Friday, September 08, 2006

Exuberance Waning

From the Philadelphia Inquirer:

Housing decline: How 'temporary'?

You know the boom is over when even the brokers start predicting lower prices. That was true of the stock-market bubble in 2001, and it's true now, as the air comes out of housing.

Yesterday, the National Association of Realtors issued its sales forecast for the rest of this year, saying an "inventory and price imbalance" will likely cause home prices to fall below the levels of a year ago.

Of course, the drop will be only temporary, the brokers' group says, just until "the market works through a buildup in housing inventory."

Anyone who didn't buy a house last year in hopes of "flipping" it for a quick profit should be fine, they assure us. And perhaps they're right.

But as long as "temporary" lasts, we could be in for a bumpy ride.
...
Closer to home, they found house prices in the Atlantic City area rose only 2.6 percent during the first six months of 2006. A year earlier, the same market saw prices rise nearly 8 percent.

But isn't a 2.6 percent increase still an increase? Not necessarily. Houses don't behave like stocks; when the market cools, publicly reported prices are the last thing to change.

First, sales volume slows down. Then sellers start offering "incentives" - discounted add-ons, flexible payment terms or subsidized mortgage deals. The real price can be falling for months before it shows up in anyone's statistics.

That means it could be a while before we know the size of this "correction." And the extent of the fallout - political as well as economic - is anyone's guess.
...
Alan Greenspan once referred to that kind of behavior as "irrational exuberance." The question now is, what happens when it stops?

38 Comments:

Blogger grim said...

From Marketwatch:

Lennar cuts earnings estimate, cites weaker housing market

Lennar Corp. became the latest home builder to cut its earnings estimates when it said it expects its third-quarter earnings to be in a range of $1.25 to $1.35 a share, citing continuing deterioration of the U.S. housing market. The new guidance is sharply below the $1.81 consensus of analysts polled by Thomson First Call. Lennar said increased sales incentives along with certain land adjustments were the main factors behind lowering its estimate. The company added it will provide further details on its results on Sept. 26

9/08/2006 06:11:00 AM  
Blogger Richard said...

here's a recent relist deception. i have no idea why you would even bother. the original mls was put up on 6/19 at $599.9k and withdrawn yesterday. the new listing went up today at $595k. wow thanks for the deal. this is a deceptive practice regardless of what the law says.

old mls 2291160
new mls 2317463

9/08/2006 06:39:00 AM  
Anonymous Anonymous said...

{{{First, sales volume slows down. Then sellers start offering "incentives" - discounted add-ons, flexible payment terms or subsidized mortgage deals. The real price can be falling for months before it shows up in anyone's statistics.}}

Since this is a NYC / NJ blog, show me where the above is happening.

Who in Manhattan, Hudson County or Long Island is offering 'discounted add ons'??? You would think that if the market was slowing, they would offer a break on closing costs which can easily exceed 6% of the loan amount.

This being NYC / NJ, there is no such thing because mean / median incomes of actual purchasers are so far skewed to the right..

All markets are not the same. I have not seen one developer or seller offering the above in NYC / NJ.

The attitude of arrogance is still out there as it is still 2004, the 'customer' is still under 35 and making over $200,000 a year and has over $100,000 in cash just for downpayment.

9/08/2006 06:44:00 AM  
Blogger Richard said...

here's a new flipper listing in summit. this is an ugly block in the 2nd least desirable section of summit. houses don't go for $750k in this section. it'll be fun watching this one languish at a ridiculous price level.

http://www.realtor.com/Prop/1067574996

9/08/2006 06:45:00 AM  
Blogger grim said...

Since this is a NYC / NJ blog, show me where the above is happening.

FREE 42" Plasma TV with built in Surround Sound System
"1 year of common fees PRE-PAID"
"A FREE 42 inch PLASAM TV with built in Surround Sound System (Pictured Below) over a $5,000 value !!!"

$609000 1 br 2 ba 1221 Paulus Hook
"take advantage of extra yr maint incentive, $15000 mortgage incentives and more!!!"

$589000 Ranch (Midland Park)
"The seller will pay $1,500.00 toward closing cost."

$459000 REDUCED!! Owner pays closing cost + one year home warranty!

$224900 Owner will pay closing costs on 1 bedroom condo

9/08/2006 07:06:00 AM  
Blogger grim said...

That was the result of a whole minute of looking at Craigslist.

grim

9/08/2006 07:08:00 AM  
Anonymous Anonymous said...

"Who in Manhattan, Hudson County or Long Island is offering 'discounted add ons'"

Maybe this is a small sampling of a start.

BC Bob


Sep- 6 $439900 PRICE REDUCED! - 2 Bed / 2 Bath FSBO - Open House Sunday (Hoboken) pic

Sep- 5 $399000 PRICED REDUCED... Beautiful 1 BR + den (Willow & 9Th Street)

Sep- 5 $408000 PRICE REDUCED... Beautifully Restored 1 Br on Washington Street (Hoboken)

Sep- 5 $569000 PRICED REDUCED 3 Br/2 Bth one year young bldg, pkg, 1336 sqft (218 Jackson Street)

9/08/2006 07:09:00 AM  
Anonymous Anonymous said...

I've said it before and I will say it again, price reductions don't mean a thing without a better understanding of the comps. I swear some buyers took 2005 prices and tacked on 25%; to see price reductions is not surprising and certainly doesn't mean prices are falling. We haven't seen that yet in my town--just a slowing of appreciation and more realistic pricing. Which is probably the beginning of the end, to be sure. What surprises me most is that there has been no increase in inventory post-Labor Day--in fact some houses came off the market. This despite a revaluation that hit smaller, older homes especially hard (e.g., my taxes incresed 28%)and which I was sure would generate a flurry of listings.
--CJ Sell-out

9/08/2006 07:50:00 AM  
Anonymous Anonymous said...

OK, let me rephrase that: prices ARE falling but values are not. (Not yet anyway.) I guess I needed more coffee.

9/08/2006 07:52:00 AM  
Anonymous Anonymous said...

wANT TO BE A BAGHOLDER THE NEXT DAY?

Go ahead buy now and be a loser. U want to wear that "B" on your forehead?

9/08/2006 08:06:00 AM  
Anonymous Anonymous said...

PRICE REDUCED AND MOTIVATED IS ALL A SCAM.

Take 25% off that discounted reduced motivated price "AT LEAST".

On the other hand, DO NOT BUY ANYTHING 'Til these grubbing "it's not 2005 Again" Sellers drop prices big. Not 5% Not 10% not 15%.....

9/08/2006 08:09:00 AM  
Blogger NJGal said...

"the 'customer' is still under 35 and making over $200,000 a year and has over $100,000 in cash just for downpayment."

$300 jeans guy is back! You know it's him...

Grim, do you have any stats on the amounts people are actually putting down around here (first time buyers, let's say) and how many are using toxic loans? We always hear about #s from CA.

I'd just like to see real numbers instead of having to read nonsense from this yahoo all the time.

9/08/2006 08:10:00 AM  
Anonymous Anonymous said...

Japan's "temporary" crash lasted only 15 years. Their stock market overinflated, then crashed, then their housing market overinflated, then crashed. Sound familiar?

Chaka Chong

9/08/2006 08:11:00 AM  
Anonymous Anonymous said...

"SHOW & TELL" hitting a brick wall.

“‘Some people are forced to put their homes on the market,’ said Yun, adding that many sellers may no longer be able to cover their mortgages after being squeezed by adjustable interest rate loans that had extremely low introductory rates. ‘They may not be able to service these debts,’ said Lawrence Yun, senior economist with the National Association of Realtors.”

“Several realtors have noticed the same thing. ‘All of a sudden interest rates have jumped up and it’s just taking its toll. There’s nothing left for groceries and so on,’ said Miller. ‘We’re seeing foreclosures now like you can’t believe.’”

And what's up with this guy YUN?

Just a few months ago BS was spewing from his mouth now a change of strategy.

No more Bagholding Fools left to con?
Now convince grubbing sellers your prices are to high.

HAHAHAHAHA

9/08/2006 08:15:00 AM  
Anonymous Anonymous said...

The NAR just disgust me. The damage they have done to so many families convincing them it's always a great time to get in no matter what. Even if you can't afford IT.

9/08/2006 08:19:00 AM  
Anonymous Anonymous said...

If you are a well financed buyer, prudent saved and waited for sanity to show its head then it is time to go out and abuse a few realtors.

remind them of all the BS their leaders spewed last 3 years.

Remind them of the line from their fearless leader yesterday saying RE goes up inflation + 1 or 2%.
If the smartest guy on earth says this so why aren't prices going down to correct this excess appreciation in such short order.

9/08/2006 08:23:00 AM  
Anonymous Anonymous said...

This is what happens when you are a bagholding fool, SHOW & TELLER.

"The really bad news is that the more people who can’t pay their mortgages or home equity loans, the more likely it is that home prices will fall as they rush to sell the properties and get out of a bad situation."

9/08/2006 08:25:00 AM  
Anonymous Anonymous said...

It always happens after a irrational period in a market that many many people are leveraged and then are forced to rush for the exits at the wrong time.

I hope a few learn from this experience cuz 10-15 years from now somemore fools will be ground up and spitted out.
Never fails.

9/08/2006 08:27:00 AM  
Blogger grim said...

From Asia Times:


America's unreal estate problem


American "castles" (homes) are middle-class walls of separation from poverty and want. As goes the house, so goes the family's ability to fend off tough times and leverage past wealth for new opportunities.
...
A few basic facts are worth repeating. US$1 trillion in residential
mortgages were written in the United States last year. Nearly 70% of Americans own their residences. The home is by far the largest asset "owned" by the bottom 80% of citizens. For the past 10 years, and particularly the past six, things have gotten pretty darn wild in the US real-estate world. Perhaps "unreal estate" would be a better phrase.

Housing prices, refinancing, building and improvement have mushroomed in the US. Many Americans have made significant gains in home-asset value - at least on paper. There is no longer debate that things have gone way beyond anything that might be sustained. Such debates are silly and are better handled by psychologists than economists. As an economist, I will defer to those equipped to comment from real knowledge and experience.

The coming return to earth will be uneven and disorderly. This we know from past episodes, and our extensive and growing experience with bubbles - the new engine of the US macroeconomy. The housing troubles ahead are serious, and this is largely symptomatic of the greater shake-out in progress.

A significant portion of the US middle class is no more. Housing is about to turn into another serious problem for these beset masses. It will join health coverage and costs, pension woes, massive debt, intergenerational demands and stagnant wages among the litany of woes. All of these afflictions are related and interacting. Wages have lagged, health-care cost increases exceed the rate of inflation several times over, and university tuitions soar.

Aging parents require help with medical costs, children cost more, and their early career wages don't come close to supporting a middle-class existence. Thus longer and more expensive support is often required. There are no savings, and pensions are shaky. Rising house prices were a godsend to many Americans - financially and psychologically. This will soon turn on its head.

9/08/2006 08:35:00 AM  
Anonymous MMAfia said...

Anonymous 9/08/2006 07:44:55 AM...

"Who in Manhattan, Hudson County or Long Island is offering 'discounted add ons'??? You would think that if the market was slowing, they would offer a break on closing costs which can easily exceed 6% of the loan amount."

PUAAAAHAHAHAHAH!!!!

OMG, YOU GOT SOOOO PWNED!!!!!

You got served baby. Now go eat your chicken noodle soup with a soda on the side.

WUAAAAHAHAHAH!

9/08/2006 08:36:00 AM  
Anonymous Anonymous said...

Regarding price reductions; Did anybody ever think that possibly prices are not being reduced because there are no bids and sellers really don't know what somebody is willing to pay??? The realtors that I talk to say nobody is showing up at open houses. The few that do are in no rush to do anything. There are no bids to present to the sellers. Remember, this is just a small unscientific sampling.

BC Bob

9/08/2006 08:38:00 AM  
Anonymous Anonymous said...

Keep in mind new bloggers, this is still by no means a "buyers market".

"buyers market" is becoming the new buzz word. Just another trick to seduce people who have no clue about anything, and think "if it comes out of Katie Couric's mouth, then it has to be truth" crowd.

I still think its a sellers market, and will remain that way at least for the rest of 06. Then we will get what is called a "lamb's market"

A lamb market is a market that is neither a buyers or sellers market.
Yes, this does happen
.
This lingo is also used in stocks.
Bull, Bear, and lambs.

This term isn't used very much because people like to be either one or the other.

2000-2006- years of the seller
2007-year of the lamb
2008-this is were we will start to see a true "buyers" market.

RE market is slow, and drawn out and takes time to see all the ramifications. But, we are near the tipping point. Grim's data has shown us that.

But geopolitical events, and the tax man could speed up or slow things down.

;)
SAS

9/08/2006 08:39:00 AM  
Anonymous Anonymous said...

Bank of Japan Leaves Rates Unchanged

http://tinyurl.com/nyu6v

I was a little surprized about this move. anyone else?

SAS

9/08/2006 08:44:00 AM  
Anonymous Anonymous said...

Anyone know what real estate story these reporters were investigating?

"Couple attacks reporter as camera rolls"

http://tinyurl.com/ku5fl

SAS

9/08/2006 08:51:00 AM  
Anonymous Anonymous said...

Mattes had been working on a story about an alleged real estate scam.

http://tinyurl.com/majnh

9/08/2006 08:55:00 AM  
Blogger grim said...

From Bankrate:

5 ways to assess risk of your option ARM

A mortgage called the option ARM offers a tantalizing possibility: The minimum payment is so low that you owe more on the house at the end of the month than at the beginning.

If you read Norton Juster's "The Phantom Tollbooth" as a kid, you're familiar with the concept. As the characters dine on a concoction called "subtraction soup," they become hungrier by the spoonful. They feel ravenous at the conclusion of the course.

An option ARM is like subtraction soup, except that a steady diet of minimum payments can result in a feeling of homelessness instead of hunger. To pile on the alarming rhetoric, a recent cover story in BusinessWeek dubbed the option ARMs "nightmare mortgages" and called them "toxic" and "deceptive."
...
"They're nightmares to the extent that people don't have them explained," Ohlbaum says. "I get calls all the time from people who say, 'I took this loan, I didn't understand it, my rate keeps going up. No one explained it to me."
...
In July, National Mortgage News reported that an unidentified lender took a random sample of 100 stated-income loans, looked at the borrowers' tax returns and discovered that 90 of the borrowers had lied. Thirty exaggerated their incomes by between 5 percent and 49 percent, and 60 borrowers had puffed up their incomes by 50 percent or more. Just 10 told the truth. The lender didn't say how many of these stated-income loans were option ARMs.
...
The danger with falling houses prices is that your home's market value could fall below the amount you owe on it. That puts you in a position where you can't afford to refinance the mortgage or sell the house unless you have enough cash lying around to make up the difference. And if you have that much cash, why are you in over your head with your mortgage?

"Basically, what you're going to have on a lot of those pay option ARMs is you're going to see a lot of customers giving the keys back," says Mark Lefanowicz, president of E-Loan.

9/08/2006 08:55:00 AM  
Blogger grim said...

(continued)

Then there's plan C: selling the house and paying off the loan. The main reason to do this is that you've looked at your finances and you realize that you bought too much house. You just can't afford your house and achieve your other financial goals at the same time. In other words, you live in California (only half-kidding).

You're an especially suitable candidate to sell the house and pay off the option ARM if house values are falling in your neighborhood. Unless you know that you can sit tight for five or six years while prices fall, stagnate and then rise, it's probably a good idea to test the real estate market.

9/08/2006 08:56:00 AM  
Anonymous Anonymous said...

Yeah, opie and anthony were making fun of it yesterday. Apparenltly they were stealing peoples's IDs and buying houses with the IDs then renting them out. Total human garbage.

9/08/2006 08:58:00 AM  
Blogger Richard said...

CJ i agree with you. while you can find some houses that sold during the peak at 5-10% above today's prices they're more the exception than the norm. while i'm seeing bigger reductions off original list price what matters is the final selling price and those are flat to slightly down. i believe prices will start to drift downward over the next 12-18 months but how much depends on local makeup (speculation activity, # toxic loans, etc.)

9/08/2006 09:08:00 AM  
Anonymous Anonymous said...

"The NAR just disgust me. The damage they have done to so many families convincing them it's always a great time to get in no matter what. Even if you can't afford IT."

anon said 09:19:15 AM

not really fair...
-"It was you it was me it was every man.
-We've all got the blood on our hands
-We only receive what we demand
-And if we want hell then hells what well have" -Jack Johnson (cant blame me)

curious

9/08/2006 09:09:00 AM  
Anonymous Anonymous said...

Back to my buffet analogy for the food fans here:

Yeah, that's it - the smiling fat guy cooked up all this food ...let's blame him for our feeding frenzy.

The economical, but scheming, proprietor decided to charge only $17.99 for the whole thing...let's blame him for the low rate - that's why we ate too much.

Oh, and we can blame the school system for not teaching us to be more conscientious eaters.

And while we're at it, let's blame Mom and Dad for telling us it's good for us...Mange, Eat, Eat!

Greed, then finger-pointing.

How long is this gonna go on? I wish there was some way to shorten the life cycle of this RE crash so that I don't have to read all the "who's fault is it stuff" over the next two years.

Pat

9/08/2006 09:38:00 AM  
Blogger skep-tic said...

no bids should indicate to sellers that there is a problem. conventional wisdom I've heard is that if you don't get a bid within 2 weeks, you should consider lowering your price. any active buyers are watching the RE market closely and will bid on new listings where they perceive value. these houses that sit and sit with no price cuts (most) are held by delusional owners who believe that there is some magical buyer who just hasn't seen their place yet. the reality is that everyone who might be interested saw it soon after it listed and passed

9/08/2006 09:46:00 AM  
Anonymous Anonymous said...

Pat
you can always go to some other blog. I imagine this blog wouldn't exist anymore after the recovery anyway so what's your beef?

9/08/2006 10:07:00 AM  
Anonymous Anonymous said...

Nightmare Mortgages

http://tinyurl.com/r6h27

9/08/2006 10:13:00 AM  
Anonymous Anonymous said...

"I imagine this blog wouldn't exist anymore after the recovery anyway so what's your beef?"

9/08/2006 11:07:40 AM

After the recovery?? We are just in the initial stages of a major bust. I understand what Pat was saying and agree 100%. Why don't everybody who is blaming someone else take a long hard look at themselves in the mirror. Probably because they won't like what they see. Who has your best interests at heart??? You and only you. Your destiny is in your own hands, not in the back pocket of a realtor/lender. You are making the biggest purchase/investment of a lifetime and you don't know the ramifications of what you are signing??? Shame on you!!!

BC Bob

9/08/2006 10:26:00 AM  
Blogger uknowwhoiyam said...

Exuberance Waining

The correct spelling is "waning."

9/08/2006 01:15:00 PM  
Anonymous Anonymous said...

If we follow the "Batman" riff it would be Wayning. Minor spelling error.

9/08/2006 02:59:00 PM  
Blogger Roadtripboy said...

Pat, I agree with your post. While we can say what we will about the ethics (or lack thereof) of realtors and their sales tactics, I too am already dreading the "finger pointing" stage of this bursting bubble. What I'm really dreading is how furious I will become if there is a federal bailout (a la the 80s S&L crisis) of the real estate industry, which I think is a possibility.

Does anyone find it disturbing that there are so many home buyers in the past several years who remained uninformed about the largest purchase of their lives? How can a person sign a loan agreement without understanding the terms of the loan and how it is repaid? And the rest of us should bail them out because they couldn't be bothered to educate themselves about what they were getting themselves into?

It's unfortunate that some people make such grave mistakes that affect their entire lives. It is far more unfortunate to pass their negative consequences onto everyone else.

Homeowners who default on mortgages should be held accountable for the repayment, or at least some of repayment; No one should be able to walk away scot free. Luckily our new bankruptcy laws may assure this.

9/08/2006 11:24:00 PM  

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