Wednesday, August 23, 2006

July Existing Home Sales

From the AP:

Existing home sales drop in July

Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam.

The National Association of Realtors reported Wednesday that sales of existing homes and condominiums dropped by 4.1 percent in July from June to a seasonally adjusted annual rate of 6.33 million. That was the lowest level since January 2004.

The latest snapshot of housing activity was weaker than analysts anticipated. Economists were forecasting the pace of sales to fall to 6.55 million.

The median price of a home sold last month was $230,000. That was up just 0.9 percent from the same month last year and marked the smallest year-over-year increase since May 1995. The median price is the middle point, where half sell for more and half sell for less.

The inventory of unsold homes in July rose to a record high of 3.86 million. That represents a supply of homes still available for 7.3 percent of a month. That is the longest period to exhaust the supply of home since the spring of 1993.

From the National Association of Realtors:

July Existing Home Sales (PDF)

Nationally, home sales declined 11.2% on an adjusted basis, and 12.5% on an unadjusted basis. The Northeast saw a 12.5% adjusted decline, 13.3% unadjusted.

Nationally, the median price rose 0.9% year over year, the average price rose by 0.4%. However, over the same period the Northeast saw a 2.1% decline in the median price and a 1.0% decline in the average price.

July Existing Condo/Coop Sales (PDF)


From Marketwatch:

U.S. July existing home sales plunge to two-year low

Sales of existing homes plunged 4.1% to a seasonally adjusted annualized rate of 6.33 million, the lowest since January 2004, the National Association of Realtors said Tuesday. Economists were expecting a decline to 6.56 million, according to a survey conducted by MarketWatch. The inventory of unsold homes rose 3.2% to a record 3.856 million, a 7.3- month supply at the July sales rate, the highest since April 1993. The median sales price has risen 0.9% in the past year to $230,000. It matches June for the weakest price growth in 11 years.



From Marketwatch:

10:00 AM ET 8/23/06 U.S. EXISTING HOME SALES DOWN 11.2% YEAR-OVER-YEAR
10:00 AM ET 8/23/06 U.S. JULY EXISTING HOME MEDIAN PRICE UP 0.9% Y-O-Y
10:00 AM ET 8/23/06 U.S.JULY EXISTING HOME ISUPPLY 7.3-MONTHS, 13-YEAR HIGH
10:00 AM ET 8/23/06 U.S. JULY EXISTING HOMES WELL BELOW 6.56 MILLION EXPECTED
10:00 AM ET 8/23/06 U.S. JULY EXISTING HOME SALES DOWN 4.1% TO 6.33 MILLION RATE

76 Comments:

Anonymous Anonymous said...

WHEN WILL JERSEY STATS COME IN?

8/23/2006 09:11:00 AM  
Blogger Richard said...

plunge. i like that. this is just getting started. y-o-y price declines should show up next month and only worsen. inventory could go past 9-10 months by early 2007. welcome to the other side of the pendulum swing.

8/23/2006 09:11:00 AM  
Anonymous Anonymous said...

"Boom markets are cooling significantly"

The housing market and the economy are "fragile,"

"Prices need to come down to bring back buyers,"

"It's important for the Fed to understand how fragile the housing market is, and how fragile the economy is,"

This is all from Lereah. Are we sure they didn't qoute Grim by mistake?????

They industry knows it, sellers now know it and the patient buyer on the sidelines knows it. Guess who wins???

BC Bob

8/23/2006 09:16:00 AM  
Blogger grim said...

We've got year over year price declines in the Northeast according to the data released today by the NAR:

In the Northeast, SFH median price dropped from $282k to $276k and the average price dropped from $307k to $304k.

8/23/2006 09:17:00 AM  
Blogger skinsfan44 said...

It will be interesting to see if the July numbers will be revised down ever further come September.

8/23/2006 09:25:00 AM  
Blogger grim said...

Holy spin from the NAR Batman!

Existing-Home Sales Down With Softening Prices

David Lereah, NAR’s chief economist, said higher interest rates dampened sales but that price softening is good news for the housing market because it is drawing buyers. “Many potential home buyers have been on the sidelines, some ‘kicking the tires,’ but mostly waiting for sellers to compromise on prices and terms,” he said. “Now sellers in many areas of the country are pricing to reflect current market realities. As a result, there could be some lift to home sales, but it’ll likely take some months for price appreciation to rise.”

Prices go up = Good News (tm)
Prices go down = Good News (tm)
Inventory Rising = Good News (tm)

Love the Realtors (tm)

grim

8/23/2006 09:39:00 AM  
Blogger Ramesh Reddi said...

I think may be shorting builders is a way to make money in this market. As stock market is still underestimating the housing down turn. Major value funds run by Bill Miller and Bill Nygren are loading up housing stocks. Poor guys have lost 25% of their money already by going long, where as Kenneth heebner came out last year. He may be shorting them now.

8/23/2006 09:54:00 AM  
Anonymous Anonymous said...

In the Northeast, SFH median price dropped from $282k to $276k and the average price dropped from $307k to $304k.

Another realtors myth turned upsdie down.

8/23/2006 09:57:00 AM  
Anonymous Anonymous said...

Have to love this photo (also currently the front page of MSNBC.com.

http://www.msnbc.msn.com/id/14481645/

bts

8/23/2006 10:01:00 AM  
Anonymous Anonymous said...

Prices need to come down to bring back buyers," Lereah said

No kidding dodo.

8/23/2006 10:09:00 AM  
Anonymous Anonymous said...

But still - please buy my latest....

http://search.barnesandnoble.com/BookSearch/isbnInquiry.asp?z=y&EAN=9780385514354&itm=1

8/23/2006 10:22:00 AM  
Blogger chicagofinance said...

Ramesh Reddi said...
I think may be shorting builders is a way to make money in this market.
8/23/2006 10:54:36 AM

NO!

8/23/2006 10:31:00 AM  
Anonymous Anonymous said...

KB Home reviews stock options
Wednesday August 23, 11:07 am ET


KB Home has begun investigating several past stock option grants given to its president Bruce Karatz that were dated at low points in the company's stock price, according to Wednesday Wall Street Journal reports.

8/23/2006 10:34:00 AM  
Blogger Richard said...

this news is no surprise to us bubble watchers. the real question is how long can ya go?

i've noticed the few new houses coming onto the market in westfield and summit are still asking prices 5% above last spring's peak. talk about smug!

8/23/2006 10:36:00 AM  
Anonymous dreamtheaterr said...

As a potential first-time home buyer, I hope lower prices make it more affordable to own in the coming 2-3 years, assuming mortgage rates don't surge.

I still have 2+ years to go before I accumulate a 20% down payment, and a conventional 30 yr fixed. But a decline in price should mean I can potentially move in a 3-6 months earlier somewhere in the beginning of 2008.

Anyone around here in a similar situation?

Also, I notice a lot of folks talking about the 'price' of the house. How does a newbie like me go about figuring out where to get a good mortgage deal for a 30 yr fixed? For me, a .25% increase is $15K extra interest to be paid back over 30 years.

Put another way, is it easier to get a $15K benefit via negotiating a reduction in the house price, or negotiating a better mortgage deal?

8/23/2006 10:40:00 AM  
Anonymous dreamtheaterr said...


Ramesh Reddi said...
Major value funds run by Bill Miller and Bill Nygren are loading up housing stocks. Poor guys have lost 25% of their money already by going long, where as Kenneth heebner came out last year. He may be shorting them now.

8/23/2006 10:54:36 AM


I don't think mutual funds are allowed to short stocks.... can someone clarify?

8/23/2006 10:46:00 AM  
Anonymous Anonymous said...

Put another way, is it easier to get a $15K benefit via negotiating a reduction in the house price, or negotiating a better mortgage deal?


Two separate issues. Get the best deal on both ends. Go to HSH Associates, I think its; hsh.com, for mortgage rates. Don't just shop at your local bank.

BC Bob

8/23/2006 10:49:00 AM  
Blogger grim said...

Please refrain from discussing the purchase or sale of specific securities here.

grim

8/23/2006 10:50:00 AM  
Anonymous Anonymous said...

David Lereah, NAR’s chief economist is such a scum bag liar. I don't understand how someone like this has any credibility.

8/23/2006 11:05:00 AM  
Anonymous Anonymous said...

dreamtheaterr:

If you want a basic intro and reference, check out the Fed's consumer money guide section:
http://www.federalreserve.gov
/consumers.htm


Mortgages
- A Consumer's Guide to Mortgage Lock-Ins

- A Consumer's Guide to Mortgage Settlement Costs

- Consumer Handbook on Adjustable-Rate Mortgages (ARM)
ESPAÑOL Guía para el consumidor sobre hipotecas a tasa ajustable (ARM)
- Home Mortgages: Understanding the Process and Your Right to Fair Lending
- Looking for the Best Mortgage: Shop, Compare, Negotiate
ESPAÑOL Buscando la hipoteca más favorable: Compare, Verifique, Negocie
- Online Mortgage Calculator
(on the web site of the Federal Reserve Bank of Atlanta)
- Putting Your Home on the Loan Line Is Risky Business
ESPAÑOL Utilizar su hogar como garantía para un préstamo es arriesgado
- What You Should Know about Home Equity Lines of Credit


Now, I know you are a great budgeter, but you might find some tips under the Savings guide section that even you haven't considered. Could take another 4 months off your wait.

Good luck.

Pat

8/23/2006 11:07:00 AM  
Anonymous dreamtheaterr said...

Pat,

Thanks for the info

Building a down payment can actually be fun! I'm 3 years out of grad school and wife finishes grad school this Fall though she'll stay at home. We have a 7 month bundle of joy, but could do so early since we both graduate with no student and credit card debt.

As international students (I'm Indian, she's Russian)in this country, every step toward the American Dream is an adventure for us!!

8/23/2006 11:16:00 AM  
Blogger jayb said...

So what are the pros and cons of each possibility...the Fed control inflation and keep raising rates and hurting housing in the process, or keeping rates where they are to not hurt housing so much but allow higher inflation? Things aren't so black and white I'm sure. I just wonder what is worse, housing collapsing a lot or higher inflation.

8/23/2006 11:18:00 AM  
Anonymous Anonymous said...

Can someone explain to me this statement from cnn/money on the july sales figure:

Thomas Stevens, a Virginia Realtor and president of the national group, tried to put the best face on what the softer prices mean for sellers, saying most are not going to lose money on their home sales because they've been in them long enough to benefit from the earlier gains.

"Considering that typical sellers have been in their home for six years, the average appreciation during that time is close to 60 percent," he said in the group's statement.

What exactkt does that mean that sellers won't lose gains over the past 6 years? CAn anyone predict that?

8/23/2006 11:20:00 AM  
Anonymous Anonymous said...

It's true if someone has owned their home for more than 5 years they can most likely sell at a profit. Of course it is a shrinking profit as this decline continues for next few years.

So 60% may become 20% or 10% or less.It's the fools that purchased in last 2-3 years that are toast.

8/23/2006 11:35:00 AM  
Blogger patient homebuyer said...

lereah is a re shill

the avalanche of inventory will

crush this bubble, and what is with the rising interest rate bs

just like my name be patient

8/23/2006 11:57:00 AM  
Blogger rymingrealtor said...

Pat,

Please tell me why you have published all those mortgage guides in spanish and english?

I do not wish to offend anyone, but this is getting very confusing to me. Yesterday I went to the "New" Kmart that is now also Sears, they were offering a deal on credit cards if you applied then. I went to the register and asked to apply she asked a couple questions, I was approved. Upon completion of my order I was asked to sign an application form.It was in spanish only not english & spanish, spanish only. She very nicely of course told me what to put where and I told them I would not sign anything unless it was in English, it took the store about 10minutes to find one. To say I was infuriated would be an understatement.
KL

8/23/2006 11:58:00 AM  
Anonymous Anonymous said...

Hi, KL... Only because when I cut and pasted the links from the Fed's Webpage so Dreamtheaterr could see the selection, the Spanish was on there and I was too lazy to go in and delete it line by line.

Pat

8/23/2006 12:01:00 PM  
Blogger chicagofinance said...

Put another way, is it easier to get a $15K benefit via negotiating a reduction in the house price, or negotiating a better mortgage deal?
8/23/2006 11:40:32 AM

I am an advocate of APV.

Separate the value of an asset from the financing, unless both are coming from the same source and, as a result, you can use both as variables in a negotiation.

At the time you are moving to transact, it is best to decouple your purchase from your creditor, unless you are buying new construction. JMHO

8/23/2006 12:05:00 PM  
Anonymous Anonymous said...

KL-

I understand how infuriating it would be just to get a spanish version..but I do hope for complete disclore sake and ethics, that when you work with your spanish-only clients that you give them forms in Spanish to read and sign...

A Concerned Home-Buyer

8/23/2006 12:10:00 PM  
Blogger lindsey said...

I looked at the numbers a bit and this is what I saw.

First, year-to-date sales seem to be down about 6 percent (that is not as bad as I expected.)

If Lereah is right (fat chance) and sales have "stabilized" at the level seen this month, the yoy number should be about 6.52M units, an 8.8 percent yoy decline (twice Lereah's original prediction for the year).

If things deteriate a bit more, but not drastically (my cautious belief) we should get to right about 10 percent yoy decline, about 6.38M units for the year, still better than 2003 by 200K.

If things get markedly worse, but not outright disaster (a reasonable scenario, I think) you have about a 12 percent decline and still come in marginally ahead of 03.

The real pain will come into clearer focus tomorrow with the new homes number. I expect it to be uglier than this, but it's difficult to say because that number has a lot more to do with the South and this number has a lot more to do with the northeast.

8/23/2006 12:10:00 PM  
Blogger thatbigwindow said...

front page on msn.com

face it: the housing bust is here

8/23/2006 12:12:00 PM  
Anonymous dreamtheaterr said...

Thanks CF. I realized that decoupling is necessary when I negoatiated and bought my first in the US car a year back - negotiated the price first, and then the financing. Then realized the dealer 'padded' my interest rate since I had no credit history in the US. I was furious and paid off the outstanding in 2 months. Live and learn.....!!

My observation is that people focus more on the price of a transaction and not the total cost (price, payments, opportunity cost). Akin to putting that in-fashion 'i gotta have that latest jacket' on the credit card and paying outrageous interest rates on it.

8/23/2006 12:13:00 PM  
Blogger thatbigwindow said...

Hey all,

I put an offer on a house yesterday (I low balled the heck out of the house)

If the seller accepts, I will fill you all in on details. I offered about $30k below asking...we shall see

8/23/2006 12:21:00 PM  
Blogger lindsey said...

Whoa,

I think I was being a little too straightforward with my calculations.

I'm not sure I was properly accounting for the seasonal adjustments the NAR geniuses make, so my numbers could be off by a decent margin.

If anyone knows where I can get actual numbers, let me know.

8/23/2006 12:21:00 PM  
Blogger anthonyb said...

Anyone heard from REINVESTOR recently?

8/23/2006 12:31:00 PM  
Anonymous Anonymous said...

"I put an offer on a house yesterday (I low balled the heck out of the house)

If the seller accepts, I will fill you all in on details. I offered about $30k below asking...we shall see"

Hope the seller rejects your offer....

For your sake....

8/23/2006 12:38:00 PM  
Anonymous UnRealtor said...

"Anyone heard from REINVESTOR recently?"


Could be away at a clinic for insomnia troubles?

8/23/2006 12:48:00 PM  
Blogger lindsey said...

I'm with Anon 1:38

and I think I want to retract my retraction. I was using non-adjusted numbers so my counts are reasonable.

Looking at the way things played out last year though, I'm starting to think I'm still too optimistic, and that's just not like me.

8/23/2006 12:49:00 PM  
Anonymous Anonymous said...

"I put an offer on a house yesterday (I low balled the heck out of the house)

If the seller accepts, I will fill you all in on details. I offered about $30k below asking...we shall see"

Did you forget a 0 in the above post, meaning 300k below????
What was the seller asking???? If they were asking 60-100k, you lowballed. If the asking price is much higher than this, the seller wouldn't have let you leave before you signed.

BC Bob

8/23/2006 12:49:00 PM  
Anonymous UnRealtor said...

"I offered about $30k below asking."


Not much of a "lowball," did you offer over 90% of asking, to get only $30K off?

I haven't even seen $30K price drops -- too small. Most price drops are $50K+. And that's before an offer is even on the table.

Hope you've given this careful consideration.

8/23/2006 12:52:00 PM  
Anonymous dreamtheaterr said...


Hey all,

I put an offer on a house yesterday (I low balled the heck out of the house)

If the seller accepts, I will fill you all in on details. I offered about $30k below asking...we shall see


Lowballing the heck for $30K off is if the house OLP is no more than $150K. $30K off $150K is just 20% off OLP.... not enough. You'd be lucky to get a skunk-infested dumpster for $150K in NJ.

Why try to catch a falling knife?

8/23/2006 12:52:00 PM  
Anonymous Anonymous said...

Existing homes? What about numbers for the homes that don't exist? Are philosophers and metaphysicians supposed to live in tents?

-Jamey

8/23/2006 01:05:00 PM  
Blogger thatbigwindow said...

Hey,

To clarify, the house has been on the market for over a year. Originally, the sellers wanted $485,000 for it. They recently have lowered the house to $389,000. We bid $350,000 for a $39,000 low ball...not too bad, right?

8/23/2006 01:06:00 PM  
Blogger Ramesh Reddi said...

I don't think mutual funds are allowed to short stocks.... can someone clarify?
I think funds can do that based on their prospectus.
CGMFX has made tonnes of money shorting dot coms in 2001 and 2002.

8/23/2006 01:14:00 PM  
Blogger chicagofinance said...

dreamtheaterr said...
Why try to catch a falling knife?
8/23/2006 01:52:41 PM

I understand what you mean. However, it is interesting to note for all of us, that we are still just focusing on volumes. We have yet to really see the "falling knife" of prices.

where we are....
http://njrereport.com/sd.ppt

8/23/2006 01:21:00 PM  
Blogger RichInNorthNJ said...

...not too bad, right?

I'm not an appraiser (nor have I heard anyone step forward and say they are) and I don't know how low the price declines will be and for how long (nor does anyone else on this board IMHO).

But I feel you need to ask yourself how long you REALISTICALLY plan on living in this home. I hope it’s a MINIMUM of ten years. Just my 2 cents.

Good luck!

8/23/2006 01:25:00 PM  
Blogger chicagofinance said...

OT:

You want the ultimate in ADHD crack-addicted trading on the cheap.

This is not a solicitation; not an offer to buy/sell; understand risks; you must rely on your own research or professional advice etc.

booooyaaaaaaaaaaa

http://www.proshares.com/funds/sds/2674341.html

8/23/2006 01:26:00 PM  
Blogger thatbigwindow said...

RichInNorthNJ:

we plan on staying there for life

thanks

8/23/2006 01:30:00 PM  
Anonymous dreamtheaterr said...

You want the ultimate in ADHD crack-addicted trading on the cheap.

On the flip side, would Ultra MidCap400 be the equivalent of going long with 2x leverage without ponying up margin to your broker?

I guess it's still conservative compared to flippers buying properties using their credit cards for security deposit!

8/23/2006 01:43:00 PM  
Anonymous Anonymous said...

Only 30k below asking, thats not a lowball.

8/23/2006 01:51:00 PM  
Blogger chicagofinance said...

MarketBeat: Yield Curve Follies
August 23, 2006 1:32 p.m.

1:32 p.m.: It's a low-volume trading day in late August, so what better time than to discuss the yield curve? An inversion of the Treasury yield curve is a solid predictor for an economic slowdown, and the dramatic change in this indicator shows how worried bond investors have become in recent months.

The difference between three-month Treasury bills and the 10-year note has widened to about 0.26 percentage point today, with the three-month yielding 5.10% and the 10-year at 4.84%. Over the past several weeks the curve has sharply inverted -- the yield on the three-month bill was 0.25 percentage point lower than the 10-year just two months ago.

At this point, according to a study by the New York Fed, such an inversion puts the odds of a recession at somewhere between 30% and 40%. Tony Crescenzi, chief bond market strategist at Miller Tabak, said yesterday that "at the current pace the spread will within two months reach levels historically associated with greater than 50% odds of recession twelve months hence."

John Silvio, chief economist at Wachovia, said the yield curve is more inverted "than you would have expected at this point in the business cycle" because of market worries about slowing growth and rising inflation. The curve is now more inverted than at any time since December 2000, which suggests to Mr. Crescenzi that the market believes the Fed will have to cut interest rates at some point in 2007. But Mr. Silvio warns that if inflation doesn't come down as quickly as people expect, it'll be "a real challenge for investors to figure out."

8/23/2006 02:03:00 PM  
Anonymous Bottomfeeder said...

Offering 30 off the price? Is that considered a "lowball" offer? Im planning on offering approx. 100-150 off the asking price. I am prepared to be laughed at at least 20 times. I think someone will bite. Probably a builder. Will keep everyone updated.

8/23/2006 03:08:00 PM  
Blogger thatbigwindow said...

and here I thought 39k off an already reduced price was a low ball :(

8/23/2006 03:18:00 PM  
Anonymous Anonymous said...

Re the lowball offer--39K off 389K may not qualify as a lowball but is still a 10% reduction from the current list price. If you compare it to OLP you are approaching 30%, and I am sure to the owners this feels like a lowball even if all you hard- hearts think it's not. The difficult thing for an owner is that you get to be the one telling them their net worth is a lot lower than they thought it was, and that is never well received. It's not business, it's personal.

8/23/2006 03:20:00 PM  
Anonymous Anonymous said...

UnRealtor said...
"Anyone heard from REINVESTOR recently?"

No. Guess he had enough of you and some others stupid gleeful remarks.

You all did a good job driving off one of the only contrary points of view.
TC

8/23/2006 03:23:00 PM  
Blogger grim said...

From the Boston Globe:

State real estate market slows dramatically in July

he state's real estate is experiencing a dramatic slowdown.

Single-family house sales in July slumped 25.3 percent, while house prices declined 3.5 percent, the Massachusetts Association of Realtors said today in its monthly housing report. The median price in July was $361,750, compared with $375,000 in July 2005.

The condominium market began its downturn earlier but sales slumped dramatically last month: Condo sales fell 21.4 percent, pushing the median condo price down by 4.1 percent. The median price in July was $276,000, compared with $287,900 in July 2005.

The steep declines in sales volume follow a June report that sales that month for houses and condos fell 16.6 and 14.3 percent respectively.

8/23/2006 03:24:00 PM  
Anonymous Anonymous said...

regarding the 'low-ball' offer, what did the current owners pay and when?

8/23/2006 03:30:00 PM  
Blogger grim said...

BigWindow,

Ultimately, it is your decision on what you think a fair bid is. After all, it's your pocket the payments will be coming out of.

When I check the active inventory, it's obvious that asking prices are all over the board. So just because your bid isn't 30% under, doesn't mean that your bid was too high.

I don't think anyone here can make a judgement call on your bid without knowing the specifics of the property.

grim

8/23/2006 03:33:00 PM  
Blogger chicagofinance said...

was this already digested by us?

http://www.federalreserve.gov/pubs/feds/2006/200629/200629pap.pdf

8/23/2006 03:33:00 PM  
Blogger chicagofinance said...

skimmimg

first detail

"Our results provide a new interpretation of the recent boom in house prices. We find that the recent run-up in house prices owes significantly to a decline in real interest rates and a decline in the housing premium. However, the predominant feature of the recent boom has been the change in the relationship between these two variables.

Therefore, in our view, rent-price ratios in 2005 are considerably lower than could have been projected in 1997, even given advance knowledge of the decline in real interest rates that
has occurred since 1997.

8/23/2006 03:37:00 PM  
Blogger chicagofinance said...

more

"In particular, the dynamic Gordon growth model imposes that long-run real capital gains are identical to
the long run growth rate of real rents. There is no room for expected future price gains in housing that are unrelated to future rental growth.

For example, two cities cannot have permanently different growth rates of prices without permanently different growth rates of rent.

In our analysis, if households expect relatively robust price growth far into the future in any given area, they must expect robust rental growth in that area
as well.

8/23/2006 03:39:00 PM  
Blogger chicagofinance said...

hooooobooooy "....In this way, the housing market is remarkably similar to the stock and bond
markets......" DOH!


A third result is that “fundamentals”, housing rents in our case, are of little importance for explaining
the trend or variance of housing valuations.

By definition, then, housing returns explain most of the trend and variation in valuations. In this way, the housing market is remarkably similar to the stock and bond markets."

8/23/2006 03:49:00 PM  
Anonymous UnRealtor said...

"You all did a good job driving off one of the only contrary points of view."


If he's that spineless, we're better off.

8/23/2006 03:49:00 PM  
Blogger chicagofinance said...

Our results offer a novel way to characterize the recent housing boom. A substantial portion of the
increase in prices relative to rents can be attributed to falling real rates, and an even more substantial
portion (65 percent at the national level) can be attributed to a decline in the housing premium. However,
we think that the predominant feature of the most recent housing boom is not necessarily the decline in real
rates or housing premia, but rather the change in the interaction between these two variables. In our view,
rent-price ratios in 2005 are considerably lower than could have been projected in 1997, even given advance
knowledge of the decline in real interest rates that has occurred since then.
In this paper we have measured housing premia using a well-established accounting framework. Given
the history of treating the housing premium as constant, we think it is a useful and necessary first step.
However, our work leaves many questions for future research. For example: What determines the housing
premium? How much is a true “risk” premium, how much is a liquidity premium, and how much simply
reflects transactions costs in the housing market? In other words, in this paper we have described the
behavior of housing premia, but we think future work should be directed to understanding its fundamental
determinants.
Regardless, the housing premium appears to have important implications for valuations in the housing market. Prior to 1997, housing premia effectively moved to smooth valuations in the face of interest-rate
volatility. If the break we observed in 1997 proves to be permanent, we should expect housing prices to be
much more volatile in the future.

8/23/2006 03:51:00 PM  
Blogger chicagofinance said...

page 38 figure 3

Their definition of "real rates" is relative to the UST 10.

A little bit of GIGO on this part of the analysis, because there are so many actors in the system that are not using a proxy of the UST 10 as the mechanism for their financing.

8/23/2006 03:57:00 PM  
Anonymous Anonymous said...

Chicago:

There may be a discussion of this topic on or about the day the US reestablished diplomatic relations with Libya on 5/15.... on that date I pulled a similar Webpage comparison document from 2003 from an economist site.

But I might be wrong. I'm not on the same pc to check.

Pat

8/23/2006 04:06:00 PM  
Anonymous UnRealtor said...

On a $30K "lowball" -- from today's Wall Street Journal, Page 1:


For years, real-estate brokers and home builders promised that the soaring property market eventually would glide to a soft landing. It isn't working out that way. The rapid deterioration of the market over the past 12 months has caught many homeowners and builders off guard. Some are being forced to cut prices far below what their homes could have fetched a year ago.

Joan Guth is one homeowner who was taken by surprise. Last September, she put her stately five-bedroom home in Herndon, Va., on the market for about $1.1 million. But her home in the Washington suburbs attracted few serious lookers, and in March, she cut her asking price to $899,900. Still there were no takers. Finally, on the advice of her broker, she called in an auction firm, beginning a process that would eventually reveal to her just how weak the Northern Virginia market had become.

On the morning of Aug. 5, the auctioneer, Stephen Karbelk, set up loudspeakers on Ms. Guth's side lawn. Although Mr. Karbelk tried to stir excitement, the bidding petered out within minutes. Kristin Eddy was the high bidder, at $475,000. Looking stricken, Ms. Guth and one of her sons told the auctioneer they wouldn't accept the bid, which fell below the stipulated minimum that hadn't been revealed to bidders. Late that afternoon, Ms. Eddy raised her offer to $525,000. The Guths wavered for two days before agreeing to accept about $530,000.

http://thehousingbubbleblog.com/?p=1311

8/23/2006 04:08:00 PM  
Blogger chicagofinance said...

The softening in the home-resale market was greater than expected in July and survey data for August mortgage applications and homebuilder sentiment suggest that conditions will weaken further in August. We also expect that new home sales declined in July. These housing data should help keep the Fed on hold in September as it attempts to evaluate how much economic growth has moderated by. – Bear Stearns U.S. Economics

* * *
The supply-demand balance in the market for existing homes continues to deteriorate. Months' supply for single-family existing homes rose to 7.2 in July, the highest since May 1993. This sharp deterioration has already affected a rapid adjustment in price appreciation, and will likely continue to apply downward pressure on prices in the near-term. … To be sure, price appreciation on a year-over-year basis has not turned negative yet, as they had briefly in the early- and mid-1990s. But that is where prices are likely headed given the deterioration in months' supply. -- Haseeb Ahmed, J.P. Morgan Economics

* * *
No region was spared from July's softness, with the Northeast (-5.4%), Midwest (-5.9%), South (-1.2%), and West (-6.4%) all seeing a drop in housing demand. The headline figure was well below our forecast and that of the consensus, and corroborates recent builders' statements that the housing market cooled substantially at the start of the summer. -- Omair Sharif, RBS Greenwich Capital

* * *
Buyers are reportedly showing some renewed interest in the market now that prices have cooled off and mortgage rates have come off their peaks. A downward correction in sales volumes in the housing market is still expected for several more quarters, but it may not be quite as steep as what we have seen over the past year. -- Brian Bethune, Global Insight

* * *
Not only another downward surprise from the housing market but another one of increasing magnitude as the housing market slump accelerates. … And as supply and demand moves even further out of kilter as these data show continuing, mounting downward pressure on prices is inevitable. And as we have been warning for months, in turn, this implies that households' willingness to extract equity out of their homes to bolster spending growth will almost certainly fade. -- Richard Iley, BNP Paribas Market Economics

8/23/2006 04:12:00 PM  
Blogger Math, like gravity, is law. said...

Anonymous said...
UnRealtor said...
"Anyone heard from REINVESTOR recently?"

No. Guess he had enough of you and some others stupid gleeful remarks.

You all did a good job driving off one of the only contrary points of view.
TC

8/23/2006 04:23:27 PM

TC: NO I WOULD LIKEN IT MORE TO THE YANKS SPANKING THE DEAD SOX, AND THE DEAD SOX FANS LEAVING THE GAME EARLY.

8/23/2006 04:12:00 PM  
Anonymous Anonymous said...

anthonyb said...

Anyone heard from REINVESTOR recently?


I heard a rumor that he has negative equity on 5 properties that he financed 100% by IO ARM's. They're foreclosing on them now, and Verizon shut off his DSL service because he couldn't pay the bill ontime.

8/23/2006 04:37:00 PM  
Blogger Richard said...

just heard toll brothers ceo on bloomberg. what a laugher. here are the salient points.

- asked about what toll brothers (and other homebuilders) can do to lure customers into buying homes

he said it's the macro picture that is out of their control and then went on to say they can offer special financing arrangements. he said NOTHING about throwing in upgrades, paying closing costs or anything else that would tell people the sales numbers are not entirely accurate.

- said he doesn't know when this 'weakness' will disappear, whether it be 1 months, 2 months or 1 year but he expects volume to return shortly to levels we've seen the last few years.

he's in fantasy land and a liar by omission. why bother interviewing someone that has a very big interest in seeing a particular outcome?

8/23/2006 04:49:00 PM  
Blogger chicagofinance said...

rich:

yesterday on the earnings call he said the market wouldn't come back for a "year or two"

8/23/2006 05:15:00 PM  
Anonymous Anonymous said...

Sellers should wake up and not feel insulted with a lower price. What the hell they had privacy, which beats living in an apt. and a mortgage payment which was close to a rent payment until recently, so now it's time to move on and even with 30-40% decrease in price they are still way ahead. Yea I know there egos have had some feeling a lot better and smarter than most of the renters. Am I the only home owner that sees the big picture with these greedy jerks ??

8/23/2006 07:02:00 PM  
Blogger jayb said...

Not that it matters too much, but it was the CFO of Toll Brothers not the CEO. I'm sure they'd say the same thing.

8/23/2006 09:46:00 PM  
Blogger DebtVulture said...

The CFO and CEO of TOL still don't admit that affordability is a problem and dropping prices is the last thing they said they would do in terms of incentives.

Chicago Finance...you told someone "NO!" when he inquired about shorting the HBers. I don't agree. While a lot of the bad news is already in the stocks, these builders are going to keep on building - just look at most of the balance sheets out there and the increase in inventories over the last couple quarters. Even TOL is going to increase community counts after experiencing a 48% reduction in net orders this last quarter. Mr. Toll said that once you get approvals and do some predevelopment work (clear land, build roads) then you are going to build no matter what. That will continue to put pressure on margins for a while longer and I don't think these stocks rally until we are close to hitting the bottom of this cycle. As you are now talking about writing off 2007, you even think the bottom of the cycle is far off. Why not short some of these guys? Oh, I did in beginning of June (added to position) and I am up nicely.

I think the next leg to drop are the financials, especially those exposed to bubble real estate prices.

8/24/2006 07:13:00 AM  
Blogger chicagofinance said...

You know that I am restricted in what I can say.

Preface: my opinion is inherently useless; take my opinion, flush it through a septic system, add bleach, and toss it in a landfill.

OK - that said

There is going to be a pop at some point when volumes pick up. It will happen when we get some notable price reductions. These prices reflect doomsday. It won't take very much to have them fly upward 30% in the space of a few weeks. I wouldn't want to be out in front of them, and having to pay this cost-of-carry. If you can swallow a squeeze, and not be handcuffed, fine.

Are they a good investment now? In my opinion no. However, there are better places to place shorts in this environment, because this strategy with these stocks is no slam dunk. Avoid this stuff entirely for now.

8/24/2006 10:38:00 AM  

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