I posted a graph attachment of S&P versus NAHB index on Economics>> "housing short squeeze? ->IYR" page 3, Sep 9,2006. The graph shows the S&P to be well correlated with the home building industry and shows that the S&P lags NAHB by 12 months. In short, its time for the S&P to start dropping about 600 points by June 2007, assuming the correlation holds going forward. It ain't pretty.:eek:
Just read this quote in the chicago tribune. David Kerpel is a case in point, vowing that he and his wife will not further reduce the price on their house. "We don't have to, financially. Plus, there's a certain pride in our house," he said of the split-level whose price the couple reduced once, early-on, to $565,000 from $579,000. They claim they will go no further. "We feel it's worth it," David said. In the meantime, they are offering the house with a lease-to-buy option and are preparing to move across the street. "It's not the price, it's the economy," he said. "We will wait it out." Apparently he has never heard of Keynes most famous quote
I was driving down the road and I had an odd thought. Back in 1995, when I bought my first home, my wife and I paid a whole bunch of points to lower the interest rates. We also timed our lock in really well, so we ended up with a 6.75% fixed interest note. I remember the guy at the law firm closing the note telling me, "Mark my words...you'll never refinance this loan", which of course meant that he didn't believe that rates would ever dip below 6.75% enough to make it worthwhile to do a refinance. Then I started thinking about how rates are still below that level for a 30 year note paying no points. So I realized that from the experiences I had then, rates are really low. So then I started thinking about all those people out there who have ARMs about to adjust, or recently adjusted, or maybe even negatively amortizing loans. And I realized that most all of these people had the opportunity to snag one of these really low interest fixed loans. Some even had the opportunity to borrow money at 5.25% fixed for 30 years. I realized they didn't take the safe route because they wanted to buy a slightly bigger house, or maybe they wanted a smaller payment. So I started to ask myself if I should feel sorry for those people, and I didn't like what the devil on my shoulder was telling me. Even today, many of them could elect to move to a good fixed rate note, but that would put many of them, (the majority?) into a situation where the debt to revenue ratio would forbid it. So I guess my thought was that these folks had the opportunity to buy property safely, and securely, at a super low fixed rate, but because of their greed or their lack of understanding of finance in the face of one of the biggest financial decisions in their lives, they opted for something risky to have a little more, or a little cheaper. They either gambled and lost, or they signed a bunch of important paperwork without doing their research, asking a trusted friend, etc. So the little devil on my shoulder is asking me, "should we feel sorry for them?" I think the answer is "yes" if they were people who were truly incapable of understanding it all, or just plain didn't know what they were signing. My heart goes out to those people. But I can't feel sorry for the guy who knew the issues involved...the one who decided that he wanted a $1000 payment now regardless of what the future might hold versus a $1400 payment that will stay fixed for the duration. If he knew the risks, and he pocketed the $400, and now he can't afford the house, then in my mind, he gambled and lost. I just hope that "guy" doesn't try to make his gambling debts my problem, but thats the way its going to go. Oh, and should we feel sorry for the person who did lock into a fixed rate, and housing prices in his area are dropping? Not too much...because they are locked into a super duper low rate, and provided they don't have to sell, they will weather this storm well. SM
For a lot of those people I feel little or no sympathy because greed took them to a place where they will pay later. Its a little like the buy and hold 1998-2001 folk who were so smart and smug for a while but really didn't learn anything. Bad luck guys. But there are plenty out there who were not greedy (they felt pressure to do now or never), were not smart (they took what the broker told them was a good deal), and will feel a great deal of pain. It is evolution in action but its still not going to cause me joy.
I know a couple of these areas. country club shores on longboat key with deeded beach access new dock, boat lift and a deep water canal (this term is thrown around loosely) could be a very nice pick up at a cheap price. If you have the cash I would seriously consider that auction. Toscana, is a small but nice development and Lee Wetherington is a very good builder (volume) around here. But there are other developments I would choose.