Monday, March 08, 2010

Mort Zuckerman on housing

Real estate billionaire Mort Zuckerman describes the state of the housing market:
America’s housing crisis has not gone away. If anything, it is getting more severe. Today, median single family house prices nationwide are down by slightly more than 30 per cent from their early 2006 peak. Fusion IQ, the research group, estimates that excess inventories will push prices down by a further 10 per cent. This is a critical issue because home equity was for years the largest asset on the balance sheet of the average American family.

The sheer number of empty homes overhanging the residential property market points to lower prices. There are an estimated 7m homes empty today, and an estimated 7.7m houses and condominiums behind on their mortgage payments. This is tantamount to a shadow inventory. More than 4m of those are now delinquent and going through some form of foreclosure or related procedures that will put them on the market in the next year or two. Fannie Mae’s 90-day delinquency rate is now roughly 5.5 per cent, double that of a year ago.

Home sales are depressed, too, by competition from some 6m rental vacancies, or 11 per cent of total rental supply. Median asking rents have been declining by an estimated 3.5 per cent over the past year – and that is accelerating.

There is no cheer in the new residential numbers either. January’s new home sales plunged by more than 11 per cent month-on-month to an annual rate of 309,000 units, the weakest on record. It now takes a record 14.2 months to sell a finished house. In the boom years, it took about three.

Even worse, the median price for new homes sold was $203,500, almost a seven-year low, and that for existing single-family homes fell 3.5 per cent month over month to $163,600, a new eight-year low. Inventories rose to a 9.1 month supply, which on top of the shadow inventory of unsold houses and those in the foreclosure pipeline does not bode well for homebuilders or housing. Neither does the sharp decline in mortgage applications to the lowest levels since May 2007 and the rise on the 30-year mortgage rates to more than 5 per cent.

Roughly one in four mortgages today exceeds the house’s value – approximately 10.7m homes. American Corelogic, the research provider, estimates an average deficiency per home of $70,700 or an aggregate of about $800bn. An additional 2.3m homes had less than 5 per cent equity. The remaining equity for many other homeowners is at historic lows. With declining prices beginning to hit the middle to higher ends of the housing market, we are looking at another foreclosure wave.
I believe Mr. Zuckerman gets some exaggerated statistics by using month-over-month numbers rather than year-over-year. Natural short-term volatility can easily make month-over-month numbers look far better or worse than the actual longer-term trend.

Mr. Zuckerman goes on to basically argue that tax money should be used to bail out homeowners. I wholeheartedly disagree.

12 comments:

  1. Believe what numbers you want. Why not call your local used house peddler, I mean Realtor and ask them if now is a good time to buy? If you don't know a Realtor, just go shoping and look on the seat of the cart. There will be one there...

    I'll listen to billionaire real estate mogul Mr. Zuckerman over anonymous blogger comments anyday.

    Lock & Load. Got ammo?

    Happy Daze are here again!

    How's that Hope & Change goin fer ya?

    ReplyDelete
  2. In the last graf, I think you mean that he argues, in effect, that tax money should be used to bailout homeowners. If he argued it effectively then you wouldn't disagree...

    ReplyDelete
  3. Anonymous said...
    "In the last graf, I think you mean that he argues, in effect, that tax money should be used to bailout homeowners. If he argued it effectively then you wouldn't disagree..."

    Grrrr! OK, here is the definition of "effectively". I am using definition #1, "in effect", you are interpreting me to have used definition #2, "in an effective manner".

    ReplyDelete
  4. "We're spending tens of billions of dollars on a tax credit to get people to purchase homes, we're spending federal money to keep them in their homes through the modification program, and now we're going to pay them to move out of their homes. This is not a sustainable system for the housing market. It's a shell game. Bernie Madoff could have created this system."

    The bottom line is the federal government cannot spend forever and that means further home price declines....

    "A handful of patience is worth more than a bushel of desire."

    ReplyDelete
  5. Zuckerman isn't saying anything we already don't know.

    Thanks Zuckerman for all that advice.

    ReplyDelete
  6. Everybody that is looking to buy should stop for while. Don't take the gov't bait. Imagine, if we the American citizen/consumer could some how organize a moratorium on home purchases. What would happen then? It seems they want to bring it down slow. I know it's naive to think, but fun to imagine.

    ReplyDelete
  7. With certain exceptions - there are a very, very few places where buying might make sense - people are out of their minds to buy real estate right now. If you absolutely have to buy, wait at least 90 days. The real estate season up north here is pretty short. By June 1, I expect we'll be able to start seeing what the real clearing prices are in cold weather states - at least for this year.

    That is to say, now is not a good time to buy. I think it is professional malpractice to advise anything other than FHA right now. I suspect nealy all significant down payments (potential equity) immediately evaporate upon closing.

    ReplyDelete
  8. The figures stated in this article are as usual grossly understated. Mort used the only figures he had access to I am sure as Govt and NAR numbers are always misrepresented. No banks are telling the truth about the amount of bad mortgage inventory on their books. If they actually listed how many bad mortgages were really there, they would all have to immediately delcare their insolvency. Pretty much all of them. When did the banks and the government start telling the truth about anything?

    ReplyDelete
  9. I agree that for most now is not a good time to buy, but there are decent deals to be had. Some sellers have seen the writing on the wall, or have been forced by circumstance to sell at whatever offer is available. Add to that short sales and foreclosures, which can work for a savvy buyer. I'm almost ready to buy and have been following prices in my neighborhood. Every once in awhile one home sells for far below equivalent asking prices in the area but overall sales are extremely slow and many homes have been on the market for 1-2 years. My hope is that at some point soon these sellers will give in to reality, but home prices are extremely sticky on the way down. CalculatedRisk said 5-7 years of declines is the average for recent large housing bubbles. Because of the high level of unemployment with no strong rebound apparent, I think this time things may progress faster and further.

    ReplyDelete
  10. From Forbes:

    "In recent weeks business in Washington, D.C. ground to a halt as record snowfalls pummeled the area and a sparring match over national health care reform hijacked the political conversation. But the nation's capital is getting something right: It is emerging from the recession better than any other major city in the country, according to research by Forbes."

    Question, does anyone know if we officially went into a recession in this area "2 negative quarters of GRP"?? My suspicion is no, in which case, its inaccurate to say we are "emerging" from the recession when we never entered one in the first place.


    http://realestate.yahoo.com/promo/cities-where-the-recession-is-easing

    ReplyDelete
  11. 'Question, does anyone know if we officially went into a recession in this area "2 negative quarters of GRP"?? My suspicion is no, in which case, its inaccurate to say we are "emerging" from the recession when we never entered one in the first place.'

    Announcement, Announcement, I have a very important Announcement.

    Please wake up and have a conversation with your ego!!

    You are in a recession, we are in a recession, women/men/children are losing their homes right now, today, tomorrow, next week, next month and through next year.

    Please have some empathy for the people who are losing their jobs, homes, retirement funds and healthcare in YOUR neighborhoods of Washington, D.C.

    http://www.realtytrac.com/

    Washington, D.C.
    848 bank owned properties

    Baltimore County, MD
    1278 defaults/870 bank owned properties

    Montgomery County, MD
    652 defaults/1079 bank owned properties

    PLEASE!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    ReplyDelete
  12. "Question, does anyone know if we officially went into a recession in this area "2 negative quarters of GRP"?? My suspicion is no, in which case, its inaccurate to say we are "emerging" from the recession when we never entered one in the first place"

    Doesnt look to be. US had 4Q of negative growth so clearly they were. Here locally, GMU-CRE is showing what looks like 1Q negative (approx -1.2) before returning to positive growth so, no, no official recession here.

    http://www.cra-gmu.org/current-indicators/USandWashingtonAreaEconomiesMar5.pdf

    ReplyDelete