Friday, January 27, 2006

The Housing Bubble Week In Review

Ameriquest Agrees to $325M Settlement

The investigation found that salespeople at Ameriquest had concealed interest-rate and loan costs during the loan process, pressured appraisers to inflate the values of borrowers' homes, and engaged in other high-pressure tactics to close deals, a statement from New York Attorney General Eliot Spitzer's office said.

Appreciation stagnates in many markets

What is real estate worth in a market with a glut of homes for sale, and where re-listings with price reductions are becoming routine? That's the question facing buyers from Southern California to Arizona, to Florida and north to New England, all of which are experiencing declines in appreciation rates and sagging sales.

The answer often comes from someone they may not see, much less know by name: The appraiser hired by the lender.

For sellers, appraisers' opinions of property value in softening markets can be pails of ice water: Sorry, but your house is worth $100,000 less today than it was last summer or spring.


Prospect of housing downturn casts pall over US economy

Mr Morris says a "bubble zone" has been created where house prices are overvalued by 35-40 per cent, equivalent to $6,000bn. Although this bubble could take time to deflate, Mr Morris warns that "the consequences of a punctured housing bubble could be traumatic". Even a soft landing of zero house price growth, he says, will dry up the mortgage equity withdrawal that has fuelled consumer purchasing. Consumer spending makes up two-thirds of the US economy.

"There are already signs of softening in the new homes market in the US if you look at prices and the number of sales. That is going to hit discretionary spending," says David Bowers, chief global investment strategist at Merrill Lynch.

US home building tumbles in December

Housing starts have fallen in two of the past three months. In December, starts plummeted throughout most of the United States. A 21.7 percent drop in the West marked the biggest percentage decline for that region since February 1999, when starts dropped 24.7 percent.
Total single-family starts dropped 12.3 percent in December while groundbreaking on multifamily units jumped 10.2 percent.


Permits for future groundbreaking, an indicator of builder confidence, fell 4.4 percent in December.

U.S. Economy: Home Resales Fall to Lowest Since March 2004

Sales of previously owned U.S. homes fell more than forecast last month to the lowest level since March 2004, evidence of the end of a five-year housing boom that will slow the economy.

Vegas Condos Go Cold

Now that several high rollers in the Las Vegas condo-hotel game, with properties linked to the likes of Michael Jordan and Ivana Trump, are either folding or selling their holdings, a growing number of players are losing their taste for big bets on high-rise residential real estate development.

Home investors, flippers may fade away

"The stats that we've all seen show anywhere from 15 to 25 percent of all home purchases right now are from investors and second homeowners," said Robert Foregger, chief strategy officer at EverBank in Stowe, Vermont.

"If you revert to the mean, you could have somewhere between maybe 10 and 20 percent of the market that could really just dry up," he said. "If it does, it has the potential to put more downward pressure on prices."

Home prices get even more overvalued

The level of over-valuation matters in three ways, according to Ingo Wenzer, president of Local Market Monitor. The higher it is, the greater the risk of it correcting; the greater the correction can be; and the longer it will take to return to present-day prices after they fall.

"Once markets are overpriced by 40 percent or so, the risk is pretty high and the adjustment can take five to 10 years," said Winzer.


Home sales continue to cool

Industry insiders blame the shift in the local market in part on the flight of speculators and investors, estimated to have been as much as one-third of real estate players in recent years.

The lack of action has caused some small-time investors who bought homes during the last six to 18 months hoping for a quick profit to suddenly look for an exit that just isn't there at price they expect.

Single-family house prices fell nearly 12 percent in December

The median home price for a single-family house in San Luis Obispo County fell nearly 12 percent in December, or more than $70,000, but local real estate professionals warn that it is too early to determine if the market is headed downward.

The $534,930 median home price -- the statistical point where half of the homes sell for more and half for less -- declined 11.6 percent from the November price of about $605,160, according to the California Association of Realtors.


McCains having trouble selling mansion

Sen. John McCain, R-Ariz., tests the declining real estate market as he tries to sell his recently price-reduced $3.75 million Phoenix mansion.

The 11,000 square foot estate, with its nine bedrooms and eight bathrooms -- and eight surveillance cameras -- has been on the market for three months.

Only six prospective buyers have checked it out, the Arizona Republic says. That led to a half-million-dollar price cut.


State's Housing Starts Fall for First Time in 10 Years

New home construction in California fell last year for the first time in 10 years and could drop more sharply this year, according to a report released Thursday that provided the latest sign of a cooling real estate boom

ECONOMISTS SEE HOUSING BUBBLE DEFLATING

It's not the end of the world — just the first signs that the housing bubble is beginning to deflate.

That's the verdict economists delivered yesterday on the data that show an unexpectedly steep slump in the sales of existing homes in December — despite a decline in mortgage lending rates that might have helped cushion such a decline.


Existing-Home Sales Slide

In a report yesterday, Goldman Sachs Group Inc. said the December figures suggest that "housing market conditions are deteriorating rapidly."

The $7,000 drop in median home price from October to December, Goldman Sachs said, is the largest two-month drop in prices in years and must be taken seriously as a "potential sign of a sharper-than-expected weakening in the U.S. housing market."

Centex says demand slowing

There's no question demand is slowing in certain markets, such as Phoenix and Washington, D.C., executives said. Cancellations ticked up 175 basis points to 27.2% in the fiscal third quarter ended Dec. 31.

Unraveling the Pyramid

This issue is systemic industry-wide, as the entire process from the regulators to the lenders to the third party interactions of the loan officers and the Realtors/builders is broken. It certainly will take a collaborative effort from the entire industry to unravel the pyramid of bad practices that have occurred over the past ten years.

Smart Investing Amidst Real Estate Mania

The angry readers should draw insight from something Warren Buffett said: "For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for someone else."

Personally, I would say, "The dumbest reason to buy anything is because the price is going up." Yet that's what people do when they invest. They generally don't buy high-priced things when they shop.

We all know a real estate crash is coming. The problem is we don't know when.


Realtors' Lereah: Housing To Make 'Soft Landing'

And Lereah declared that the market adjustment was in fact expected, "with a soft landing in sight for the housing sector." The normalization should give investors and industry players hope, one presumes, as he added that, "The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead."

Caveat Emptor,
Grim

4 Comments:

Anonymous Anonymous said...

But wait it is still a great time to buy!! Right??

Wait for what you will be told at your next open house.

"Well if you look at it over 10 or 15 years you will make money."

God, I may sell and rent!

Viva Grim

CDF

1/27/2006 04:25:00 PM  
Anonymous California gold said...

Great post...yes the real estate decline is really well underway.

I just read another very insighful article by a San Diego real estate broker, it too is MUST READ. It is located at:
http://www.downtown-san-diego-real-estate.com/san-diego-real-estate-article-index.htm

2/03/2006 12:04:00 PM  
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This is one to watch.

Cheers,

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4/11/2006 01:35:00 AM  
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