Wednesday, September 13, 2006

Inventory Up, Prices Down

From the Wall Street Journal Online:

Rising Inventory of Unsold Homes Is Likely to Put Pressure on Prices

A continued rise in inventories of unsold homes in August is likely to put more downward pressure on home prices in parts of the U.S.

Inventories of homes in 18 large metropolitan areas across the country expanded by 4.7% in August from a month earlier, according to data compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif. The data are based on single-family homes and condos included in local multiple-listing services of homes for sale.

The biggest increases -- 16% in the Dallas area and 13% in Seattle -- came in markets that have been relatively strong recently. A sharp rise in inventories in those areas is likely to help restrain price increases. Other sizable increases came in Orlando, Fla. (8%), San Francisco (6.1%) and Miami (5.6%).
...
Home sales have plunged over the past year in many areas where prices had soared over the preceding five years, notably in California, Florida, Arizona, Massachusetts and the Washington, D.C., area. Many potential buyers are waiting for prices to come down further. The persistent weakness in these markets has prompted many housing experts to say prices will have to decline more to revive sales.
...
Ivy Zelman, a housing analyst at Credit Suisse Group in Cleveland, estimates that prices of newly built homes in San Diego, Sacramento, Calif., Phoenix, northern Virginia and southwest Florida already are down as much as 10% to 15% from a year ago. That estimate includes "concessions" from builders, such as upgraded kitchens or help with closing costs, which are disguised price cuts. But Ms. Zelman still sees more price declines ahead. "We believe that the housing market is still in the early innings of a hard landing that will likely take several years to develop," she says.

17 Comments:

Anonymous Anonymous said...

grim,
the external link doesn't work

9/13/2006 06:18:00 AM  
Blogger grim said...

Thanks, fixed.

jb

9/13/2006 06:26:00 AM  
Blogger BergenBuyer said...

"...prices will have to decline more to revive sales."

"...in the early innings of a hard landing..."

I feel like we've been hearing this strong of an argument for like 2 months now. What's it going to take to get sellers to drop their price?

I know that if I HAD to sell (ie relocation, already bought a new house, etc) I would drop drop drop until I sold. You either drop now and beat the masses (you'll make less than orig hoped for) or drop along with everyone else in a few months and still not sell. Then be forced to drop further to make yourself stand out.

How come no sellers get this?

To all Realtors on this blog: If you believe (which I'll assume some of you do) the mkt is tanking wouldn't you tell your clients it's better to drop their price now. What's their response? Have you told them to do this?

Who's telling them to keep their price high?

I don't get it.

9/13/2006 06:46:00 AM  
Anonymous Anonymous said...

Anon 7:46 - there are quite a few things IMO that will make this market stickier than those past, but these things will pass and the dropoff will be relatively speedy.

To a much greater extent than prior bubbles, homesellers who cut prices will be taking a big bath - and perhaps limiting their ability to buy again in their own neighborhoods. This is a tremendous financial barrier to selling, besides the psychological barriers of denial. And add to that that the RE industry is still predicting prices might bounce back after a couple years (NAR's latest unfounded nonsense), that leaves homeowners with a tiny thread of hope on which to delay selling or be stubborn about prices.

All bets are off I think when the ARMS reset and true panic sets in - when people have to sell to avoid crippling themselves, and drive the market downward. Watch for this in 2007

9/13/2006 08:02:00 AM  
Anonymous Anonymous said...

All bets are off I think when the ARMS reset and true panic sets in -

Any data on the number of ARMs (either as absolute numbers or as a % of all new mortgages)in NNJ since 2001?

In 2007, as you predict, 3/1 ARMs taken out in 2004 will be resetting. 5/1 ARMS taken out in 2002 will be resetting.

What kind of interest rate increase are we talking about between 2002/2004 and now?

How much would the payment increase on, say, a $500K loan?

Just wondering what you think it will take to induce "panic."

9/13/2006 08:22:00 AM  
Anonymous Anonymous said...

"I feel like we've been hearing this strong of an argument for like 2 months now. What's it going to take to get sellers to drop their price?"

Bergen,
I agree with you. However, the sellers don't at this time. In the past turn downs,sellers were about a year behind the market top. If this market topped out in the 3rd/4th quarter of 2005, the sellers are just beginning to get it. Remember, they think their POS is worth 2005 prices. Buyers are looking to pay 2007 prices. I'm more difficult, I'm looking to pay 2009-2010 prices. Believe me, they will get it and it's coming soon. Be patient.

BC Bob

9/13/2006 08:43:00 AM  
Blogger lisoosh said...

Bergenbuyer -
There are two streams out there, the hard landing crowd and the soft landing. It's not really surprising that sellers are more likely to want to listen to people who tell them that prices will stabilize. Can't blame them really for wanting to hear the best case scenario rather than the worst.

9/13/2006 09:18:00 AM  
Anonymous Anonymous said...

9:22- the real wild card....

http://tinyurl.com/gb327

"Usually, foreclosures are a lagging [market] indicator," he [Rick Sharga, RealtyTrac's vice president of marketing] says. "But we've never had a situation like this with adjustable-rate mortgages amounting to $400 billion to $500 billion coming up for adjustment over the rest of the year."

For a homeowner with a 5/1 ARM that's now resetting, the adjustment could add at least two percentage points to the interest rate. That could send the payment on a $200,000 loan up from about $950 a month closer to $1,200 - $250 more each month.

These exotic mortgages, which have been issued by lenders at much higher numbers the past few years, default at a higher rate than do fixed-rate mortgages. And sub-prime loans, which are much more common than in the past, have a higher default rate as well.

But, Sharga says, "The real wild card is the nature of the loans themselves. Historically, ARMs were underwritten pretty conservatively. There has been a loosening of standards with lower credit worthiness and smaller down payments."

Pat

9/13/2006 09:36:00 AM  
Blogger BergenBuyer said...

Folks, thanks for the replies. I also feel that people aren't educated about their home or the market.

For most people a home is the biggest asset they'll ever own. If this is the case, don't you think you'd try to understand it a little better?

Would you buy the stock of a company you didn't really know in an industry you didn't really know?

I would hope not, but if you did and the stock started to tank, would you start to try to understand the industry and market or would you just stick with it because "I paid $10/sh and even though it's trading at $9 and heading downward, I'm not taking less than $11."

Maybe it's because there is more personal attachment to a home. Or maybe the risk of a bigger unrealized loss isn't as bad to some people as taking a smaller realized loss.

I'm sure the people that bought stocks at $100 in 2000 and could've sold at $70 but held out until the stock dropped to $15 felt that way (i.e lucent).

9/13/2006 10:21:00 AM  
Anonymous Anonymous said...

"I'm sure the people that bought stocks at $100 in 2000 and could've sold at $70 but held out until the stock dropped to $15 felt that way (i.e lucent)."

9/13/2006 11:21:56 AM
Bergen,
That is a good analysis. I tell people the same all the time and the counter argument that I get is that RE is different than a stock.

Their damn right it's different,it's much worse with housing (talking about the last few years). If they held on to $15 it is only because they had a cash account. If they had a margin account, their margin clerk blew them out of the position to save their ass. The 100% financed H-buyer does not have a margin clerk. There are no risk management controls here. It's close your eyes and pray!!!!!!

BC Bob

9/13/2006 10:32:00 AM  
Anonymous Anonymous said...

RE is different because your Lucent shares don't determine where your kids go to school, the church you belong to or the length of your commute. There is utility in a home outside its investment value (you need housing after all) and there can also be deeply meaningful value derived from community ties. In my neck of the woods, there is not a real rental market for SFHs and few townhouses or condos; people cannot readily liquidate their RE assets without changing the foundation of their lives. Consequently, many will not sell even if is in their financial best interest to do so. Sometimes these decisions come from a very clear sense of what matters most, and it isn't always money.

9/13/2006 11:26:00 AM  
Anonymous Anonymous said...

"Sometimes these decisions come from a very clear sense of what matters most, and it isn't always money."

9/13/2006 12:26:16 PM

You're right, for many homeowners (last 3 years and those that refinanced) it is not about $. It is about survival.

BC Bob

9/13/2006 11:35:00 AM  
Anonymous Anonymous said...

"Sometimes these decisions come from a very clear sense of what matters most, and it isn't always money."

If money is not all that matters, than give me your next paycheck.

SAS

9/13/2006 12:39:00 PM  
Anonymous Anonymous said...

BC Bob,
Do we really know how many recent NJ buyers overextended themselves to the point where they will be forced to sell "to survive"? Some folks who chose ARMs may have had sound reasons to do so: for example, associates about to make partner, about to finish paying off student loans, etc. and they are not going to be desperate even when their loans adust. I think a lot of folks will give up their leased luxury cars and vacations before they uproot their families, and others will choose a long slow bleed out over bringing cash to a closing table, especially if they don't have any cash.
--CJ Sell-out

9/13/2006 01:14:00 PM  
Anonymous Anonymous said...

SAS--
Sorry. My paycheck matters. It just doesn't "matter most." Don't be such a SAS.

9/13/2006 01:21:00 PM  
Anonymous Anonymous said...

CJ,

9/13/2006 02:14:34 PM

I'm sure there were some legit reasons to go ARM/IO. However, when fixed rates are at 5.25- 5.5% (2004/05) why would any prudent individual take out a teaser rate??? Most did it because that was the only way they could afford to buy the house. What now?? They can't sell/refinance!!!!!

I don't know the exact # but I do know the following;

CC debt- 1992- Approx 250 Billion
- 2005- Approx 804 Billion

HEL- 1995- Approx 11 Billion
- 2005- Approx 243 Billion

Add this to the close to $2 trillion coming due in ARM's between the end of the year and 2007. Go add up these #'s and compare this to our TOTAL GDP.Make your own conclusions.

BC Bob

9/13/2006 01:36:00 PM  
Anonymous Anonymous said...

I've been looking since August in
a cache central jersey town one hour
from NYC with top-rated schools.

this week there is a flurry of
price reductions in the 5-7% range,
the most I've seen at one time.
properties had been sitting in the
475 to 550 area and are starting
to come down.

Looks like we're heading into
the bottom of the 1st.

9/13/2006 03:09:00 PM  

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