Monday, March 06, 2006

Goodbye Boom, Hello Bust

This morning I bring to your attention 3 different articles on 3 different real estate boom areas.

First off, let's get the update on the US Real Estate Market:

America's most dangerous 'housing bubble'

Several good points are made here.

... Yet while everyone has watched this bubble-that-was-never-a-bubble, a more menacing bubble sits on the horizon. This is the bubble of future mortgage payments.

Ironically, the homeowners who have been watching prices soar in their neighborhoods have felt house-rich: Thanks to the dizzying escalation in sale prices, their net worth has been doubling, maybe tripling. But this is a paper gain, to be realized only if the homeowner sells and moves to a less expensive region (from California to Oklahoma, for instance), or scales down to a smaller house. For most people, the increase in net worth has been almost fictive.

PAPER GAIN?! What! Can this be true? I thought paper gains were only in the Stock Market!!

That's nonsense. Real estate never goes down. Let's goto China to see how they are doing.

Shanghai's housing bubble bursts, causing some panic

WTF?!@

"The entire industry is scaling back," said Mu Wijie, a regional manager at Century 21 China, who estimated that 3,000 brokerage offices had closed since spring. Real estate agents, whose phones wouldn't stop ringing a year ago, say their incomes have plunged by two-thirds.

Shanghai's housing slump is only going to worsen and imperil a significant part of the Chinese economy, says Andy Xie, Morgan Stanley's chief Asia economist in Hong Kong.


Nonono.. This can't be happening, there's a shortage of land, people need a place to live!

...Wang was thrilled to come away with two apartments, one for $110,000, about the average price for a new home in Shanghai, and another for $170,000. They were among Wang's four investment properties.

And for a short period, Wang believed she was raking in hundreds of dollars a day for doing nothing, as property prices in the city kept soaring.

But today, prices at the apartment complex have fallen by one-third, and the lines of frenzied buyers are gone. Wang is among dozens who are fighting the developer to take the apartments back.

On a recent morning, she stood in a line herself with about 40 other buyers outside the builder's headquarters, demanding that it negotiate a deal to return their money. The company, Da Hua Group, invited Wang and other homeowners inside, served them hot tea, then told them to forget it.


Noo!! I want my money back! You promised us real estate never goes down!!

Ok. So it can go down, but everything will rebound back up right? Well, let's check in with Australia.

Housing market about to take off again - in your dreams

Even Sydney house prices rose by 1 per cent, ending a long run of falls since the boom busted in late 2003. Yippee.
...

What's more, since prices remain so far out of line with wages and rents, [he] continues to expect a long period in which prices are on a flat-to-down trend until they achieve the usual decline in real prices seen in the aftermath of a house price bubble.



Sorry I can't elaborate on the articles more; but that's just a glimpse of what *could* happen. We are on the verge of a bust, China is IN a bust, and Australia is trying to recover from a bust.

-Richie

41 Comments:

Anonymous Anonymous said...

Here's an interesting read:

It is hard to think of an occupation that garners less goodwill these days than the real-estate agent. More often than not, agents are portrayed as hustlers or sharks, unimaginative opportunists who, for not all that much effort, pocket a significant chunk of the sale price of your home. A great many of these agents and brokers, more than 1.2 million, belong to the National Association of Realtors, which the Department of Justice accused in a recent lawsuit of behaving like a cross between a cartel and a mafia...

http://www.nytimes.com/2006/03/05/magazine/305wwln_freakonomics.1.html

3/06/2006 10:42:00 AM  
Anonymous Anonymous said...

"On a recent morning, she stood in a line herself with about 40 other buyers outside the builder's headquarters, demanding that it negotiate a deal to return their money."


Wow, that takes a quite a bit of nerve!

3/06/2006 11:17:00 AM  
Anonymous Anonymous said...

I thought I read that prices in Australia haven't actually gone down since the peak. Has there been any significant YoY or even MoM declines there?

3/06/2006 01:37:00 PM  
Anonymous looking said...

Closer to home I noted that Otteau Reports came out with January numbers. I'm not the person to determine just what the data indicates but it looks like a lot more inventory on the market and an erroding market as far as sales go. They don't have the data posted yet on their site, i received via an email alert.

3/06/2006 02:01:00 PM  
Anonymous Anonymous said...

can you pls repost the NYTIMES link so I can get to it...

3/06/2006 03:59:00 PM  
Anonymous Anonymous said...

"can you pls repost the NYTIMES link so I can get to it..."

Just triple-click the link, which will select the full line, then right-click and select "copy".

The full line is there, you just can't see it because this web page formatting crops the right margin.

3/06/2006 05:36:00 PM  
Blogger Richard said...

everyone, DO NOT buy in today's market. the ship is turning, and fast. interest rates up, inventory up, the supposed buyers who didn't materialize in december due to cold weather and again failed to materialize during the warmer january and february are expected to show up when the peak spring season gets going. don't believe the lies. the buyers are not there and those who are aren't willing to pay top dollar at a peak that's clearly ready to go down the other side of the mountain.

this time next year i can safely say you should pay up to 10% less than today's realistic asking prices. i say realistic because some realtors (like weichert) continually price their properties 10% above last highest asking price so a drop of 10% is really 0%.

3/06/2006 05:43:00 PM  
Blogger Talkhard said...

This time next year i can safely say you should pay up to 10% less than today's realistic asking prices.

Is that all? That's certainly no "crash." I would hope that people waiting out this market have more to look forward to than 10% savings.

3/06/2006 10:03:00 PM  
Blogger Richard said...

housing markets don't turn overnight and are far stickier on the way down. you have to measure them in quarters or years. with that said things are just starting as the earliest peak was in the summer which means we've had a bit over 2 quarters of a market that's taken 5 years or 20 quarters to run up. in 4 quarters we'll be down 10%. another 4-8 quarters probably another 10-20%. do i think we'll ever get back to prices 5 years ago? not likely, but a 30-40% correction is likely once interest rates move north of 8% while wage growth remains flat.

a 10% correction on a $500k is $450k plus the inflation adjusted loss so you're looking at closer to 15%.

3/06/2006 10:22:00 PM  
Anonymous looking said...

Well said.

Just reading the news over the last few years, double digit growth has often been referred to as 'red hot'. Now I've been seeing the term 'cooling' being used. A double digit move down within a year or so would be a bit colder than a 'cooling'.

Also, I would think there would be many folks, I speak for myself here, who could not bank 10% of the average home cost these days, after taxes in a years time.

3/06/2006 11:10:00 PM  
Anonymous Anonymous said...

More price drops today:


$15,000 Drop:
MLS#: 2238841
79 Tulip Street, Summit
$675,000 => $659,000
Days on Market: 41


$20,000 drop:
MLS#: 2205176
4 Brainerd Road, Summit
$689,000 => $669,000
Days on Market: 141


I think we'll see more than a 10% drop in the next 6-12 months.

3/07/2006 07:08:00 AM  
Anonymous Anonymous said...

With banks offering attractive interest rates these days for savings accounts (Orange Savings Account, etc) of about 4%, this wait-and-see isn't bad at all.

I just received over $600 in interest for the month of February alone. If I deduct that from my rent, that's now a bad cash flow. Had we bought a house, we would have earned close to zero interest, and would be PAYING more than $600 in interest to someone else each month.

Yes, us waiters are in much better shape than the sellers who think they can 'wait out the market' as the value of their home drops each month...

3/07/2006 07:15:00 AM  
Anonymous Anonymous said...

Correction:

"that's NOT a bad cash flow"

3/07/2006 07:16:00 AM  
Anonymous Anonymous said...

$40,000 price drop:
MLS: 2233189
90 Woodland Rd, Chatham
$589,000 => $549,000
Days on Market: 60

3/07/2006 07:34:00 AM  
Anonymous Anonymous said...

$40,000 price drop:
MLS 2240267
6 Bodwell Terrace, Millburn
$639,000 => $599,000
Days on Market: 34

3/07/2006 07:37:00 AM  
Anonymous Anonymous said...

40,000 price drop:
MLS: 2241229
372 Wastena Terrace, Ridgewood
$839,000 => $799,900

3/07/2006 07:41:00 AM  
Anonymous jon street said...

look what a million gets you
http://newyork.craigslist.org/jsy/rfs/139697274.html

you go to be kidding for this POS

3/07/2006 08:27:00 AM  
Anonymous Anonymous said...

Thanks for the advice on the triple clicking!

3/07/2006 09:40:00 AM  
Anonymous Anonymous said...

90,000 price drop:
MLS: 2105705
365 Meeker Street, West Orange
$549,000 => $459,000
Days on Market: 179

3/07/2006 09:58:00 AM  
Anonymous Anonymous said...

Whoever is listing all the reductions... is awesome. Keep it up! Grim, you ought to keep an open string on just reductions.

3/07/2006 10:13:00 AM  
Anonymous Anonymous said...

$20,000 drop:
MLS#: 2205176
4 Brainerd Road, Summit
$689,000 => $669,000
Days on Market: 141


141 Days on Market???? Maybe more than a 3% price reduction is in order.

3/07/2006 10:26:00 AM  
Blogger Richard said...

everyone, i looked at the house in Summit orig. for $675k now $659k. great location right across from the grade school in desirable part of town but here's the problem. it's a POS! the property hasn't been upgraded since it was built in the 40's. it's got sizable flood damage in the basement that's very obvious and the whole place literally looks like it's ready to fall down on top of your head. it's almost a tear down considering the neglect. even in this highly sought after neighborhood it's still way overpriced. for $500k i can see someone taking on the risk and time to fix it up. anything more you're getting taken.

3/07/2006 10:39:00 AM  
Anonymous Anonymous said...

$25,000 price drop:
MLS#: 2204937
14 University Avenue, Chatham
$499,900 => $475,000
Days on Market: 143

3/07/2006 11:36:00 AM  
Anonymous Anonymous said...

$14,000 price drop:
MLS#: 2243567
120 Center Avenue, Chatham
$589,000 => $575,000
Days on Market: 30

3/07/2006 11:39:00 AM  
Anonymous Anonymous said...

$25,000 prce drop
MLS: 2250321
12 Mountainside Dr, Chatham
$750,000 => $724,990
Days on Market: 60+ days

3/07/2006 11:43:00 AM  
Anonymous Anonymous said...

$50,000 price drop:
MLS: 2230238
9 Midland Terrace, Summit
$899,000 => $849,000
Days on Market: 60+ days

3/07/2006 11:47:00 AM  
Anonymous Anonymous said...

$30,000 price drop
MLS: 2238517
32 Ridgedale Ave, Summit
$829,000 => $799,000
Days on Market: 60+ days

3/07/2006 11:49:00 AM  
Anonymous Anonymous said...

$25,000 price drop:
MLS: 2110639
15 Morris Avenue, Summit
$675,000 => $650,000
Days on Market: 158 days

3/07/2006 11:52:00 AM  
Anonymous Anonymous said...

$84,000 price drop:
MLS: 2104955
10 Gates Avenue, Summit
$639,000 => $554,900
Days on Market: 153 days

3/07/2006 11:55:00 AM  
Anonymous Anonymous said...

take a look at Brenners piece at Morgan Stanley to see how far off you are comparing Aussie and China real estate to the states; land restrictions, floating rates, etc. come on guys, do the work

3/08/2006 10:58:00 AM  
Anonymous Anonymous said...

$100,000 price drop:
MLS 2230846
328 Long Hill Drive, Short Hills
$1,495,000 => $1,395,000
Days on Market: 63

3/08/2006 08:01:00 PM  
Anonymous Anonymous said...

$50,000 price drop:
MLS 2246367
7 Norwood Terrace, Millburn
$599,000 => $549,000
Days on Market: 27

3/09/2006 06:32:00 PM  
Anonymous Anonymous said...

The information on this site is useless and meaningless. I'm dealing in the real world where MLS #2233790 sold for $24,900 over asking price. Also MLS says DOM:57 but I can't see how?? I search regularly never saw it. When I did find it I called same day and it was already sold.

Is the DOM stat reliable?

I've been looking for the last 2 years. I'm finding 2006 prices are higher than 2005 in Wayne. I agree that homes are sitting but they are listed at close to 900K in a 700K (by comps) neighborhood. So what if the price goes from 900-850K???

3/13/2006 05:10:00 PM  
Anonymous Anonymous said...

Sorry I think I made a mistake on MLS #2233790.
I read the information wrong.

My anger got the best of me.

3/13/2006 05:16:00 PM  
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