Tuesday, August 29, 2006

Sustaining the no-lose perception

From The Motley Fool:

No Housing Bust Here!

I'm sure others have noticed, as I have, the increasingly desperate pleas from the housing-bubble cheerleaders, especially National Association of Realtors Chief Economist David Lereah. A longtime bubble denier -- who, I think, is more interested in protecting his constituency of six-percenters than in offering realistic housing-market commentary -- Lereah began asking the Fed to protect his bubble a couple months back. At the same time, he and his associates have tried to spin the situation with the news media, who, hungry for soundbites, are usually all too happy to parrot headlines such as "Existing-Home Sales Down With Softening Prices."

That's the title of the latest "no reason for fear" release, which you can find here. You can see, especially in the remarks toward the bottom, the NAR's devotion to trying to convince Americans that housing is a no-lose "investment."

That doesn't quite square with the soundbite available via a Bloomberg story on the numbers. There, Lereah reportedly said, "It's very important that the Fed understand the fragile state of the housing market. It's very important that the Fed maintain the status quo, keep rates where they are."

Translation: "Pleeeez Gawwwd don't take away their free money! Do that and we're all sunk!"

If it's disconcerting that the most prominent housing bulls are, when we're not looking, begging for economic policies aimed at shoring up their crumbling story, then this might be much worse.

How about if the last shred of the housing bull story turned out to be -- how do you say? Untrue?

16 Comments:

Blogger grim said...

From the Star Ledger:

New Jersey still most prosperous!

Despite months of bad news about higher taxes and job losses, New Jerseyans can take some heart at news from the U.S. Census bureau this morning. The state has maintained its top ranking in the country for median household income.

The statistic is a key factor in determining wealth and the reason New Jersey is often referred to as the wealthiest state in the nation.

The Wall Street boom of the 1980s and increasing move away from manufacturing and into financial and pharmaceutical jobs helped propel the state from sixth in 1980 to third in 1990 and to first in 2000.

Census data released yesterday for 2005 showed New Jersey maintained its ranking with a median income of $61,359. Connecticut, which New Jersey dethroned in 2000, remains No. 2.

Helping the state maintain its dominance, the three counties of Hunterdon, Somerset and Morris remained in the top 10. Hunterdon, with a median income of $93,342, ranked below only Loudoun and Fairfax counties in Virginia.

8/29/2006 06:27:00 PM  
Anonymous Anonymous said...

what if we factor in cost of living? does nj have the most disposable income capita? is it real wealth? or just enough to pay our rediculous taxes and housing??

8/29/2006 06:38:00 PM  
Blogger Mr. Oliver said...

I'd like to see the income statistic divided into cost of living to see where things really stand.

Just looking at income is a specious argument at best

8/29/2006 07:26:00 PM  
Blogger Shailesh Gala said...

Hunterdon nation's richest small county

Hunterdon County is the nation's richest county with a population below 250,000. Somerset County, meanwhile, continued a two-year slip in the rankings -- falling from the nation's No. 1 richest county in 2003 to No. 4 in 2005 -- for counties with a population of more than 250,000, according to statistics released today by the U.S. Census Bureau.

Hunterdon County's median household income of $93,342 for 2005 topped the $87,670 earned by Douglas County, Colo., residents. This year marked the first time the Census Bureau released data for counties and places with populations below 250,000.

Despite a nearly $4,000 increase in earnings for Somerset County residents in 2005 ($88,532) when compared to 2004 ($84,892), Loudoun County, Va.; Fairfax County, Va.; and Howard County, Md. all ranked higher.

Loudoun County topped the list with a median household income of $98,483, pushing Fairfax County from No. 1 in 2004 to No. 2 in 2005. Fairfax had an annual household income of $94,610 in 2005, an increase of nearly $6,500 from $88,133 in 2004.
As a whole, New Jersey registered a median household income of $61,672 in 2005, the nation's highest. Maryland followed at No. 2 and Connecticut at No. 3.

What do you get for highest income towns in NJ. This just proves the point that folks who currently live in these counties, most likely can not even buy their own houses. The average income is < $100K, but they expect their house to sell for half a million.

8/29/2006 07:45:00 PM  
Anonymous Anonymous said...

C'mon. Why would IO holders let the loan reset without first refinancing? I think article below by Ric Edelman is good advic for IO loan holders.


A recent study by the Federal Reserve Board shows that millions of Americans have no idea how their mortgages work. Considering that 56% of all mortgages in America today are adjustable rate mortgages, that fact is downright scary.

Indeed, of those surveyed, 41% say they don’t know how high their interest rate can climb over the life of their mortgage loan; 35% don’t even know how much their rates can increase in a single year. Thus, the stage is set for many Americans to be shocked later this year and in 2007. That’s because, according to First American Real Estate Solutions, $2 trillion worth of mortgage debt — about a quarter of all mortgages — is going to experience interest rate changes in that time.

If you have an adjustable rate mortgage, you can expect your interest rate — and thus, your payment — to rise. And it won’t be pretty: About 1.4 million households will experience a 50% rise in their interest rate.

And interest rates aren’t the only reason for the coming increase in mortgage payments. For five years, homeowners have bragged how much their homes have risen in value. Well, now it’s time to pay the piper: Property taxes, which are based on market values, are rising. And so are property insurance rates. (After all, thanks to increased property values, it’ll now cost you more to rebuild after a fire.)

So, thanks to higher interest rates, higher property taxes and higher insurance premiums, your monthly mortgage payment has risen or soon will. And the rise might be dramatic: Some homeowners will see their monthly payments double or even triple — putting a big squeeze on the finances of millions of American homeowners.

All this explains why the real estate market is softening. Indeed, the National Association of Realtors says three million houses are for sale in America, the largest number of unsold houses in seven years. (A year ago, there were only 600,000 available for sale.)

The dramatic increase in the number of homes available for purchase is understandable when you realize that 40% of all the homes sold in 2005 were purchased by investors: They didn’t want a place to live; they wanted an investment they could flip for a quick profit.

But the rate of appreciation in real estate prices has returned to normal levels: 2006 is expected to see property values rise 5–8%, rather than the 20–25% of just a year or two ago. These diminished returns, coupled with recent strong performance in the stock market, have encouraged investors to sell their properties and return that money to stocks and stock mutual funds (the source of much of that money).

Also, homeowners who find themselves unable to afford their new mortgage payments are trying to sell their houses. But NAR says it will take five months to sell every house that’s currently on the market.

A year ago it was a seller’s market: Would-be buyers routinely would bid more than the asking price, and homes would typically sell in mere days. Today, with a glut of houses on the market, the power has shifted to the buyers. As a result, sellers are resorting to gimmicks in a desperate effort to sell their properties. According to the Washington Post, sellers are holding cocktail parties, raffling laptop computers, paying bonuses to real estate agents — even offering BMWs to people who buy their homes.

This is why The Wall Street Journal says that if you are a seller, you need to price your property in the bottom quartile of neighborhood comparables, and if the house doesn’t sell within a few weeks, you need to lower the price by an amount dramatic enough to get noticed.

There’s no question that higher mortgage payments and softening real estate prices will create problems for some people. It might even lead to a recession in some markets later this decade. Here’s how you can protect yourself:
1.
Make sure you understand how your mortgage works. Can your interest rate rise? If so, by how much (per year and over the loan’s lifetime)? If your interest rate rises, what will be the new payment for each of the next five years?
2. Find out what your new property tax will be.
3. Find out what your new homeowner insurance premium will be. Compare with other insurers.
4. Determine if you can afford the new, higher payment. If you realize you can’t, don’t wait for the increases to arrive. Instead, consider one of two strategies:
a.
Switch now to a fixed-rate loan. This might increase your current payment, but you’ll avoid future increases. And if interest rates later decline, you can capture lower rates by refinancing again.
b. If you can’t afford the new fixed-rate payment, make whatever changes are necessary so that you can (cancel cable, eat out less, and so on). If none of that works, then you have no choice but to sell your house; Set a realistic sales price and move to a less-expensive home, even if that means renting.



Selling your house certainly sounds draconian, but it’s better to do so before you face payments you can’t afford, and before the market is flooded with houses put on the market by homeowners in similar situations. (In that scenario, housing prices would drop even further, perhaps to the point that you can’t sell for as much as you owe on the property.)
Are you prepared for dramatic increases in your monthly payment? Talk with your financial advisor now — before those increases occur.

8/29/2006 08:18:00 PM  
Blogger jayb said...

And here I thought Bergen County had to be one of the richest, with Allendale, Cresskill, Closter, Old Tappan, etc etc. Then again, my good old Garfield probably kills the average.

8/29/2006 08:45:00 PM  
Anonymous Anonymous said...

Anonymous said...
"C'mon. Why would IO holders let the loan reset without first refinancing?"

Why???? Because they are trapped. Why did they opt for this type of loan when long term fixed rates were at historic lows??? The only way they could afford to buy was with creative financing, teaser rates and IO. Of course they had to buy, even if they could not afford, because everybody else was,they heard how everbody else was getting paper rich with RE. Their family and friends told them if they don't buy now they may never be able to afford. Well, now comes judgement day. They can't refinance since they can't afford to pay today's rate. Also, many of them will find out that their property is now appraised at a lower rate then when they originally bought. They are now upside down. Just ask yourself, how do they get out of this mess??? Talk to their financial advisor???? This will send them them from the ditch to a crater.
Simple refinacing is not their answer.Their problems are much more complicated/serious than this.

BC Bob

8/29/2006 08:56:00 PM  
Anonymous UnRealtor said...

Buy now and you lose:

http://tinyurl.com/e4so5

8/29/2006 09:00:00 PM  
Anonymous Anonymous said...

My grandparents live in Hunterdon -their only income is the Social Security $$ income - come on!

8/29/2006 09:10:00 PM  
Anonymous dreamtheaterr said...

People are going to pay a heavy for price for 'instant gratification'. Negative savings rate, coupled with rising mortgage rates and maxed out credit cards are putting people in a precarious position even before the economy starts contracting.

I could never sleep at night knowing my pillow was financed by my credit card......

To each his own though. If the guy is truly happy impressing strangers in his leased BMW, so be it. BTW, keep an eye for plenty of folks walking away from car leases soon....

8/29/2006 09:36:00 PM  
Anonymous Anonymous said...

This IS the Age of Speculation in NJ and elsewhere in the nation. Charge American consumers ALL that the Markets can bear and then some.

Pardon me if I HOPE that the BEAR... EATS them ALL ALIVE !

8/30/2006 12:26:00 AM  
Blogger Roadtripboy said...

This comment has been removed by a blog administrator.

8/30/2006 12:47:00 AM  
Anonymous jay said...

Here is a report that exposes how the Mass. state realtor association fed the public optimistic bulls**t as the market was tanking to keep sales going. It confirms what this blog has been saying all along about the lack of credibility of these associations and their sales reports.

Mass. home sale data MAR-red

By Scott Van Voorhis
Boston Herald Business Reporter
Wednesday, August 30, 2006

A bad storm is brewing in the once high-flying real estate market, and the Boston area, with its million-dollar fixer-uppers, is right in the eye of it.
For many hapless home sellers, desperately scrambling to find living, breathing buyers, this tempest appeared to come on as quickly as a Gulf Coast hurricane.
Or did it?
The monthly home sales reports put out by the Massachusetts Association of Realtors for years have been the main indicator of the health of the Bay State’s real estate market.
And as recently as last fall, the trade group was crowing about near-record sales.
However, other data, collected by a respected local publisher and real estate data firm, paints a different picture.
A steady decline in home sales across the state began in the spring of 2005 and has been building steam ever since, data released by the Boston-based Warren Group shows. (A note of disclosure, I once worked as a reporter for Banker & Tradesman, a publication of the Warren Group.)
Year-over-year declines in home sales of roughly 10 percent or more began in April 2005 and continued steadily, hitting nearly 14 percent in October and nearly 27 percent in July.
Meanwhile, median home prices peaked at $364,000 as early as June 2005 and began dropping steadily after that.
By last summer, let alone last fall, anyone following the Warren Group data would have been well aware of the real estate storm clouds on the horizon.
Yet, except for a few experts and insiders, no one was.
The firm for decades has collected records of all sales transactions right from the courthouse, publishing a thick insert each week in its Banker & Tradesman. But it was not until earlier this year that the Warren Group began an alternative to the Massachusetts Association of Realtors’ monthly sales reports, offering up its version of the numbers to the local news media. As the real estate market began to turn sour last year, MAR, a group formed to promote the industry, was still the main source of statistics for most news outlets.
And the Realtors group saw more evidence for optimism than concern.
While MAR reported year-over-year declines in home sales in April, May and July, it reported increases and new home sales records and near-records in June, August and September.
No increase was too modest to celebrate.
A 0.5 percent increase in single-family home sales in September. Roll out the barrels.
“Sales of single-family homes remain strong last month, climbing to their second highest level on record for the month of September in state history,” the group touted in a section of its Web site called “talking points.”
That was a badly timed fit of happy talk.
Since October, the market’s downhill trajectory has been too steep for anyone to ignore, with prices, not just the number of sales, falling.
But there are no apologies from David Wluka, MAR’s president.
He points to differences in how the MAR and the Warren Group collect data, though that doesn’t appear to account for the markedly different results.
And Wluka further contends that MAR has always offered a sober appraisal of the market.
Not everyone is convinced of that, though, including Wellesley College’s Chip Case, one of the nation’s top experts on the residential real estate market.
“They (Realtors) have a stake in high (home sales) volume,” Case said. “They care if people are trading. They have a huge stake in optimism. When optimism goes away, people don’t spend money on big-ticket items.’

8/30/2006 12:47:00 AM  
Blogger Roadtripboy said...

Also, don't you need to have at least some equity to refinance? Buyers who bought with no money down these last few years with option arms probably have little to no equity in their homes. Many may be upside-down which precludes refinance.

8/30/2006 12:48:00 AM  
Anonymous jay said...

Thanks to Calculated Risk for this astounding quote: "Consumers are shifting from a mindset of waiting for a better price to one where they do not want to buy at this time, no matter what the price is," the study said.

Dow Jones Newswire: August Home Data Weak

Dow Jones Newswire: August Home Data Weak

Sales and home prices fell at a faster clip than expected and inventories climbed further in August as the housing market continued to deteriorate, according to a Banc of America Real Estate Agent survey.
...
The study, released Tuesday, shows consumer sentiment toward buying a home soured in August.

"Consumers are shifting from a mindset of waiting for a better price to one where they do not want to buy at this time, no matter what the price is," the study said.
...

8/30/2006 01:06:00 AM  
Anonymous Anonymous said...

The MAR has made it perfectly clear that there is no real estate bubble. Don't look at the numbers, we should just believe what the realtor associations are telling us. I totally trust them as well as the Warren Commission - (JFK era for the younguns on the board).

8/30/2006 09:42:00 AM  

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