NAR is a joke. They only admit weakness in their market when it is painfully obvious. Their data lags by up to 6 months, and they don't include all homes in their median data (leaves out expensive homes). This has the effect of showing a cheaper than reality "median" which may be a good thing, but it also dramatically lessens the current price declines by %. The major problem with their data is the time lag. For example, 2nd qtr data would be based on information as old as April, and then its not released well into the 3rd qtr. This mkt topped in March, and it will be 2nd qtr 2007 before NAR admits there is a big problem (yr over yr significant drop in prices). In the past, this time lag has always bailed them out. it won't this time. It is most definitely in their interest to paint a rosy picture. Just listen to some of their official statements. Its a joke. They still don't forecast a drop nationally, just a slower rate of price increases! OK?
I have been about the biggest bear on this thread but I am not sure if it will be the disaster I have been talking about. How bad can it get if rates stay around 6.5%? If every house closed or refinanced in Socal, South Florida in 2004 2005 goes to foreclosure then how many houses are we talking about and is it a big deal in the overall scheme of things?? I mean how big of a hit do the banks have to take to cause real problems? The homebuilders can walk on their land options and write down their lots and then build houses priced to make money with rates at 6.5-7%. Their problem will be building out the subdivisons that they have already closed houses in at high prices but once they do that they can move on to the next land and change the pricing. I am not in real estate so I don't know the answer. I am just thinking out loud. John
Most homeowners will do fine. But, and this is a big but....if just some houses sell for less, than the comps for 100% of the neighborhood go down. The mindset of the market has changed, we all are reading articles about incredulous sellers with six month market time....no showings, no offers, saying "where the heck did everyone go?". There are a few buyers out there, but they have a "head's up" to what is happening, and are making low ball offers. It went from 50 buyers for every home to 50 homes for every buyer. Right now the official stats show a standoff between buyers and sellers (prices flat), but the word on the street is price reductions. Eventually some sellers have to sell, and there goes the neighborhood. I am seeing articles where sellers lower their prices, and outraged neighbors are marching over tearing down signs and getting personal over things. The "sure thing" is over. The world will go on, the sun will rise tomorrow, but this asset class is finished for many years. Most homeowners will do fine, some people that thought they would "move up" to a larger home quickly will have to live in their same homes for the next decade to come out ok....and they will also survive and eventually do fine. But a certain amount...5%, who knows, will be screwed incredibly and destroyed from overleverage and lack of assets to back up a declining position. This 5% is a ton of people. Some will hold on for a few months, others for a few years as they juggle bills and denial, many are the walking dead right now and don't even know it yet. The new BK laws are going to be tested and probed. OWP http://news.yahoo.com/s/nm/20060918/bs_nm/economy_brokers_dc NEW YORK (Reuters) - They are jumping ship or receiving the pink slip. America's real estate agents and mortgage lenders, that is. Now that the glory days of the most recent U.S. housing market are over, its deterioration is taking a toll on employees who profited from its record-breaking five-year run. With home sales slumping and loan demand diminishing, layoff announcements and resignations have become increasingly common, evidence that the sector's slump is broad. Carmen Cook, a veteran real estate broker, saw the writing on the wall and decided to retire earlier this year. "The market changed and my job became more difficult," she said. "I was working just as hard and the income wasn't coming in." Cook earned up to $135,000 a year during the housing market's boom as a broker and vice president at Halstead Property, a real estate firm in New York. When her commissions fell by around 50 percent, she decided it was time to quit. http://www.bloomberg.com/apps/news?pid=20601109&sid=a4Naw1mqxCRw&refer=home Housing Slump in U.S. May Lead to First Drop Since Depression By Kathleen M. Howley and Matthew Benjamin Sept. 18 (Bloomberg) -- Nancy and Brian Christopherson are asking $389,900 for their eight-room Colonial Revival home in Westford, Massachusetts, featuring a new kitchen with maple cabinets. Even at that price, they'll lose $14,100. Monthly price reductions since they listed it in May for $429,900 have lured no offers for the house, bought for $369,000 in 2004. ``It's getting scary,'' says Nancy Christopherson. The sharpest slowdown in U.S. home-price growth in three decades is trapping owners with mortgages they can't afford, pushing unsold homes to a record 4.42 million and gutting profits for builders such as Lennar Corp. and Toll Brothers Inc. The U.S. median home price next year may fall for the first time since the Great Depression, says Gabriel Stein, chief international economist with Lombard Street Research in London.
Bank of America quote: 300k 30-Year Fixed-Rate Mortgage 6.125 with 0.975 points 6.287 $1,824.61 I was a bull when the market was exploding and became bearish as things started to cool off this spring. With that being said rates are still very low historically and have a better chance of going down over the next year than up. There will be some fall our but we should be back to normal in a few years. We will not see the frenzy that we saw before but I do not think we are headed for a disaster scenario.
So then, how do you see this chart resolving itself? A permanant plateau, some sort of retracement, or up, up and away further off the charts??? Where exactly is the rocket fuel going to come from to fuel this new upleg? IMO, buyers were borrowered from the future (with promises of riches), every trick of teaser loans, no down, no doc, etc was pulled out to lure everyone. The amount of vacant homes is a record historic highs.
that chart oddly looks like the CO2 concentrations in the atmosphere in the last ten years from Al Gore's latest movie. back on topic - this latest round of world inflation must be entirely commodity and energy driven. If that backs off for long enough and economic growth recontinues aggressively, the fed will be in a TRUELY difficult position. They will once again have to choose between supporting the housing market or fending off inflation from too rapid economic growth. With energy prices backing off right now, its perfect timing for the fed to continue the pause and even declare (premature) victory (just like Bush on that aircraft carrier), effectively giving support to the housing market (and the rest of the connected economy) via a treasury market with dropping yields. If we truely have a long term handle on the oil supply issues, and the economies of the world already are in motion to slowdown enough to reduce future demand by enough margin however, then all I can say is that we lucked out and this housing pop will not be as deep as it could be. First comes oil, then comes yields, last equities. Thats the modern macro picture.
Yup. Think so too. The only disaster will be the people who panic and sell at 20-30% discounts in 12-24 months (to me, hopefully ). But its going to be a slow next 5 years - forget about making a profit on the property appreciation - there won't be any. You'll be lucky to recoup transaction costs. Mentally, guessing at a 1.0-1.5% drop in short term rates from present to take us back down to 3.75-4.25% Fed Funds. What that does to the long end of the curve isn't quite so clear - I presume we see 4.5% again on the 30 year, but for all I know, that could be flat. I am also not sure that lenders will be quite so eager to finance, so mortgages might hang out at current levels due to an increase in "risk premium." I would love to refi at 4.5% though, if I ever see it! I agree in watching the commodity markets to tell what is happening, but its hard to justify inflation except on the basis of the currency.
A nice bounce for a couple of years would suck in the complacent. Have you ever noticed how most of the big stock market "crashes" were preceded by a lower or, at least, weaker high of a month or two duration. Said high takes the last fools Property markets seem to have a slower dynamic. 2009 or 2010 will be very interesting if DrSteph's scenario plays out. Lets see.