Lest anyone forget the impact of our legislative forces. For instance the gov sees fit to legislate or impose restrictions on liquidity then you have an "event" which would impact prices. Taxes, deductions, leverage, estates, etc. I'm not saying this pig is bloated but the writing was on the wall and it is cyclical with the added twist of "events." So all you real estate bulls I'll be the guy wearing the jeans cruising your neighborhood in an old car looking to be your neighbor in about 7 years.
thats right...this is not gloom and doom stuff...just a simple look at how traditional methods are changing the cycles in which traditional forecasters look at things with... It is important to be the economist that can see how the cause and effect of the market products and the regulation or lack of regulation can affect the flow... I will tell you I believe Bernacke is concerned...thats all...I agree with SteveD more than you guys think...and Bernacke has information that we do not see...like real numbers and how much money is printed...etc...etc... I'm calling the handles HarryTrader and SouthAmerica ...just kidding...
If you call a 7% break an implosion than we're using different definitions. And you guys crack me up with talk of "new homes." Where the hell are "new homes" being built. Not exactly on prime land, eh? I reckon more like some barren desert 20 miles from Tucson or Phoenix's downtown. When I see Scottsdale fall by 35% THEN I'll agree it's an implosion. The U.S. is headed towards a South American type situation. Massive inflation where half of America will be living well and the other half in shanty towns. The WSJ had an article years ago about a guy who paid the last three years of his mortgage in Buenos Aires in lump because he owed less via the "old" peso than what cab fare to the bank would be in the "new" currency. I'd say half my net worth is in cash and the other half in my home. I worry a lot more about the declining purchasing power of my cash than I do my RE.......
The relevant question is whether it's the beginning of a trend that will get worse. Hell yes it is. Who do you think was getting those subprime loans that are now evaporating? The real estate market rose so far and so fast on a house of cards comprised of fast and loose liquidity that it hasn't even begun to correct yet. 2 million vacant homes in the U.S. that the government knows of. A record level of unsold new homes sitting, weeds growing in the front yard. I may expect a correction in equities near term, but I am very bullish on global equities long term, as funny money flees real estate and heads for the refuge of high quality corporate returns. The housing correction is going to get so hideously ugly, it will shake 1/2 of the newly minted real estate agents right back to their prior employment within one year - that process has already begun. Mortgage loan officers, too. I'm in the business of real estate. My family has built homes for over 60 years. If I told you what I can hire drywall crews for right now versus two years ago, you'd think I was lying, but I'm not. Carpenters that were "too busy" two years ago to talk to me are leaving cards at my office on a DAILY basis. I know the facts on the ground level, not just here, but in areas I was eyeing over the last three years, like AZ, Nevada and North Carolina, too.
I'm curious about the situation in North Carolina. Can you elaborate on what you're seeing there? I'm not at all ST bullish on prices but the fundamentals don't support a crash scenario. 2 million vacant homes sounds huge but what does that number really represent? A half years supply? There's 300 million people in this country. Are not 1 in a hundred entering the market as first time buyers?
North Carolina was hit hard by textile industry woes. China has basically destroyed their manufacturing base (tube socks, underwear, outerwear). You can buy lots in new subdivisions in nice areas of NC right now for $35,000 to $40,000. Developers will let these lots go for cost or less - they won't admit it, but I know it's true - because there's a lack of demand. The problem is there are few buyers except for the very coastal areas. The suburbs of Atlanta are deteriorating now, too. Very high foreclosure rates - lots of subprime lending there. I drove through all parts of AZ and Nevada for the last three years, and I can tell you that right now, builders are giving away homes for cost or below in former hot areas like Chandler or Glendale, as an example - they are doing through a combination of 'extras' and rebates, and even outright discounting. They have to get that unsold inventory, that is just sitting there, off the books, because of the high carrying costs. They prefer to do it through extras and rebates (after closing) because it doesn't drop comps down in the neighborhood, which makes mortgage lending harder for subsequent buyers. You can literally buy homes in Glendale and Chandler right now that were selling for $330,000 last year for $280,000 - plus get free pools and granite counters and sprinklers and everything else - I know, because I went into the same subs the last three years, posing as a prospective buyer, and talked to the salespeople and got the literature. As far as you not being bullish on prices, you're right. But here's a subtle but critical point that Shiller makes, and few people absorb: A crash in pricing can happen in terms relative to general inflation. In other words, Shiller says that if prices in residential real estate rise by 1% on an average per annum basis for 8 years (look at Japan - flat - 0% - for 15 years), but general inflation is at 3%, then 8 x 2% differential = a real loss of 16%. Of course, that number can be much larger and more protracted, depending on a variety of factors. And then, Shiller says his bet is that it will be much worse, because prices will decline in all but the very best markets in real terms. So nominal prices will actually drop. So, that differential is more likely to be 3% per year, rather than 2%, for example. 8 x 3% = 24%. But even if they don't, simply failing to match inflation will lead to major pain for homeowners and residential investors. I say these things in the context of this hurting me - and a career that I was enculturated into. I also see commercial at a peak right now, because residential is a leading indicator of commercial, which lags. Commercial depends on, and follows, rooftops. All the bulls on real estate can tell me I'm wrong, but these things I speak about come from my seeing them in bright color, at ground level, in person. That's the only way the reality can be discovered. Now, I nothing about Chicago or Manhattan. I haven't seen those areas in person, and until I do, will reserve comment.
I find it very telling that every day on CNBC we have one or more people speak of wanting, waiting and needing a 5-7% pull-back, dip, correction, pause etc etc in order for the "market" to remain healthy....good to have that pause that refreshes, LOL.. BUT, let Tucson housing pullback 5-7% and the sky is falling...LOL Think about it boys and girls....... You want, like, enjoy owning stocks....... But, believe me, you NEED to have a place to live..... The average demand for housing is something like 1,250,000 or more each year........ New home builders got ahead of the market in a lot of locations... The US has very low interest rates.....in the late 70s, early 80's rates were 10-12-14% on Fannie Mae conforming loans with good credit and a hard 5% down payment, 30 yr self liquidating loan.....totally documented....there was no "sub-prime" loan The US has an unemployment rate that 15 years ago Greenspan said was impossible and very inflationary as to wage demands.....didn't happen Demand: Just count the number of weddings each month and you can see a young couple seeking a house.....this is a very transparent business.... A fairly large part pay cash or a large downpayment......the move up buyer does this......a lot of companies have stock option plans, bonus plans etc etc..... Mid level exec get a nice $250,000 bonus......sell the old house and coupled with bonus buy new modern house in gated community.....bought old house in 1988 so he missed "top", he still has lots of equity coming out.... Everyone is not some neophyte "flipper" any more than the "dot.com" daytraders were astute long term market mavens But Harry and Mildred don't get the attention since they bought their house in 1978 as a "home" and still live there. Harry started buying Exxon stock when he started with them in 1975 but that is not exciting. Their house is paid for and they have 250,000 shares of Exxon that pays a nice dividend......but there is no "news" there.... Residential real estate is an enormous industry......but extremely fragmented even within a city......driving around talking to a few carpenters is silly...... Employment and interest rates are the key.....everything else is just fringe "noise".....localized problems... SteveD
Steve, don't get offended, because I'm not simply taking a cheap shot at you, but... ...be honest... ..are you a r/e agent or broker? If you weren't, it would surprise me. Your assessment of the situation sounds like pure, unadulterated industry spin. NAR spin.
Good comments. Part of the problem is generalizing about the market as everyone has a different financial situation. and location is obvious. I can always tell the heavy hitters in the real estate business by their lack of flash; some of these guys could pass for homeless. The issue is "joe average". He is not as big a sucker as you think, he is probably not gonna buy this year as the media has scared the shit out of them. I think there is a confidence crisis, would you buy if you thought your place would decrease in value? The fringe is getting squeezed. There was a lot of fraud during this last run up and these sub-prime guys are gonna get shaken out. Breaks my heart to see a bunch of lying used car salesman take a bath!
SteveD, Check your wallet 'cause I think you were one of the RE guys I milked for some dough on Fri. night in a card game. hubris One entry found for hubris. Main Entry: hu·bris Pronunciation: 'hyü-br&s Function: noun Etymology: Greek hybris : exaggerated pride or self-confidence - hu·bris·tic /hyü-'bris-tik/ adjective Good Luck