Geenspan and Today’s New Home Sales Report (Paper Money)
A most excellent comparison post: Percentage of Reduced Listings Per Market @ Bubble Markets Inventory Tracking. The sellers are really competing against each other in some of the bubblicious markets.
Ryan Homes Offering to Pay Realtor Commissions ( Baltimore Metro Area Housing Blog )
HousingPanic and other housing bubble blogs were attacked in the mainstream media (MSM) "Blogs such as housingpanic.blogspot.com are helping to confuse buyers about everything from rumors to “bubble” theories." We housing bubble bloggers were ringing the alarm bells while people were busy engaging in bidding wars in summer of 2005. On May 25th 2005, I wrote "Behold the bubble is about to pop. The bubble will pop (price declines) within the next 12 months."
Tommorow morning's 3Q GDP prediction: 1.7%
Update: Actual 3Q GDP: 1.6%
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Roubini says below 1.5%.
ReplyDeletehttp://www.rgemonitor.com/blog/roubini/152472
I'll say that the vaunted American Consumer is going to borrow it's way through the end of the Christmas season, thus 2.1%.
Sorry, MSM there first
ReplyDeletehttp://www.washingtonmonthly.com/features/2004/0404.wallace-wells.html
Did HP invent the internet, too?
lex,
ReplyDeleteA very small portion of the media surely was ringing the bells. The vast majority of the MSM was not warning people about the dangers of the housing bubble. They were in fact busy cheerleading the bubble with thier quotes from Lereah, Watts and other RE Shills.
I find the claim from both sides of the aisle that the housing bubble was good for the economy to be specious. Sure, some people had more money to borrow against and blow on big screen TV's and hummers BUT at the same time wouldn't that mean that a lot of capital was tied up in people paying off finance charges and taxes?
ReplyDeleteI'm worried more about the temporary effect on rents: It was reported on drudge a few days ago in a double link showing decling prices and rising rents in the bay area that rents were shooting up as buyers waited out the housing bubble.
This doesn't make too much sense since logically homes put on the market as rentals should offset demand by sit-out buyers/renters. Yes? Perhaps the rental market is getting flooded with unrealistic seller/landlords who think they can get higher rents to pay their mortgage while waiting out the "correction" and renters are foolishly panicking. I presume this "bubble" will also crest in the near future?
In the meantime, signing a contract to pay 20% more rent for a year would probably be better than signing off on a 30 YEAR contract to buy the same property...
Sorry, blogosphere there before that:
ReplyDeletehttp://www.calpundit.blogspot.com/2003_02_09_calpundit_archive.html#88924495
In more detail here:
http://www.calpundit.blogspot.com/2003_03_09_calpundit_archive.html#90419186
That said, The Washington Monthly is hardly "MSM" since it only has less than 100,000 subscribers.
David,
ReplyDeletedo you have links to the MSM attacks on the HBBs? I would love to read the rest of the articles.
"do you have links to the MSM attacks on the HBBs?"
ReplyDeleteI updated the post and put the link into the aarticle. Thanks for pointing that out!
polishknight said:
ReplyDelete"I'm worried more about the temporary effect on rents: It was reported on drudge a few days ago in a double link showing decling prices and rising rents in the bay area that rents were shooting up as buyers waited out the housing bubble.
This doesn't make too much sense since logically homes put on the market as rentals should offset demand by sit-out buyers/renters. Yes?"
At first glance, your logic seems correct. But thinking about it more, I started to realize that one problem with buyer's waiting it out is that builders stop building, so while demand continues to rise ... that rising demand can only partially be met by existing housing being converted to rental housing as you say. After all, there are always new people requiring a place to live who before didn't because they were living at home with parents, in dorms, with friends etc. OR are new immigrants to this country. Also, it's important to remember that some people will prefer to keep their properties empty while they wait out the price slump rather than have to deal with tenants who could make the places harder to sell and generally force them into landlord duties they may not want to undertake. You and I may not be in a position to do this, but there are lots of people who are ... Especially among those who were able to buy these properties as short term investments to start with. The bottom line is that when there's a slump in economic activity, everyone suffers. And as is the case in life usually, it is those at the bottom of the heap who suffer worse. You see I so vehemently hate to hear these bubblehead predictions because I've been around long enough to know that were everything to happen that the bubbleheads wish for, it wouldn't help them one iota ... It would actually make things worse for them. And that isn't good. So, when I hear people hoping for an armagedon for prices to drop, I hear them saying "I hope my neighbors end up in the poorhouse ... even if it means I'll end up there too."
Thanks for the link. I find it funny that the comment about HP and HBBs is listed under "fast facts." Really? This qualifies for fact?
ReplyDeleteOh bother.
ReplyDeletelance - Builders are continuing to build - because the sunk costs are too much for them to stop. Besides, with profit margins of 50-100%, they can afford to mark the house down by 30% or more and still do just fine.
Rents are up because people with ginormous mortgages on homes they hoped to flip now realize they can't sell and so they are trying (unsucessfully) to rent at the price of their mortgage.
Beyond that - if rents rise - so what? I seriously doubt the homeowners I rent from (who purchased in the 1980s and probably make 100% over their mortage payment) are suddenly going to turn greedy and demand 50% more. Sound selfish? So does Lance's "Prices will decline everywhere but my zip code in Dupont, so neener, neener" spiel.
so just not thinking about something will make it not happen? this is a real estate bubble wrappen in a debt bubble. without understanding the ramifications of such a combination one most certainly would end in the poor house. thinking people need to be aware of the economic environment that they are in not ignore it.
ReplyDeletenotice the use of the word BUBBLE!
ReplyDelete“Anyone who thinks a little drop in interest rates will bring back the good old days is delusional, said Paul McCulley, managing director of fixed-income giant PIMCO. ‘Housing is going to be very inelastic to falling interest rates on the way down, just as it was very inelastic to rising rates on the way up,’ McCulley said. ‘To think otherwise after a bubble is to not understand bubbles. Risk appetite in property markets will not be restored by modest declines in market-determined interest rates.’”
“Real estate is ‘the ultimate momentum market,’ McCulley said. ‘Can’t get enough on the way up and can’t run away fast enough on the way down.’”
The progenitor of the housing bubble debate was not the blogosphere, but
ReplyDeletehttp://www.amazon.com/Irrational-Exuberance-Robert-J-Shiller/dp/0691123357/sr=8-1/qid=1161992986/ref=pd_bbs_1/102-6144221-9329750?ie=UTF8&s=books
A little more MSM?
http://www.washingtontimes.com/commentary/20041214-090259-1885r.htm
and Calpundit was invisible.
I didn't want to get into an argument over this, but I do have
a visceral dislike the self-important.
http://brandspankin.com/?p=58
Quick check on Ziprealty.
ReplyDeleteArlington, VA. $200K to $500K properties.
477 are for sale.
Of these 477, 240 have reduced prices.
In other words, half of the sellers have reduced their asking prices and the properties now!
" I started to realize that one problem with buyer's waiting it out is that builders stop building, so while demand continues to rise ... "
ReplyDeleteUhm... you seem to make a very freshmen error on your analysis here. You seem to be confusing long-term analysis and short-term analysis.
In the long term, it is probably trivially true that demand will increase (as demand of that good is a function ofp opulation change). Yet, in the short term, we do not know a priori that the demand for housing will increase... since there must exists factors that are held constant....
And in the short term, the builders will NOT decrease their production in some sort instantenous reaction. They behave in the margins and each firm will decrease its production given its contraint in the short term.......
I own four homes in Mesa Az and have raised the rents this year from:
ReplyDelete$850 - $1025
$900 - $1025
$950 - $1025
$950 - $1075
And the way things are looking I will be able to up the rents again in 2007 by at least another $50 on each property.
taken from Ben Blog but his needs to be posted here.
ReplyDelete“South Florida,'’ he said, ‘’is working off of a totally new economic model than any of us have ever experienced in the past” according to a realtor who predicted that a land shortage will support higher prices indefinitely.”
- New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05
Lance said,
ReplyDelete"builders stop building"
Now who is the doom and gloomer. A builder who is not building is just another bankrupt company.
Unless it's KB Homes and hair salon or Toll Brothers and massage parlor.(ACK)
I bought my first home from a Bankrupt builder in 1997, it had sat vacant for 5 years and that time Prices only got to 5 times earnings. This time in my area its up to 10 times earnings.
I know so many people who are going to be hurt from the upcoming required risk premium in the debt(MBS) market. From all walks of life, freinds, family, and mild acquiatance's.
It is a difficult situation in that I wish no one harm and yet both sides cannot be unscathed. In OC 1/2 own 1/2 don't, if prices don't come down most of the 1/2 that do not, will never own. Where as if it does, most that are in are seriouslly leveraged probablly going to feel some very serious distress.
Believe it or not I actually agree with Lance(I understand that you don't think the correction will be severe or even possibly happen Lance just what it will be if comes to pass), the coming correction is going to cause some serious stress on the econoy.
I run a small high end manufacturing facility and the industrial stuff is begining to slow considerably. We always are the first to slow and the first to pick up.
I actually believe we will have a Santa Clasue Rally after the (manipulated) Election Rally.
Somewhere in January or Febuary all bets will be off though.
Did you know that a car built by GM(example-any auto maker) and not sold is booked into GDP, I did not. GM's inventory is reaching new high's. That 1.6% is probably actually lower than reported.
Nothing anyone says, good or bad, about the housing market, has any long term affect on the market. The market ultimately will determine where it should be, all by itself, given the fundamentals.
ReplyDeleteThat being said, good information about where we are now will empower people to make good financial decisions, and not go blindly to the slaughter.
We are currently in a suckers market, with falling home prices. The potential to loose tens and hundreds of thousands of dollars in deprecation is currently a fact.
The foreclosure victims will not be entering the buyer pool again any time soon. Buyers will not re-enter the market until the prices come down to what their incomes can afford, without toxic mortgages. The sky-high prices, is what killed the market. Catching a falling knife is not in the buyers best interest. The amount buyers can afford is gross income X 3, for 90% of buyers.
Get used to it folks, the mother of all corrections, is underway.
Hello Lance,
ReplyDeleteBut thinking about it more, I started to realize that one problem with buyer's waiting it out is that builders stop building, so while demand continues to rise ...
I didn't think about this and largely dismiss it as a factor because building has inertia and doesn't explain rent spikes that are just a few months old. (Please feel free to dispute this.) How long does it take to build a house from planning to finish and how would that impact rents if most of these are targeted towards buyers anyway?
Oh, and this assumes that there's a SHORTAGE of units available. It's apparent that inventory is GROWING. Not so good for those who think that this is a tiny market correction.
Also, it's important to remember that some people will prefer to keep their properties empty while they wait out the price slump rather than have to deal with tenants who could make the places harder to sell and generally force them into landlord duties they may not want to undertake.
Now THAT had occurred to me and is my primary explanation for the short term spike as well: A lot of these units may be lying empty as the owners either hope for the market to come back in 6 months or so OR they put it on the market at a rediculous price hoping to pay their mortgage.
BUT... this logic means that the rental bubble will just lag the RE bubble in popping as these owners get desperate. Prices are STILL going DOWN after all with the MSM even jumping on board. Even with rents slightly higher, it's still better than jumping on board for higher payments for 30 years...
Actually, this happened with my wife and I: We came upon a unit that had been idle for more than half a year and got a much better deal. I pity da fool that panics and signs off a 1 year lease at this time. But then again, all they face really is maybe a few grand or so lost before they renogiate their contract next year.
The bottom line is that when there's a slump in economic activity, everyone suffers.
You didn't address the point I had made: That people having to eat K.C. and McD while paying huge mortgage and tax payments (and also rents) didn't help the economy much either.
You didn't seem to mind this much when you perceived the property owners as making a killing at someone else's expense.
Real estate is, after all, just a place for people to live. It doesn't make sense that it should be expensive anymore than gasoline or food. Should we celebrate farmers gouging the market and charging people 10 bucks for a loaf of bread? Hey, SALARIES will support demand so it's ok.
I hear them saying "I hope my neighbors end up in the poorhouse ... even if it means I'll end up there too."
I don't feel that way. As I said, I don't see why real estate going down shouldn't be as good as gasoline prices going down in the long run. Please convince me otherwise.
This is different than, say, the dot.com burst because that resulted in actual businesses going under that were trying to provide a service rather than just raise prices on existing products.
"It's apparent that inventory is GROWING"
ReplyDeleteNo, inventory hasn't been growing for half a year in the DC area. Don't let the facts get in the way of your bubble party though.
POLISHKNIGHT said:
ReplyDelete"I didn't think about this and largely dismiss it as a factor because building has inertia and doesn't explain rent spikes that are just a few months old. (Please feel free to dispute this.) How long does it take to build a house from planning to finish and how would that impact rents if most of these are targeted towards buyers anyway?"
Prices are effected by expectations. Yes, it's going to take a while for the houses/condos already under construction to be finished and as such it'll be a while before we see no new housing show up. However, it's already known to us (including landlords) that there is going to be a stop to the flow from this "competition"/alternative supply. Landlords will thus price accordingly.
On a related note, the former neighbor I've mentioned before (i.e., the one who sold her condo at the same time as me and is now "waiting it out" renting) just received a notice that when renewal time comes in February, her rent will be going up by close to 20%. She's now thinking of looking to buy again.
Lance,
ReplyDeleteClearly the risk of significant price declines have to enter into the buy/rent equation in this market. Sure, inventories will equilibrate, but a prudent buyer has to be wary of taking a 10-20% hit in property value. Picking an RE bottom is as problematic as picking a stock market bottom, but almost all RE buyers are using borrowed money. Many will be in the postion of making payments on properties they no longer own because there was still debt after they sold them. Not pretty.
Your friend who is looking at a rent increase is a valid counterpoint. Still, if she buys a $5OOK condo that declines another 20% as the market settles over the next four years, that rent increase will look pretty cheap.
The bricks are still falling in the condo market. We won't see the bottom for a while, then it will take even longer for prices to actually recover, unless of course it is "different this time." And every month the interest piles up, the insurance, the taxes, condo fees, upkeep, etc. etc.
Rent could double and still be cheap.
"
ReplyDeleteThe bricks are still falling in the condo market. We won't see the bottom for a while, then it will take even longer for prices to actually recover, unless of course it is "different this time." And every month the interest piles up, the insurance, the taxes, condo fees, upkeep, etc. etc."
As usual, the MSM and most of the masses are behind the curve. All the air that was going to come out of the housing market is out. Inventory has been stable in the DC area for half a year and interest rates are going to trend down. That will be that.
"Rent could double and still be cheap."
You'd better hope so.
"You see I so vehemently hate to hear these bubblehead predictions because I've been around long enough to know that were everything to happen that the bubbleheads wish for, it wouldn't help them one iota ... It would actually make things worse for them."
ReplyDeleteSee, if you don't make stupid finanacial decisions, and if you point out that many people are making stupid financial decisions, then you're evil, and there's no way you could benefit from being smart with your money. So just go ahead and make stupid financial decisions, so Lance will like you.
Hello Lance,
ReplyDeletePrices are effected by expectations. Yes, it's going to take a while for the houses/condos already under construction to be finished and as such it'll be a while before we see no new housing show up. However, it's already known to us (including landlords) that there is going to be a stop to the flow from this "competition"/alternative supply. Landlords will thus price accordingly.
You sidestepped my question which was to ask how fundamentals of available space would decrease in such a short time due to builder's cancellations. You're now admitting, indirectly, that they don't.
Even if building is slowing down there's still plenty of SALES inventory out there (active or not) building up, month by month, and when the recalicitrant sellers finally get around to putting their units on the rental market at a reasonable price, say in the winter, they WILL be in a more desperate position and have to "price accordingly", yes? If this spike is, as you admit, NOT driven by fundamentals then it will need to correct itself with a CORRESPONDING _negative_ spike, right?
Your neighbor who sold her place and is maybe having second thoughts due to the rental price spike may be, like many people, regretting their decision but also locked in by a lease. So perhaps by the time she gets around to start looking for a place, prices will start coming down as well and her landlord will cut her a break (people moving hurts them too, you know.)
Your friend who is looking at a rent increase is a valid counterpoint. Still, if she buys a $5OOK condo that declines another 20% as the market settles over the next four years, that rent increase will look pretty cheap.
ReplyDeleteThis is assuming that this "20%" increase is more than a temporary blip caused by recalcitrant sellers waiting for the RE market to come back and for bidding wars by flippers.
Those days are over.
When those people wake up, the rental market will be FLOODED with increasingly cheaper rentals by buyers desperate to "wait out" the "temporary" price decreases because of other lances telling them that the RE market is going to pick up anytime, right?
"When those people wake up, the rental market will be FLOODED with increasingly cheaper rentals by buyers desperate to "wait out" the "temporary" price decreases because of other lances telling them that the RE market is going to pick up anytime, right? "
ReplyDeleteKeep telling yourself that.
"All the air that was going to come out of the housing market is out."
ReplyDeleteBold words. The first leg downward is behind us. The blind optimism is draining out of the system. Sellers are hunkering down and renting to wait out the decline.
What happens next will be determined by the new buyers entering the market. Unless they are really out of touch, they are not counting on a 10-20% a year appreciation. They will be less likely to buy over their heads expecting rising prices to catch up with what they paid, the condo in effect paying for itself.
After this phase, sellers being crushed by resetting loans will be forced to sell. They will lose the power to time when they sell. They will just have to take what the market is paying at the time. Banks are still making IO loans. As that changes, the forced sales that follow will be legion. Another 20% decline could easilly happen. Even if rates remain the same, the conversion from IO to conventional mortages is devastating to cashflows. Many landlords are on the edge now. I'm amazed the Feds haven't banned IO loans completely. Maybe they are hoping the market will gradually phase them out. A sudden move would only make things worse, so perhaps that's why they're still around, albiet in smaller numbers.
The markets that rose the most are the most at risk.
The flippers are gone, the mad rush upward is over, and we have yet to see a seller capitulation.
No, this isn't over. It will end. Prices will go up, but not before a lot of pain for the over leveraged.
Joe Homeowner who just wants to live his life and plans to move in 10-20 years will be just fine. For new buyers, find the house you like, offer 10% under the market and be willing to walk away from the table. Let the seller come back to you. Even as prices fall further, you'll have buffered a good fraction of the decline, have a house you like, and you'll be back in the black that much sooner.
This is buyers market, press the advantage. Take advantage of seller agnst.
Fogcutter said...
ReplyDelete"Bold words. The first leg downward is behind us. The blind optimism is draining out of the system. Sellers are hunkering down and renting to wait out the decline."
Locally, I've seen a spike in rentals on the market. Looks like there trying to get the renter to fully support the mortgage. Yep, those rentals are sitting too, even as the number of rentals are increasing. Two mortgages, throw in a few ARM re-sets, yea, nothing to see here, everything’s swell.
What happens next will be determined by the new buyers entering the market. Unless they are really out of touch, they are not counting on a 10-20% a year appreciation. They will be less likely to buy over their heads expecting rising prices to catch up with what they paid, the condo in effect paying for itself.
ReplyDeleteI think this is absolutely correct. IO loans make some sense when housing is appreciating. But when housing is depreciating it's suicidal. Thus, the number of available buyers is limited.