and now."
ReplyDeleteUm, I said inflation dope. That is really all that has changed to make house prices go up so drastically. I guess your simple mind couldn't grasp this. Or are you still on your "lawyers and foreigners are buying up all of DC kick"?
Bob
lance said "Bob, thanks for being such a simple thinker that you really believe that nothing has changed between 2000 and now."
ReplyDeleteUm, I said inflation dope. That is really all that has changed to make house prices go up so drastically. I guess your simple mind couldn't grasp this. Or are you still on your "lawyers and foreigners are buying up all of DC kick"?
Bob
Bob said:
ReplyDelete"Um, I said inflation dope. That is really all that has changed to make house prices go up so drastically."
Like I said, if you think that nothing has changed (i.e., no real changes, only the nominal changes of inflation) then you are either blinding yourself to reality ... or just plain simple minded ... unable to see the vast changes out there both regionally and internationally over the last 8 years.
"lance" posted:
ReplyDelete"Like I said, if you think that nothing has changed (i.e., no real changes, only the nominal changes of inflation) then you are either blinding yourself to reality ... or just plain simple minded ... unable to see the vast changes out there both regionally and internationally over the last 8 years."
Here Bob, allow me to translate "lance" speak - DC has become an interntational city of intrigue that is desiarable to all in the world as a destination and place of habitation.
It has a world class arts district like Paris and New York...oh, wait, no, it doesn't have that.
It has a world class shopping district...oh, wait, no, it doesn't have that either...
It is a thriving world class literary center...oh, wait, no, it doesn't have that either (unless you count the Government Printing Office pushing out NYTimes-acclaimed CBO reports).
It has crime, expansive ghettos with lots of vermin, terrible schools, lousy to non-existent services and an expensive sorry-ass Metro system that makes you late for work every day...yeah, it's got that.
It has idiots who have convinced themseleves that just because a bunch of gay men fixed up some townhomes downtown that also attracted dope-smoking hipsters that everyone on the planet wants to live here...yeah, it does have that.
Welcome to all that has changed since 2000.