Homebuyers now stepping away real estate, blaming it on the bear market drop.

Discussion in 'Economics' started by S2007S, Aug 22, 2011.

  1. S2007S

    S2007S

    This is what is going to happen, a drop of a couple of thousand points from the DOW in the past month and extreme volatility will keep people second guessing on making big purchases such as buying a house or a new car, even christmas gifts. Anyone buying a house now is an idiot, prices are going to come down even harder over the next 18 months, they are still propped up from just 2 years ago when they offered all that free money to first time buyers, fast forward and guess what, housing is still hurting, its not going to get out of this slump for at least another 10 years! There is no need to buy any real estate now, housing prices need to come down at least 40-50% before it turns around and that is going to take a really long time to happen. This market drop is going to be a huge problem for the overall economy, I would actually go as far to say that it will be even worse than the last drop just 2 years ago. People have not forgotten, those who have stuck it out and made back most of their money in the market will be most likely selling this time around and never getting back in again. Who wants to hold onto stocks and mutual funds in a market that's completely manipulated. Right now there is no place safe to park your money but under your mattress, anyone who says buy stocks because they are cheap are lying straight to your face, stocks aren't cheap as they will get cheaper and cheaper. BUBBLE ben bernanke can take the 30 year fixed to 2% and then to 1% it means nothing, it will not create demand in housing since millions of people cant even apply for a loan due to the new restrictions.

    Many say that the economy and wallstreet really dont go together meaning there is somewhat of a separation of the two, well I believe those people are wrong, a down stock market means the economy isn't going to behave so well in the next 1 to 2 quarters.


    Homebuyers Spooked by Stock Volatility
    bloomberg

    Kathleen M. Howley, On Monday August 22, 2011, 10:56 am EDT

    Sanjay Jain called his real estate broker four days ago to cancel a deal to buy a three-bedroom home in Folsom, California, unnerved by another plunge in the most volatile equities market on record.

    “Seeing what’s happening on the stock market made me think that it’s not a good time to be buying a home,” Jain said. “I’m going to wait and see.”

    As the U.S. economy shows signs of sputtering, instability on Wall Street is sapping the confidence of would-be property buyers, said Karl Case, co-founder of the S&P/Case-Shiller home- price index. That means housing, which aided every recovery except one before the most recent recession, may deepen its five-year drag on growth.

    “There’s a dramatic effect on an economy when a major sector is flat out,” said Case, professor emeritus of economics at Wellesley College in Massachusetts. “If housing takes another leg down, it’s an accelerator. It’s going to make a recession happen faster and deeper.”

    Home sales in July fell to the lowest point this year, the National Association of Realtors said in a report last week. Applications for mortgages to buy homes dropped to a 13-month low in the week ended Aug. 12, even as borrowing costs tumbled, according to the Mortgage Bankers Association. The Bloomberg Consumer Comfort Index sank to the lowest since the recession.

    Equities Slide

    The Standard & Poor’s 500 Index has fallen for four straight weeks, losing 16 percent from July 22 through Aug. 19. On the day Jain canceled his deal to buy the Folsom house, global stock markets erased $1.8 trillion of wealth as Morgan Stanley said the U.S. and Europe were “dangerously close” to recession. After S&P cut the U.S. credit rating on Aug. 5, the Dow Jones Industrial Average had the biggest one-day loss since 2008, igniting memories of the housing-induced financial crisis that triggered a global recession and wiped out more than 8 million U.S. jobs.

    “A lot of people have seen their down payments for a home disappear in the stock market,” said Keith Gumbinger, vice president of HSH Associates, a loan-data firm in Pompton Plains, New Jersey. “It served as a reinforcement to the hunker-down mentality that a lot of homebuyers already had.”

    Before the start of the economic recovery in mid-2009, the U.S. had not exited a recession without being aided by housing, its largest asset class, except for in 1981, according to data from the Bureau of Economic Analysis. That year, the recovery was followed by a second, and deeper, recession in 1982.

    Since the 2006 real estate bust, a measure of homebuilding and brokers’ commissions known as residential investment has drained gross domestic product by almost three-quarters of a percentage point annually, on average.

    Limiting Growth

    For 2010, the first full year of the U.S. recovery, residential investment fell 4.3 percent. Going back to the Great Depression, it gained an average of 22 percent in the first year of expansion, excluding 1946, when it tripled as soldiers returned from World War II.

    The U.S. recovery is weakening. The world’s largest economy grew at a 1.3 percent annual rate in the second quarter, the Commerce Department said on July 29. That was less than the increase of 1.8 percent forecast by economists surveyed by Bloomberg. Jobless claims climbed to the highest in a month in the week ended Aug. 13, according to the Labor Department.

    “The typical homebuyer gets rattled when confronted with economic turmoil,” said Stan Humphries, chief economist of Zillow.com, an online real estate information service in Seattle. “The type of fear we’re seeing could substantially worsen the housing market.”

    Falling Sales, Prices

    The real estate market has been struggling after a federal tax credit spurred demand in the second half of 2009 and early 2010. Home sales last month were 9.1 percent below their level at the beginning of the economic expansion two years earlier, data from the National Association of Realtors show. As of May, home prices were 7.3 percent below the start of the recovery, according to the Federal Housing Finance Administration.

    The share of mortgages with late payments in the second quarter rose to 8.44 percent from 8.32 percent the previous three months, the Mortgage Bankers Association reported today.

    The degenerating housing market has confounded attempts by Federal Reserve Chairman Ben S. Bernanke to revive demand by lowering interest rates. The Fed purchased more than $2 trillion of mortgage-back securities and Treasury bonds in the last two years to hold down long-term borrowing costs.

    Bernanke got the cheaper home-loan financing costs he wanted -- last week, rates for 30-year fixed mortgages fell to 4.15 percent, the lowest in more than half a century, according to Freddie Mac. Still, rates that have been below 5 percent in all but two weeks of this year have failed to spur sales enough to support economic growth.

    ‘Depressed’ Market

    Bernanke and the other rate-setting members of the Federal Open Market Committee described the housing market as “depressed” in statements following their last 11 meetings, including the latest on Aug. 8. They pledged at that gathering to keep their benchmark interest rate at a record low for at least two years.

    “Low mortgage rates are only helpful to homebuyers who aren’t paralyzed with fear after watching their 401(k) disappear,” said Mark Goldman, a lecturer at the Corky McMillin Center for Real Estate at San Diego State University. “For now, people see the stock market as a casino table.”

    Homebuyer cancellations in the past two months rose about 10 percent from a year earlier, Lawrence Yun, chief economist of the Realtors group, said at a news conference on Aug. 18. He attributed the jump to trouble getting appraisals that match the loan amount and “overly stringent” lending standards. In addition, member agents mentioned a rise in “other problems,” which include waning buyer confidence, he said.

    Waiting for Deals

    Jim Hamilton, Jain’s agent at Lyon Real Estate in Folsom, said he is seeing more buyers hold back on purchases because they expect home prices to fall.

    “People are watching the stock market as a major indicator of what’s going on in the economy,” he said. “Buyers are beginning to think that if they wait, they’re going to get a better deal in a few months.”

    Last week, Freddie Mac said it expects home prices to decline 6 percent in the fourth quarter from a year earlier, worse than the 2 percent slump it estimated last month. The McLean, Virginia-based mortgage-finance company also reduced its 2011 GDP growth forecast to 1.6 percent from 2.7 percent.

    The Aug. 16 report compared this month’s stock market turmoil to the Cyclone roller coaster at the Coney Island amusement park in Brooklyn, New York.

    “In sharp contrast to the thrills provided by the Cyclone, those who rode the capital markets in recent weeks have had a far more shrilling cry,” wrote Chief Economist Frank Nothaft and his staff. “Heightened uncertainty, unfortunately, can be harmful to the overall economy. Perhaps it’s best not to look up nor down, but keep one’s eyes on the track ahead.”
     
  2. the1

    the1

    There's an awful lot of pessimism about the housing market. That's typically how bottoms form but you bring up some very valid points, especially the point about borrowers being unable to apply because of restrictions and other forms of debt.

    However, I have a friend who works as a house appraiser and lately she's been busy, busy, busy! Could a bottom be near? Or at least could the housing market be stabilizing? It's hard to imagine prices going back up with the incredible supply that exists. I think it's going to be a case of a regional recovery. Obviously, places like FL and NV will take longer to recover than say, Chicago or New York.
     
  3. I think that in many markets we simply put in a "bear market bounce" in real estate. I saw a number of high end properties get lifted (most likely due to that 100% bounce in the S&P 500). Have to remember that those million dollar plus properties sat on the market for a long time because the portfolios were trashed in 08-09...this spring and summer the confidence returned and the properties sold.

    Longer term though, the boomers aren't going to find these younger generations will be able to purchase all those seven figure properties that are listed on the market. Most people still have not come to terms with the fact that this is a generational bear market and we are nowhere near the end of it.
     
  4. i hope it stays soft a while longer. i am looking to buy a winter/vacation home in either florida or arizona this winter. someplace warm. right now you can buy 6-7 year old homes in florida for 50k range. they aint going much lower than that.
     
  5. It's the "wealth effect".

    Declining origination, prices, high deliquesces and shitty stock values all point to writedowns on mbs and tier-x capital. Notice the financial sector declined nearly twice as much as the broader S&P. Banks get nailed the hardest because they're the most leveraged, in the weakest market. BAC might have to raise 50 Billion in capital. That's huge.
     
  6. J Ski

    J Ski

    There is no telling how far the market will drop,
    I saw some auctions up north, that had so many homes
    listed that they were sold in lots.
    and even then, alot were not bidded on.
    A friend of mine in Jax, just bought a house for 20K,
    little rough neighborhood, though. Short sale.
     
  7. A bit off topic... I'm amazed how cheap US real estate is compared to urban Canadian markets (Vancouver, Toronto, Edmonton-Calgary, Montreal). 3K sq ft Toronto home, new, on a 40 ft lot goes for minimum 500K, in the suburbs. My sister bought a little semi-detached, war-era jobby on a *parcel* lot right in the city. 2K sq ft< = 600K. I've seen foreclosed homes (new-er) listed on yahoo in collapsed hotspots (phoenix, cali, Florida) going for *mid* 5 figures. I mean wtf. Seriously, we're in a gigantic real estate bubble up here.
     
  8. At this point, I'd argue it's not even about the sale price for alot of these distressed properties. It's more than likely forward looking towards municpal defaults and the potential tax burden (liability) of owning a property in an area where there are tons of foreclosures and a lack of revenue from these properties. It was argued by a well known pundit years back that these properties would literally be given away to enable local governments to continue the steady property tax stream of payments.

    Of course, there are a number of examples of really distressed areas (Buffalo, Detroit, etc) where former mansions in blown out areas sell for next to nothing and still can't find buyers due to the complete economic blight. Obviously, that doesn't apply to many parts of Florida, but nobody really knows the depths society could plunge in a full bore depression.
     
  9. That's a major concern. Since a mortgage is really the biggest burden for the wage earner, it creates a great deal of stress, especially at those prices. This globalization of "asset inflation" destroys societies, plain and simple. Obviously, with the ongoing bubble and bust cycles, Canadian real estate will drop and all of the problems the US is currently going thru will occur there as well.

    Actually, it sounds like Canada and Australia are very similar in that regard.
     
  10. Yea, I agree. Two resource-rich countries with housing bubbles propped by competitive devaluation, the world over. The culture of home-ownership is completely different up here, largely due to prices - mortgages are simply unaffordable until well into a couples thirties. It's more a nation of renters in Toronto, Vancouver, and to a lesser extent, Alberta. Despite all the fanfare about responsible stewardship, our reliance on exports, historic debt-to-equity ratios and unpopped, sky-high real estate seal the deal. A counter-weight to the eventual inflationary tsunami is we're commodity rich, which should buffet against the greenback collapse. Even still, it'll be chaos. Interesting story - 89% of all land in Canada is not for sale. It's held by the Government, on behalf of the Queen. I did a quick search for Northern Ontario farmland a while back in preparation for a SHTC scenario. By contrast, US Gov owns ~30% of all territory. Goes a long way to explain the disparity in RE prices.
     
    #10     Aug 22, 2011