Friday, September 08, 2006

"The housing market is looking sicker by the day"

From BusinessWeek:

Builders Brace for a Housing Downturn
Even this typically sunny sector is expecting prices to fall as prelude to a prolonged downturn

The housing market is looking sicker by the day. On Sept. 7, the perpetually optimistic National Association of Realtors acknowledged for the first time that housing prices are likely to fall on a year-over-year basis, at least for a time.
...
Mortgage rates, shmortgage rates. No one's paying attention to the cost of borrowing money these days because it seems trivial next to the risk of losing money by buying high and selling low—catching a falling knife, in the Wall Street vernacular.

Ian Shepherdson of High Frequency Economics, an early bear on housing, said in a conference call with clients on Sept. 7 that the housing market is so far gone that "it's not rescuable anymore. The housing market is beyond the control of the Fed." He compared it to a football game played on a mountaintop. Once the football goes off the edge, he said, it doesn't stop until it reaches the very bottom.
...
Even the homebuilders, long an optimistic bunch, are all but throwing in the towel on the current market's condition. "We're running our business today as if we're in a prolonged downturn," CEO Ara Hovnanian of Hovnanian Enterprises told analysts Sept. 6.
...
In boom times, when home prices were rising 16% a year and many buyers expected that pattern to continue, they could borrow at 6% and, in effect, be paid 10% a year for living in their homes. Now that annual appreciation is roughly 0% and interest rates are roughly the same, says Shepherdson, the real cost of living in a house has increased enormously.
...
"The housing market party is over," economic forecaster Global Insight said Sept. 7. While not as bearish as High Frequency, it's predicting that housing starts will fall 10% this year and 13% in 2007. It predicted that second-half 2006 growth will average just above 2%, with housing being the main negative.
...
High Frequency Economics' Shepherdson argues that housing could remain weak for another two or three years. "This," says Shepherdson, "is pretty much an inexorable process."

20 Comments:

Blogger grim said...

From the Daily Reckoning:

The US housing bubble: Crash!

"Is another bubble about to burst?" asked the Economist on May 29, 2003.

The answer then was no. In 2003, the bubble was only about to get bigger.

But the Economist was not too far off. Like the Daily Reckoning, the august weekly was merely too soon.

Three years later, it is no longer too soon.

"US Housing Slump Deepens," signals Bloomberg.

"More US House Prices Falling Below Their Assessed Values," comes the report from Boston.

And now, here is the US Economist again, warning about "the Biggest Bubble in History."

9/08/2006 09:14:00 AM  
Anonymous Anonymous said...

The biggest question I have is when is it safe to buy? I am still waiting to find a home that is priced fairly. There are a few I would consider, but they are 200k more than they are worth, an deven at that price they need 100k of work.
I get automatic listings sent, but in my price range (450-550k) I can't see anything decent. A few homes that are priced 600-750k are nice, but way overpriced.
Do I sit back and wait for these prices to fall, or do I bite the bullet and buy a piece of crap for what I can afford?
I am sure this sounds like a dumb question, but I don't see when sellers are going to start pricing lower when they are comparing to the outrageous "comps" from a few months back. Thanks

tj

9/08/2006 10:26:00 AM  
Anonymous Anonymous said...

Anonymous said...
"The biggest question I have is when is it safe to buy? I am still waiting to find a home that is priced fairly. There are a few I would consider, but they are 200k more than they are worth, an deven at that price they need 100k of work."

Aren't you answering your own question??? When the ones that you would consider are 200k less. If this doesn't occur, don't buy. Would you truly be happy paying your price for a POS/money pit???

Many individuals judgement is clouded by what happened 90 days ago and what is happening today. Forget that. Look at the big picture, 2-4 year time horizon. Don't let the short term noise interfere with a long term view. I get tired of saying this but this market will bust/crash in prices. However, not in time. It will be a slow tedious grind down. Don't look for instant gratification, look for long term value. Forget about yesterday's prices and today's asking, comps, etc... That is all short term noise to me. Continue to watch the fundamentals and technicals of this market. You will make a much more educated decision based on this as compared to biting the bullet to satisfy your short term desires.

BC Bob

9/08/2006 10:48:00 AM  
Blogger grim said...

Sounds alot like the dot coms..

If They Build It, Will Buyers Come?

If you want to know how a home building company is holding up in an uncertain housing market, just peek in its break room. That's been the most apparent symbol of belt-tightening seen by Travis Carter, an intern in the land acquisition department at home builder Lennar Corp., since he started working there just six months ago.

"We used to have amazing food in our break room for free," Carter said. "Starbucks every morning with choice of five different creamers." He also remembers the Greek food and other catered meals the staff would enjoy for lunch meetings.

Now, he said, it's pizza once a month and Folgers instant coffee in the break room.

9/08/2006 10:50:00 AM  
Anonymous Anonymous said...

Thanks BC Bob - We are just tired of waiting and hate playing "ping pong" with realtors and sellers. I have about 8 months left on my rental and probably will consider renting again. I would like to buy sooner than later for the family.

tj

9/08/2006 11:04:00 AM  
Blogger desi dude said...

"The biggest question I have is when is it safe to buy? I am still waiting to find a home that is priced fairly. There are a few I would consider, but they are 200k more than they are worth, an deven at that price they need 100k of work."

consider this 10% reduction on 400K Home is less than two year rent, assuming you can rent it for 1800 per month.
Already your monthly rent payment is less than the mortgage payment of your landlord.
Why I say this
My land lord bought the place for 460K and I pay 1850 PM
she has financed 350 of that and even at 6% interest+insurance 1.25%+HOA (250)m her mortgage is way more than my rent.
currently similar condos are on sale NOW for 415-440 in the complex. There are some who are asking 469 and 479. They are just that asking prices. condos are just sitting.

There are 15 condos in taxlien/preforclosure and one in bankrupcy proceedings.
I've rented for a year now and one more year to go and my rent is fixed.

There is a unit next to for rent 75$ less than what I pay. There are two more units for rent in the neighborhood.

Well, I'm in Ventura county and I'm no hurry to buy right now!

This is no advice, just my situation and outlook

9/08/2006 11:10:00 AM  
Anonymous Anonymous said...

DO NOT BUY A HOUSE.

BLEED'EM DRY!

LET SEE HOW IT FEELS!

LISTEN TO ALL THE CRYBABY REALTORS AND SELLERS.

HOW DOES IT FEEL?

I REMEMBER BACK IN 1992-1994 PERIOD.

LOTS OF DESPERATE REALTORS & SELLERS.

HEHEHEEEEE

REMEMBER THIS ONE IS THE MOTHER OF ALL TSUNAMI'S.

9/08/2006 11:27:00 AM  
Anonymous Anonymous said...

tj

9/08/2006 12:04:24 PM

Did you consider renting a house/large townhome??? You can satisfy your family's short term needs in this manner. You may also be able to work out a deal with an option to buy, even get some/all rent credits applied. Remember, an option gives you the right but not an obligation to buy. You are in the driver's seat, not the seller. Deal from your position of strength. They need you much more than you need them. Be patient. Good Luck.

BC Bob

9/08/2006 11:30:00 AM  
Anonymous Anonymous said...

NO PHONEY LOANS BACK 15 YEARS AGO...AT LEAST NO WHERE NEAR THE AMOUNT.

IT IS ONE BIG PONZI SCAM AND INDUSTRY PLAYERS ARE RUNNING TO COVER THEIR "@$$#$".

THE EXECS AT ALL THESE HOME BUILDERS, MTG COMPANIES, AND BANKS HAVE A LOT QUESTIONS TO ANSWER.

WHY IS IT THAT THEY WERE SO SMART TO SELL OUT THEIR STOCK OPTIONS BUT KEPT SAYING THINGS LOOK GREAT INTO THE FUTURE.

LOTS OF QUESTIONABLE ACTIVITY GOING TO BE UNCOVERED IN THWE FUTURE.

BUBBLES = LEVERAGE + GREED = CORRUPTION + PLENTY OF PUBLIC BAGHOLDERS

9/08/2006 11:33:00 AM  
Anonymous Anonymous said...

Thanks BC - We are renting a house now, and have enough saved to buy, but not anything worth the price. I just want my kids to be able to put a tack in their own wall, paint the room, etc. We don't have to buy and I've been reading this blog for over a year, and rented again because of the honest advice you all provide. Much thanks and I'll stay out of the market for now - and check in here before I dive back in!

tj

9/08/2006 01:57:00 PM  
Anonymous Anonymous said...

oo i cant decide if i shoudl buy or not?! seems like a fair price and would be only $300 more than my rent/month - is it worth it??? i would think just for teh tax break? right?!
monki

9/08/2006 02:54:00 PM  
Anonymous Anonymous said...

tj,

If you have been reading this blog for over a year, you should know, now is not the time to buy.

Continue to rent, raise cash, and reduce your lifestyle, get out of debt, make your credit score perfect, and wait till we start see things unravel a bit.

Its going to take some time.

Also, consider moving away from the area were RE markets are more stable and not as irrational, because NJ is going to be in a long....long....slump...

;)
SAS

9/08/2006 03:17:00 PM  
Anonymous Gary said...

Anyone care to comment on my situation:

The wife and I are renting a 1 bedroom in Hoboken. It's about $1,700 a month.

To rent an equally nice two bedroom, we're looking at at least $2,500+ a month.

OR we could buy a place farther away with a mortgage and taxes and all that stuff and pay like $3,400 a month.

Now, since we're not moving within the next 5 years, is this really that bad an investment?

(Keep in mind, I'm talking about getting a "400K" place for about 370K for this to work.)

I just struggle to understand how continuing to rent in an area that we will never, ever be able to afford regardless of how bad the market tanks can make any sense.


Again, I have no agenda or anything. Just trying to figure this all out.

Thanks.

9/08/2006 04:11:00 PM  
Anonymous Gary said...

Anyone care to comment on my situation:

The wife and I are renting a 1 bedroom in Hoboken. It's about $1,700 a month.

To rent an equally nice two bedroom, we're looking at at least $2,500+ a month.

OR we could buy a place farther away with a mortgage and taxes and all that stuff and pay like $3,400 a month.

Now, since we're not moving within the next 5 years, is this really that bad an investment?

(Keep in mind, I'm talking about getting a "400K" place for about 370K for this to work.)

I just struggle to understand how continuing to rent in an area that we will never, ever be able to afford regardless of how bad the market tanks can make any sense.


Again, I have no agenda or anything. Just trying to figure this all out.

Thanks.

9/08/2006 04:11:00 PM  
Blogger skep-tic said...

"I just struggle to understand how continuing to rent in an area that we will never, ever be able to afford regardless of how bad the market tanks can make any sense."

why don't you rent in a cheaper area? such as the area you're considering buying in

9/08/2006 04:21:00 PM  
Blogger chicagofinance said...

gary:

two comments

1. How are both of your commutes?
You can put a premium on your time and stress, but also review the overall costs of whatever modes you use now and the different costs of the other situation.

As an example, I live in Hoboken and commute out into NJ, but my wife has an excellent and relaxing commute, so it works. I spend money on gas, but I offset it by putting the bulk of my mileage on a very modest car that gets 30+mpg and is well maintained. I also am efficient at multi-tasking. My wife's commute is cheap.

2. Just as I wouldn't buy now, I hate to say that I wouldn't upsize a rental now either, because there are many people renting in the NYC-area who would otherwise be owners. More importantly, there are many condo buildings that may be recharacterized as rentals some time in the next 24 months. You may be able to find something more to your tastes as a rental in 2007. Further, you will get more bang for the buck in a purchase then as well.

Just my $0.02.

chicago

9/08/2006 05:18:00 PM  
Anonymous Gary said...

Incredibly stupid and short-sighted, but honest response:

I just don't see my wife and I making that sacrafice of over doubling our commute time from 35 minutes to, at best, an hour and 15 minutes each way just to rent.

9/08/2006 05:21:00 PM  
Anonymous Gary said...

Thanks Chicago.

I noticed today that that gigantic apartment complex behind the football field is all rentals.

Couldn't believe it.

No idea what they run, but worth looking into.

9/08/2006 05:23:00 PM  
Anonymous Anonymous said...

Gary,

Keep it status quo. I know 1 bedrooms stink, but this RE market has to play itself out more before you can make a good decision. If you rent for another year or so, you won't lose anything because prices are going down. Those hey days are over. I would raise cash, get out of debt if any, reduce your lifestyle, and hold.

Remember, right now, and for the next few years.
Cash is king. Raise it, and save it until we see this market come down. Then, if you still desire to live in this shit state called NJ, sweep up and buy a small house for 60 cents on the dollar.

Also, you may want to keep in the back of your mind, how secure is your job? Will you still have it when a slowdown comes?

my one peso worth of advice.

;)
SAS

9/08/2006 07:38:00 PM  
Blogger Richie said...

Anyone care to comment on my situation:

The wife and I are renting a 1 bedroom in Hoboken. It's about $1,700 a month.

To rent an equally nice two bedroom, we're looking at at least $2,500+ a month.

OR we could buy a place farther away with a mortgage and taxes and all that stuff and pay like $3,400 a month.


My parents own an apartment building in Clifton (5 minute walk to train station, 30 minute ride to hoboken). Rent is about $1250 a month for a 2 bedroom with 1000sq.ft. and your own garage.

So the conclusion is: look a little farther then hoboken for rental rates. Sorry, no vacancies in the bldg at this time, all units occupied..

-Richie

9/08/2006 09:12:00 PM  

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