Wednesday, June 14, 2006

Could the correction be even more severe?

From U.S. News:

Housing bubble correction could be severe

Contrary to popular belief, the housing market hasn't cooled off that much. In fact, residential real estate prices continue to soar in a number of key metropolitan areas, according to a new study released this week.

That's a good thing, right? Actually, no–because the froth building in housing prices raises the distinct possibility of significant corrections to come in many of those regions.

In the first quarter, home prices nationwide rose an additional 7.3 percent, according to a joint study by the financial services firm National City Corp. and the research firm Global Insight. As a result, there are now 71 metropolitan areas–representing nearly 40 percent of all single-family homes–that can be classified as "extremely overvalued," according to the study. By comparison, only 64 metro regions were considered frothy at the end of last year and only 1 percent were classified as such in the first quarter of 2004.
...
Under normal circumstances, the fact that housing prices are continuing to rise would be something to cheer. But the housing boom has been going for most of this decade. And housing markets can't be overvalued for too long, as imbalances in residential real estate prices will eventually lead workers to relocate to more affordable cities.

The bottom line: Real estate prices eventually correct themselves. And unfortunately for homeowners, it often takes years before home prices start to rise again, especially after a big run up.

National City recently studied 66 major metro regions over the past 21 years that suffered through a 10 percent or greater decline in prices for at least a two-year period of time. It found that home prices, once they begin to correct, tend to decline 17 percent on average before markets heal themselves.

"And the average duration of these adjustments is 3.5 years," says DeKaser.

So what about families who recently bought into one of these "extremely overvalued" markets in hopes of turning a fast buck? "I extend them my deepest sympathies," says DeKaser.

45 Comments:

Blogger Richie said...

Founds this one on NJ.com. I normally don't click on ad's, but this one was too good to pass up.

Sign the petition.

Stop The Tax Man!

-Richie

6/14/2006 07:25:00 AM  
Blogger InvestorDavid said...

So what about families who recently bought into one of these "extremely overvalued" markets in hopes of turning a fast buck? "I extend them my deepest sympathies," says DeKaser.


Let the Greedy ones get slaughtered.

6/14/2006 07:25:00 AM  
Blogger RentinginNJ said...

The Labor Department reported Wednesday that its Consumer Price Index posted a 0.4 percent increase in May after an even bigger 0.6 percent rise in April.

Excluding energy and food, core inflation rose by a larger-than-expected 0.3 percent

Ouch...This is going to hurt

6/14/2006 07:58:00 AM  
Blogger Shailesh Gala said...

While we are at signning petition, please sign following petition also,


Address Rising Housing costs so NJ citizens can live & work in NJ


Today, most towns in NJ have become very very restrictive in allowing development for Single Family Homes for families with Kids. This is not good for the long term of the society. In my opinion, this is main reason why NJ prices have grown at faster rate then rest of America.

I understand Towns concern about other costs (e.g. schools etc...), but answer should not be to not allow families with Kids to come. The answer should be to reduce unnecesary expenses and sharing services among towns.

So, I am for raising awareness about this issue in the Political circle and to the rest of the public.

6/14/2006 08:12:00 AM  
Blogger X-Underwriter said...

I told my cousin and his wife not to buy that duplex in Hillsborough in 2004 for $389,000 when it last sold in 2000 for $191,000. They only put 5% down so, my deepest sympathies too

6/14/2006 08:17:00 AM  
Blogger InvestorDavid said...

shailesh gala,

I am not familiar with this issue.

I didn't realize that many towns do not allow single family homes for families with kids.

I am aware of low income housing issue.

Care to tell me more about this issue?

Thank you.

6/14/2006 08:49:00 AM  
Blogger InvestorDavid said...

This comment has been removed by a blog administrator.

6/14/2006 08:53:00 AM  
Blogger lisoosh said...

Investordavid:

I believe Shailesh is referring to zoning in the past few years which invariably favors development of Over 55 communities and McMansions. Almost no towns have allowed development of more affordable communities of single family homes (3 bed "starters" for instance) because they do not want families with children to move in.
In essence, if Levitt wanted to build Levittown today, he wouldn't be allowed.

6/14/2006 09:02:00 AM  
Anonymous Anonymous said...

All we need for a collapse is one really bad downturn in the economy. If unemployment goes up dramatically or intrest rates skyrocket for whatever reason, it will get ugly.

What amazes me is the amount of debt people are willing to except. Don't they realize they need to pay this money back. Haven't they looked at an amortization schedule and looked at how much interest they will pay over the entire life of the loan. This is the new lower and middle class society of slavery.

6/14/2006 09:05:00 AM  
Blogger X-Underwriter said...

Latest joke from Lereah

http://www.miami.com/mld/miamiherald/business/14811177.htm

Housing market in transition
National Association of Realtors chief economist David Lereah came to South Florida on Tuesday to discuss the future of housing in the region.
BY MATTHEW HAGGMAN
mhaggman@miamiherald.com

The housing standoff between buyers and sellers in South Florida will continue for another six months, and then prices in some areas will fall, a well-respected economist predicted Tuesday.

In some cases prices may fall by 10 percent to 15 percent, said David Lereah, the National Association of Realtors' chief economist, who spoke Tuesday in Coral Gables. But in many areas prices will still rise modestly this year, by 4 percent to 5 percent, he said. And when sellers finally bring asking prices down, pent-up demand will likely result in hordes of new buyers in South Florida.

The long-expected shakeout of the real estate market now underway is healthy for a region both overbuilt with new condominiums and overrun by speculators, Lereah said. Unlike in previous real estate downturns, the economic and demographic fundamentals underpinning South Florida real estate remain strong, he added.

So strong, in fact, that the Washington, D.C.-based economist is looking to buy some investment properties here himself.

''We are not in a crisis but a transition,'' said Lereah, speaking Tuesday at the International Real Estate Congress and Expo. ``I am very bullish in the long term for real estate in Florida.''

Lereah pegged the end of the housing boom to August 2005. That's when mortgage rates crept up and speculators fled.

Now, he said, home sales are declining. And the inventory of homes for sale has ballooned because stubborn sellers refuse to lower prices and buyers are ever willing to wait it out. Ultimately, he said, sellers will relent.

''When a transitioning market cools, it's the sales that drop first, and then prices,'' Lereah said.

Prices are likely to drop more for condos than for single-family homes, he said.

But in the long term, he is optimistic. Baby boomers continue to move here, international demand remains strong, unemployment in South Florida is low, and mortgage rates -- despite inching higher in recent months -- are still at historically low levels.

Just as important, Lereah said, the speculators are fleeing the market. He contends that speculators are most to blame for huge price hikes.

''Florida will be better for it with them gone,'' he said.

Lereah cited the increased threat of hurricanes and the availability of property insurance as South Florida's two biggest worries. Such worries, he said, are prompting some baby boomer and retirees to look away from Florida.

He noted a trend of baby boomers moving to places such as the Smoky Mountains in Tennessee and North Carolina.

But not Lereah.

''I was at another conference down here recently,'' he said. ``I drove around looking at property myself.''

So where is the chief economist for the national Realtor association buying?

''I am not telling,'' he said.

6/14/2006 09:29:00 AM  
Anonymous Anonymous said...

Note the shift in spin; there will be 10-15 % downturn, this is a transition not a crisis, it's good for the market that the speculators are gone but I'm bullish and looking at property and speculating myself, the underlying fundamentals remain strong, etc. He is still trying to manufacture his much dreamed of soft landing, but now admitting a downturn is coming inbetween all his hype, which designed to surround, qualify, and bury the admonition.

WM

6/14/2006 09:49:00 AM  
Blogger Shailesh Gala said...

InvestorDavid:

In NJ, any town that you will call decent balks at anything like new Development. All tools are used for this purpose. Zoning has always been used, but now a days, even Eminent Domain is being used. Two Towns next to mine (Readington & Clinton) are threatening Land owners, if they don't give the land to town, the land will be condemned. Eminent Domain is justfied when State wants to build infrastructure for schools, bridges etc... But it is being misused in NJ by sometowns.

I have posted various links in past posting with examples. Today more than 50% of new Housing is only for Senior Citizens. Just do a search on homebuilder.com for North & central jersey and you will see that most new development say "Active Adult only".

So you have either McMansions ($1 mil+) or Active adults in new development. Here is one link that also raises Land Use issue.


http://www.brookings.edu/metro/speeches/20060501_Trenton.pdf

6/14/2006 10:04:00 AM  
Blogger Metroplexual said...

Anonymous said...

"All we need for a collapse is one really bad downturn in the economy. If unemployment goes up dramatically or interest rates skyrocket for whatever reason, it will get ugly. "

How about the resets on ARMs and IOs this and next year?

6/14/2006 10:08:00 AM  
Anonymous Anonymous said...

Haven't they looked at an amortization schedule and looked at how much interest they will pay over the entire life of the loan. This is the new lower and middle class society of slavery.

No they haven't, that's the problem. It shocks me too. When you went to a mortgage broker to get a pre-approval, did they offer up a full amortization schedule? Did the bank who offered you the loan? Most likely not. If they did, I bet it might scare many people away. Why present the truth upfront if you don't have to?

The majority of the population is not as smart as us, here on this board, they probably don't even know something like that exists. Lastly, they are pretty shortsighted and only looking at what their monthly payment will be... case in point - the increase in 40 and 50 year mortgages.!

KS

6/14/2006 10:49:00 AM  
Anonymous Anonymous said...

I'm not surprised that the correction will be more severe. I was shocked to see a new listing in Ramsey (within the country club section) start out at only $499. Granted its not huge but its a pretty decent looking bilevel on a 75 x 115 lot.

Maybe Booyah Bob has finally gotten to realtors and they aren't starting at exorbidant prices.

6/14/2006 10:53:00 AM  
Anonymous Anonymous said...

Shailesh,

Now you got my attention, for Eminent Domain in Readington/Clinton. I used to live in Clinton. What are they doing or trying to do there? Is this related to the ED issues in High Bridge?

I fear that we are going to see more of these types of ED issues. I heard down in Princeton Junction there have issues with ED for the proposed transit village. I also fear for potential homebuyers; like property tax increases, how can you protect yourself or hedge against something like this (esp if it happens way after you buy).

Andy

6/14/2006 12:08:00 PM  
Blogger Shailesh Gala said...

Andy: I read somewhere that town was threatening developer with ED on Windy Acres project. I think since than they have made compromise, and now Adult Only community & some McMansions are going to be developed.

The point is Towns are using ED for forcing less development, in town where land is not an issue. I can understand use of ED, where there already is house and state is trying to build School or Bridge etc.. But here there is open land, but towns threaten to use ED so land owners can't sell it to developers.

In Readington, the town threatend to use ED on Airport expansion project.

All over NJ, it the NIMBY movement that has gripped. This is sure to cause Demand/supply issues.

6/14/2006 01:15:00 PM  
Blogger William said...

Brokers need to stop painting a rosy picture for sellers. They are only hurting themselves. The quicker they convince the sellers of the new realities, the quicker they make a commission.

6/14/2006 02:02:00 PM  
Blogger Richard said...

Currently, there are 30,900 properties advertised for sale in NJ on our site.

do i hear 31k?

6/14/2006 10:25:00 PM  
Anonymous UnRealtor said...

Lots of open houses lining up again for this weekend. One house is on its 6th open house.

Comical.

Channeling the seller: "Honey, why isn't the house selling?"

Spouse: "Hmm, the price may be too hig... hey let's have another open house!"

6/14/2006 11:53:00 PM  
Anonymous UnRealtor said...

The Open House Boycott will continue, of course.

6/14/2006 11:54:00 PM  
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6/17/2006 01:52:00 PM  
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Anonymous Anonymous said...

. Noise does not sell well. Let the Realtor� and buyer talk, free of disturbances. Background "soft playing" music is okay, but the wrong sounds will turn buyers off. Noisy children and animals are roadblocks to a contract � and traffic, trains, and planes must be dealt with honestly, if they are part of the deal. Go here for more ideas.

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Anonymous Anonymous said...

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6/21/2006 01:39:00 PM  
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6/22/2006 07:57:00 AM  
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