Wednesday, July 26, 2006

"Could it be a 5 percent drop in prices? Could it be 10 percent?"

A bit out of the target area of this blog, but a good piece nonetheless. From the Washington Post:

After 5 Years of Growth, Home Prices Drop

In what may be the most telling sign yet that the real estate market here has shifted downward, median prices of homes in several parts of the Washington area have declined when compared with the same time last year.

In Loudoun County, for example, the median price of homes sold dropped 1.2 percent last month, compared with June 2005, according to Metropolitan Regional Information Systems Inc., the area's multiple listing service. In Fairfax County, prices fell by half a percent in May and a tenth of a percent in June. And in the District, the decrease was 0.8 percent in March and 1.2 percent in May, compared with the same months last year, even though prices in the District in June were higher than the year before. The median is the point at which half of the houses cost less and the rest more.

The declines are small, and certainly not universal. Prices continue to rise in some areas, most notably Prince George's County, where houses are still relatively inexpensive. But the drops are significant because they mark the first time in half a decade that home prices have fallen in a 12-month span, illustrating just how much the real estate landscape has changed after five years of double-digit growth in home prices.
...
Economists are split. One view is that any declines will be insignificant or temporary because of job growth and the strength of the local economy.

"Could it be a 5 percent drop in prices? Could it be 10 percent? Whatever it is, it will be short-lived, because demand is right there on the sidelines," said David A. Lereah, chief economist of the National Association of Realtors.

But others see a steeper, prolonged downturn in prices because of overbuilding in some areas, speculative buying and a run-up in prices that has outpaced affordability. Prices, they added, have actually declined more than the multiple-listing service statistics indicate because sellers have been offering such incentives as help with closing costs.

Peter Morici, an economist at the University of Maryland, said prices could drop 10 percent by the end of the year, and perhaps by 20 percent "by the time it's all over."
...
Zandi sees Washington area home prices declining over the next six to 12 months by an average of 10 percent, with the condo market experiencing larger price drops. The good economy, he said, is "not enough to save the market from this housing correction."
...
The possibility of falling prices seems to have made many home-shoppers hold off on buying, despite rising interest rates. After all, even a minor correction could mean that houses cost tens of thousands less. For home sellers, that means much hand-wringing as they start to slash prices below what neighbors got just a year ago.

30 Comments:

Anonymous Anth said...

"Whatever it is, it will be short-lived, because demand is right there on the sidelines,"

I've heard this before from a mortgage broker. Seems to believe that once prices drop there will be this huge influx of "people like you" coming into the market to take advantage of the price drops.

Crazy, these guys don't seem to get it. They've been bailed out so many times by the fed and now when they realize that the fed won't be bailing them out, they actually believe that their biggest critics ("sideliners" and "reverse speculators") are going to be their white knights. Unreal. Lerah sickens me.

7/26/2006 09:24:00 AM  
Anonymous Anonymous said...

From the Bergen Record:

Buyers taking it slow

Wednesday, July 26, 2006

By PRASHANT GOPAL and JENNIFER CABALLERO
STAFF WRITERS



The sale price for existing homes nationwide last month was a scant 1 percent higher than in June 2005, the smallest annual rise in 11 years, the National Association of Realtors said Tuesday.

In the Northeast, the only region in the country to experience appreciation, the median price was $298,000, up 7.2 percent from June 2005.


And there are ample signs of a slowdown in North Jersey, where the number of homes on the market has been increasing for months.

According to separate data from the New Jersey Multiple Listing Service, the median sale price in Bergen County was $488,000 in the quarter ended June 30, a 5 percent increase over the same period last year. The growth was also just 5 percent in Passaic County over that period, to $390,000.

By contrast, prices increased 19 percent in Passaic County from the second quarter of 2004 to the second quarter of 2005, and 15 percent in Bergen County, according to the Multiple Listing Service.

Art Tassaro, a Realtor with Friedberg Properties in Cresskill, said the market is slower than a year ago, but is showing some signs of life in July.

"There is still a lot of inventory, but there seems to be fewer new listings coming on each day,'' he said, adding that sales have picked up compared with the early months of the year.

But nationwide, "inventory is building," said Walter Molony, an NAR spokesman. "Supply and demand is favoring buyers. It's the first time we've seen that since before the boom."

Molony cited increased interest rates, which decrease affordability. The 30-year mortgage rate last week averaged 6.8 percent compared to 5.73 percent at the same time last year, according to Freddie Mac. The last time the rate was higher was in May 2002, the Federal Home Mortgage Corp. said.

Meanwhile, new home construction continues to add to available supplies.

Nationwide, condo sales are getting hit even harder as new units are built and put on the market. The median condo and co-op price in June was $226,900 nationwide, down 2.1 percent compared to June 2005.

Last month's combined sales rate for single-family homes, condos and co-ops was 6.2 million, or 8.9 percent below the 7.27 million-unit seasonally adjusted pace in June 2005. The annual pace of existing-home sales in the Northeast was 1.11 million units in June, 9.8 percent below the June 2005 rate.

Molony said that with supplies up, his group projects a 5.3 percent price increase nationwide this year and 4 percent in 2007.

"We've seen this happen in the past when we are going through a transition period," Molony said. "We have a few months of negative prices, then positive. It's part of a soft-landing scenario."

Celia Chen, director of housing economics at Moody's Economy.com, said she expects home prices to decline in some markets that previously saw the strongest gains.

"It's more normal," Chen said of the market. "The market was extremely heightened due to low interest rates -- it had been elevated."

Jim Cassidy, manager of Prudential New Jersey Properties in Morristown, said some sellers have had to lower their asking prices as the homes linger on the market.

"For homes that are selling for $600,000 and below, we have a 6-month supply whereas last year it was 1½ to 2 months,'' he said. "For $600,000 to $1 million, it takes 10 months. And for homes over $1,000,000, it takes 13 months to sell."

Still, Cassidy is upbeat about the market.

"The drop in sales is just a blip in the radar screen," Cassidy said. "It will bounce back up."

Sean Shallis, chief real estate strategist for the Shallis Team of Re/Max Villa Realtors in Jersey City, said he expects prices to drop by about 4 percent a year.

"It's good because it's bringing stability to the market," Shallis said. "Before, people were buying real estate for speculative reasons like buying stock. But real estate isn't that kind of investment. It's a long-term investment."

Sufian Abbasi, team leader of Keller Williams Realty in North Bergen, said even though supplies have increased, demand is still strong.

"I will challenge anyone who says that homes are not selling here in North Bergen," Abbasi said. "We have a strong market, and homes are selling because of our proximity to the New York City area."

According to the NAR, median prices declined slightly in the Midwest and South in June compared to the prior year, and were unchanged in the West.

E-mail: gopal@northjersey.com


6966572


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7/26/2006 09:34:00 AM  
Anonymous Anonymous said...

Screw you Lereah!

http://www.amazon.com/gp/product/0385514344/002-9320201-7408002?v=glance&n=283155

His PUMP Book came out at nearly the exact top.

Good timing boy!

Housing Bust

Bob

7/26/2006 09:35:00 AM  
Anonymous Anonymous said...

Who are you going to believe
the Salesman in the Pru. office
in Morristown or Grim?

I'll go with Grim.

7/26/2006 09:53:00 AM  
Anonymous Anonymous said...

It's sad to see sellers in denial.

7/26/2006 09:59:00 AM  
Anonymous UnRealtor said...

The following MAJOR contributors to the mania will NOT be on the sidelines to save this busted bubble:

1) Speculators who flip properties.

2) People looking to "buy" a house for 2 years, cash in on the appreciation, and move on.


In my observations, these two parties make up a significant portion of the bubble market, and now that they're gone, the market will NOT be the same moving forward.

7/26/2006 10:03:00 AM  
Blogger Shailesh Gala said...

I don't think NAR report shows true picture though. The Median price means nothing to me, as it does not actually compare same house quality measure. It does not really capture the fact that same median price may have bought slightly bigger house this summer compared to last summer.

I think the only measure I have seen so far that considers many such factors is OFHEO's HPI. Though I am not very sure how they would do it, but I think some kind of quality measure is applied. I would trust OFHEO's measure better then NAR's anyday.

In reality, I would have actually liked tracking of Per Square Foot price or livable & unlivable space.

7/26/2006 10:08:00 AM  
Anonymous Anonymous said...

Looks like the sellers jumped the gun on changing the status of this house to sold: MLS 2271964

The buyers backed out due to large quantities of lead paint. Now it's got a fresh new number: MLS 2302528

7% drop in OLP so far...

- Cultural Infidel

7/26/2006 10:40:00 AM  
Blogger grim said...

From Boston.com:

Mass. home, condo sales tumble

Home sales in Massachusetts tumbled 16.6 percent and condominium sales declined 14.3 percent in June, but the dramatic slowdown in sales had little impact on real estate prices.

The median price of a single-family home fell just 1 percent last month, to $370,000, as compared with June 2005, according to the monthly sales report by The Massachusetts Association of Realtors.

Similarly, the median condo price fell 1.1 percent in June, to $283,500, only the second time in the last four years that prices were lower than the same month a year earlier.
...
``Prices are going to go down -- there's no question about that," said Karl Case, a Wellesley College economics professor who specializes in the housing market. ``The only question is how far and for how long," he said. Continued strength in the economy in coming months will be key to preventing a sharp price declines, he said.

7/26/2006 11:05:00 AM  
Anonymous Anonymous said...

"Could it be a 5 percent drop in prices? Could it be 10 percent?"

I say more than 30%! I won't make any offer less than 30% cut of the asking price!

7/26/2006 11:05:00 AM  
Blogger thatbigwindow said...

Most people in their late 20s are either still in school working on their Phd's or too focused on their jobs to worry about buying a house...

not to mention the people in their early 20s are more concerned about American Idol and partying than saving money. Makes me wonder who will be buying houses in 5-10 years?

7/26/2006 11:11:00 AM  
Anonymous Anonymous said...

We plan to buy bigger house for more joys if the price is reasonable. If not, we will go for more vacation instead!

7/26/2006 11:26:00 AM  
Anonymous Anonymous said...

The genuine buyers who waited for the past 3-4 years are just glad to see their cash collect interest at 4%+ in Money Markets while the real value of houses decline 10% yoy. By this time next year, I feel that several buyers will commit themselves due to the combination of these factors:
a reduced price of about 20% from peak 2005.
Additional cash for downpayment vs what they had 3 yrs ago
A FRM at about 6% (as predicted by Bill Gross).
The total cost of ownership due to the above factors would roughly equate to the cost of ownership in 2002-03, which was a fair price at that time. The price gains in 04/05 were unrealistic and hugely aided by the exotic mortgages.

EconRealist

7/26/2006 11:35:00 AM  
Anonymous Anonymous said...

EconRealist

I am not an economist, but I am economical. A "genuine" buyer, as you name those waiting.

You're not digging back far enough when aligning home prices in bubble areas.

I'm NOT paying 2003 prices, come hell or high water. Not when my money is making 5.45%.

No numbers to back this up at all, right now, so come on, slam me for providing a prediction without a chart to back it up. Just my working-mother, gut feeling here, right now.

Pat

7/26/2006 11:45:00 AM  
Anonymous Anonymous said...

Now out of guilt, here is a link to charts independent of those already here on Grim's site.

http://tinyurl.com/edszc

We can analyze these with 20-20 hindsite, since this page is 1.5 years old (pre-peak).

Nothing new here, folks, just easy to read, in one place.

THAT's why I refuse to pay 2003 price.

Pat

7/26/2006 12:14:00 PM  
Blogger skep-tic said...

ARGUMENT FOR RENTING:

http://newyork.craigslist.org/wch/rfs/186498024.html

$810000 - Trump tower at City Center 1,602 sq.ft. 2bdrms Condo

CC $869, Tax $450, Parking $200

total monthly outlay to live in this albatross (assuming 20% down and 6.7% 30 yr mortgage) = $5700

7/26/2006 12:14:00 PM  
Anonymous Anonymous said...

Spellcheck, Aisle 7
From Wikopedia (not)
hindsite = acceptable Web form of hindsight

7/26/2006 12:16:00 PM  
Anonymous Anonymous said...

Pat, this is nothing to slam anyone about.
Here are the reasons I talk about 2003 prices:
All the price increases until 2002 were directly related to the reduction in yield of the 10 yr US treasury note (which is used to calculated Fixed Rate Mortgages). As I have stated previously on this blog, every 1% change in the FRM interest rate equates to a 10% change in houseprices. There was a drop of about 2.5% from the highs of 1999 to 2002, which equated to an increase of 25-30% in homeprices from 1999 to 2002.
Since then the 10 yr dropped another 1%, but prices went up by 50%+, entirely due to the availability of cheap ARMs.
Now those cheap ARMs are history, and everyone seems to be piling into FRMs finally. So, therefore, the average price of homes today should be the inflation adjusted 2002 prices, which at 3-3.5%/yr would mean about 15% premium over 2002 prices, which would equate to it being 2003 prices.
Now, if some catastrophe were to occur, say, China/Saudi/Russia etc decide to dump their Treasury holdings en masse, and the yield shoots through the roof, eg from the 5% to 7%, then you will see this market crash and burn. IMHO, that will not happen, as it will have adverse effects on the entire global economy. The worlds central bankers will gradually stage manage the economy. The soft landing that everyone talks about really amounts to prices going back to 2003 levels, maybe not in real terms, but in terms of the total cost of ownership which can be determined by the combination of price + down payment + interest rate of loan (as broken down in the previous post)

7/26/2006 01:01:00 PM  
Anonymous Anonymous said...

Anon 02:01 = EconRealist
Forgot to add my identifier...

7/26/2006 01:05:00 PM  
Anonymous Anonymous said...

Steep drop in Florida home market

http://money.cnn.com/2006/07/26/real_estate/Florida_fading_markets/index.htm

House sales and prices in the Sunshine State have ceased their steep upward run.
By Les Christie, CNNMoney.com staff writer
July 26 2006: 1:49 PM EDT


NEW YORK (CNNMoney.com) -- House hunters in Florida, where some of the hottest markets have been in recent years, have taken a vacation from buying.

June sales volume was down nearly 30 percent statewide - 18,089 homes were sold in the month, according to figures released this week by the Florida Association of Realtors. Condo sales volume fared even worse, down 35 percent to 5,421.

Nationwide, the National Association of Realtors reported Tuesday, sales volume dropped 8.2 percent.

Prices in Florida have flattened as well. Year-over-year prices rose just 3 percent last month, to a median of $257,800. That was after years of consistent annual gains in the double digits -- home prices have nearly doubled during the past five years.

Condo prices actually fell in June, to $212,500 from $215,700.

Some of Florida's erstwhile hottest markets experienced steep sales-volume declines.

Naples, where the median single family house sells for $451,500, had a 48 percent drop in unit sales. Prices were down 8 percent.

The Sarasota metro area had a 40 percent fall in sales volume and a 3 percent drop in prices. West Palm Beach-Boca Raton sales volume dropped 39 percent and prices were flat.

Major condo markets hit hard with sales volume declines included Tampa, down 47 percent, and Miami and Fort Lauderdale, both down 31 percent. Some smaller markets really took it on the chin - Punta Gorda logged just three condo sales, a 97 percent drop.

With mortgage rates for a 30-year fixed at about 6.8 percent, according to Freddie Mac, the monthly costs of buying a home has increased significantly in the past year. Rates were at about 5.58 percent last year. On a $200,000 30-year mortgage, that's a difference of about $158 a month.

Property insurance costs in Florida also skyrocketed on the heels of the disastrous hurricane season in 2005. Nearly 98 percent of Florida's population lives in coastal areas, according to the U.S. Census Bureau and insurance rates have risen to reflect their vulnerability to storm damage.

And soaring energy costs have made it much more expensive to air condition that home and to operate a car, leaving fewer dollars to pay for real estate.

7/26/2006 01:13:00 PM  
Anonymous Anonymous said...

I'm not buying it. Not at '03. [We've been through this discussion before, I know.]

China, etc. are already reducing Treas.

I don't believe in the ability to stage manage your scenario. Too many turbulence variables and way too many political updrafts to land this baby in 2003.

I'm also assuming a major economic slowdown is coming. Even if there is no downturn, but a simple leveling, there will be pain in the housing industry. Strip gains related to the housing boom out, and what are you left with? Reality.

Pat

7/26/2006 01:21:00 PM  
Anonymous Anonymous said...

Anonymous said...
Now out of guilt, here is a link to charts independent of those already here on Grim's site.

http://tinyurl.com/edszc

We can analyze these with 20-20 hindsite, since this page is 1.5 years old (pre-peak).

Nothing new here, folks, just easy to read, in one place.

THAT's why I refuse to pay 2003 price.

Pat

7/26/2006 01:14:40 PM

Good stuff, I punted my 2 homes in 2001, early by the unforseen 1% funny money stuff, however I believe we will see 98 prices again, thanks to the "super ugly housing bust" we will witness in 07-09 period. ps: even a 1% fed funds, won't stop it.

7/26/2006 01:41:00 PM  
Anonymous Anonymous said...

Things are different now from what they were in the last bust in the early 90s. We didnt have so many international debtors willing to shore us up in return for a healthy market for their goods. The way the world has evolved in the last short 5 years, the Big 4-5 Central Banks are doing everything in tandem. This smoothens out all kinds of turbulences. Turbulences are caused when one Central Bank makes policy in contradiction with the policies of its peers. The global economy is way too tightly knit than it ever was before. The Chinese/Saudis dont want an uprising. A lot of symbolic moves by CBs out of dollars at present are just that: symbolic. They are a shot across the bow, to make sure Bernanke doesnt letup on the pressure to keep the rates where they are right now. But the Chinese depend too greatly on the US. Europe too is tightly wound with the economy of the US. A drop down to 2003 relative prices by itself is enough to cause pain to everyone. But none of the CBs will let this thing go below that. It would mean utter chaos to global economics. They will tighten money supply to the point where enough of the excess liquidity from the past has been mopped up, maybe even cause a couple of 0 growth quarters, and then they will be off to the races again.
The whole world operates on credit now, and liquidity easing and tightening cycles are what keep the CBs in business. This bubble was caused due to a massive liquidity easing, they will tighten it to deflate it a bit, but they will never risk bursting it. If they do, down goes the whole world economy. There will be chaos, wars, pandemonium the world over. Certainly, no one wants that.

BTW, I myself am a prospective buyer waiting on the sidelines with a healthy appreciating pile of cash.

EconRealist

7/26/2006 01:46:00 PM  
Blogger chicagofinance said...

EconRealist
7/26/2006 02:46:05 PM

Whatchu talkin bout Willis?

7/26/2006 03:56:00 PM  
Blogger chicagofinance said...

Good stuff, I punted my 2 homes in 2001, early by the unforseen 1% funny money stuff, however I believe we will see 98 prices again, thanks to the "super ugly housing bust" we will witness in 07-09 period. ps: even a 1% fed funds, won't stop it.
7/26/2006 02:41:40 PM

Your post-script is factually incorrect. If the Fed starts easing again, without stricter banking standard, the same cycle will be fostered.

7/26/2006 04:06:00 PM  
Anonymous Anonymous said...

Folks .. face it ...you are all demand on the sidelines ... and 4-5% interest .. is just that ... inflation adjusted ...constant ...
do you really think inflation is 3%?

7/26/2006 04:10:00 PM  
Anonymous Anonymous said...

Desperate times takes desperate measures..like wanting what you have. Love the one you're with.

I'm taking the 4.5%.

Pat

7/26/2006 04:38:00 PM  
Blogger chicagofinance said...

Anonymous said...
Folks .. face it ...you are all demand on the sidelines ... and 4-5% interest .. is just that ... inflation adjusted ...constant ...
do you really think inflation is 3%?
7/26/2006 05:10:15 PM

Hate to say it, but Mr. Anon 5:10PM is EL CORRECTO on that one.

Who care about the core inflation, headline is what you are theoretically facing, and adjusting out the rent component for your own situation may mean that something less than 5% is leaving you rather flat or negative on a real basis.

7/26/2006 09:31:00 PM  
Anonymous Anonymous said...

chicagofinance said...
"Your post-script is factually incorrect. If the Fed starts easing again, without stricter banking standard, the same cycle will be fostered."

7/26/2006 05:06:07 PM

Chicago; I've been reading your posts for some time, you are (and I mean it) too smart. I believe that if the fed goes to 1% again we are in such a world of hurt, houses STILL go south in a big way.

7/26/2006 11:46:00 PM  
Anonymous Anonymous said...

Employment numbers look weak .. this mean a stop to the rate increase?

8/04/2006 03:36:00 PM  

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