Monday, September 18, 2006

"It's getting scary"

From Bloomberg:

Housing Slump in U.S. May Lead to First Drop Since Depression

Nancy and Brian Christopherson are asking $389,900 for their eight-room Colonial Revival home in Westford, Massachusetts, featuring a new kitchen with maple cabinets. Even at that price, they'll lose $14,100.

Monthly price reductions since they listed it in May for $429,900 have lured no offers for the house, bought for $369,000 in 2004. ``It's getting scary,'' says Nancy Christopherson.

The sharpest slowdown in U.S. home-price growth in three decades is trapping owners with mortgages they can't afford, pushing unsold homes to a record 4.42 million and gutting profits for builders such as Lennar Corp. and Toll Brothers Inc. The U.S. median home price next year may fall for the first time since the Great Depression, says Gabriel Stein, chief international economist with Lombard Street Research in London.

Economists such as Nobel laureate Joseph Stiglitz warn that the reduced sales may push the world's largest economy into recession, and concern is mounting over economic growth in Europe and Canada. The Federal Reserve will reduce its U.S. benchmark lending rate, says Jan Hatzius, chief U.S. economist with Goldman Sachs Group Inc. Last month, the central bank ended a two-year streak of 17 increases that pushed the rate to 5.25 percent, citing cooling home sales.

``The housing slowdown will be a large drag on economic activity,'' Hatzius says. ``The Fed will cut rates to 4 percent next year as the housing downturn starts to push up the unemployment rate.''
...
``For the next couple of months, we're probably looking at between zero to a five percent drop in prices,'' Lereah says. ``The only way for home sales to come back, and for inventories to start to diminish, is for sellers to start to bring prices down.''

Not all homeowners are willing to accept less. Roxy Allen, 54, listed her four-bedroom house in Littleton, Colorado, for sale in May. She dropped the price once to $339,900 from $352,000 and has refused to go lower. She hasn't received a single offer.

``The Realtor wants you to just make a deal with somebody and sell it for cheap,'' Allen says. ``Why would I sell my house for less and buy one for more?''
...
Some sellers across the U.S. must reduce their expectations, even those who don't move. Edward Brown, 47, a Florida real estate investor, says he's financially overextended and needs to sell a three-bedroom house in Cape Coral, Florida. He's asking $579,000 -- $20,000 less than he paid for the property a year ago.

``No one expected the market to drop so quickly,'' he says. ``There are a lot of people like me who are caught in a pickle.''

31 Comments:

Blogger NJGal said...

"Why would I sell my house for less and buy one for more?''"

Well, duh. If people caught onto price drops you wouldn't have to buy one for more - drops would occur across the board. And why are you selling anyway?

9/18/2006 07:44:00 AM  
Blogger thatbigwindow said...

``There are a lot of people like me who are caught in a pickle.''

I think the moral of the pickle is to not be greedy, and there are risks associated with any "investment".

I wonder which chapter of Rich Dad, Poor Dad covered this pickle?

9/18/2006 08:02:00 AM  
Anonymous Anonymous said...

"The median U.S. price for an existing home hasn't fallen since the Great Depression in the 1930s..."

Somebody please explain?!?

I thought the median prices dropped the last time the housing market took a dive in the 90s.

9/18/2006 08:02:00 AM  
Blogger delford said...

And if the Fed cuts rates to 4% next year then what happens, does the bubble reinflate, or will it be like the early 90's, when rates and prices were dropping.

I cannot see the Fed deliberately trying to reinflate, aftere seeing what has happened so far from a deflating bubble, but anything is possible. ANd of course we still have our foreign debt holders, they will nto be happy with rate cuts.

9/18/2006 08:14:00 AM  
Anonymous Anonymous said...

, The median U.S. price for an existing home hasn't fallen since the Great Depression in the 1930s..."

Somebody please explain?!?


There was local price drops in 1990 etc but not a national one.

Ramesh R

9/18/2006 08:35:00 AM  
Anonymous Anonymous said...

4% sounds darn deliceous if you ask me! And with housing prices going down. Man, I wish I could see half the realtors faces I met with this past year who all told me how lucky I would be if I only bought that 600 Sq. Foot condo for $379k in Jersey City without parking because I'd have to pay the parking lot guy who "knows a guy in the business" for $250 a month AND then still have to pay the developer $300 a month for maintance fees who was too cheap to hire a management company, but promises to be very resonsive. And then pay the NJ government $8,500 for property taxes!!!

Get the picture?

Bitter? You bet I am, and I'm glad I held out and continue to save money so I can actually buy a decent house (NOT CONDO) next year. OUT of New Jersey!!!!!! Saving does have it benefits.

9/18/2006 09:40:00 AM  
Anonymous Anonymous said...

1992 rates 9% 1994 rates at 6% and Home prices dropped like a rock.

hehehehe

This is the biggest baddest housing bubble ever.
Boy is it getting ugleeeee!

Inventory is just piling up and nothing is moving at these fantasy prices.

9/18/2006 09:47:00 AM  
Anonymous Anonymous said...

Clearance racks are piling up with overpriced merchandise.

Watch big markdowns in Feb-March period. Then the panic.

9/18/2006 09:49:00 AM  
Anonymous UnRealtor said...

Here's a chart illustrating the history of housing prices well before the Great Depression:

http://tinyurl.com/e4so5

You can calculate the Fool Factor of recent buyers, by placing their purchase date on the chart.

9/18/2006 09:57:00 AM  
Blogger Wallpaper said...

The bubble was created to make people think that they are worth something "my home is worth $400,000...i am rich...i will go out spend money"...However in reality they had the same amount of money in there pockets and the same amount invested...so they just sent more and saved less, and down it all comes tumbling down.

9/18/2006 10:04:00 AM  
Anonymous Anonymous said...

"It's getting scary, says Nancy Christopherson."

What's really scary is the worst is yet to come...the fallout from the creative financing and ARM resets is really going to do a number on the housing market. The only thing we have seen so far is the loss of speculation and the beginning of a change in psychology. The inability of borrowers to meet their monthly payment obligations will be the next phase. This is the legacy of Alan Greenspan left behind for someone else to deal with. Stay tuned to Grim's blog for updates on the story as it unfolds.

9/18/2006 10:38:00 AM  
Blogger patient homebuyer said...

the only people in denial about the impending price drops are the realtors and the "rich" homeowners

9/18/2006 12:37:00 PM  
Anonymous Anonymous said...

It's Alan Greenspan's fault? Oh right, this is America where no one is responsible for their own decisions. It's the governments fault or their realtors fault or /insert person to blame other than oneself here/.

9/18/2006 12:44:00 PM  
Blogger skep-tic said...

article in WSJ today about Treasury & Congress backing off on Fannie/Freddie portfolio sizes. gov't may be more willing to use policy to maintain housing than many people think

9/18/2006 12:51:00 PM  
Blogger cs said...

xThis articles seems so misinformed. They seemed to find one economist who thinks the Fed Rate will drop. This seems ludicrous. The Fed MUST keep inflation in control and it has been soaring.

What I wonder though, is it possible for house prices drop so much that it's cheaper to buy than rent?

9/18/2006 01:17:00 PM  
Anonymous Anonymous said...

The Fed MUST keep inflation in control and it has been soaring.


As I posted on a thread a few days ago, keeping inflation in check is not the Fed's only job.

The Fed seeks to keep the financial markets stable. IMO, they won't raise rates, because they're undoubtedly concerned about WaMu and Countrywide, the nation's two largest mortgage lenders.

It's a lesser-of-two evils issue. A little inflation is a lot more palatable than a couple of bank failures.

9/18/2006 01:21:00 PM  
Anonymous Anonymous said...

Oh the sob stories.....

No sympathy here!

Pummel every last one of these bums into the ground.

Hopefully the NAR will clean up its act in the future.

9/18/2006 01:23:00 PM  
Anonymous Anonymous said...

The Tide has turned and it is great to see alll the smirks removing from those grubby greedy realtors.

It was absolutely sickening the last few years. The arrogance the greed the ego's for riding a mania. Let's see how smart they are now riding this titanic to the bottom!

9/18/2006 01:27:00 PM  
Anonymous Anonymous said...

Do not buy a depreciating asset.

It's called Bagholder. Buying an asset and bailing out a fool to lose money.
Do not do it. Demand substantial concessions...25-30% plus closing fees. Go for the throat!

You must gbe rewarded for your time and patience.

Bleed'em Dry

9/18/2006 01:29:00 PM  
Anonymous Anonymous said...

Is Boroson still bullish on housing?

9/18/2006 01:30:00 PM  
Anonymous Anonymous said...

"It's Alan Greenspan's fault?..."

Yes, Greenspan had a lot to do with letting this get out of control. He tried to fix one burst bubble by creating another. The Fed Chairman has a lot of responsibility, probably more than they should have, in regards to the state of the economy.

But don't worry, what we're seeing now is just the "froth" working it's way out of the housing market. It should be a nice, soft landing. Thanks bubble man.

9/18/2006 01:55:00 PM  
Blogger delford said...

anon: The Fed's stated mission is to prevent inflation, and promote stable empoloyment, its job is not to prevent Wa-Mu or any one bank from going under.

In addition to its stated mission, its real mission is to keep our foreign creditors happy, and it will use inflation real as it is, to justify a continuing increase in rates.

Believe me they are not worried about Wa-Mu going under, if it happens so be it, but they are worried about the Chinese and other foreigners not buying our debt.

He who owns your debt, owns you.

9/18/2006 02:01:00 PM  
Anonymous Anonymous said...

its job is not to prevent Wa-Mu or any one bank from going under.


Watch.

Why did they bother to engineer the bailout of LTCM a few years back? To keep inflation in check??

Hardly.

9/18/2006 02:04:00 PM  
Anonymous Anonymous said...

Home Sellers Bury Statues of St. Joseph
By MELISSA TRUJILLO
Associated Press Writer

http://www.newsday.com/news/nationworld/wire/sns-ap-real-estate-saint,0,5298554.story

9/18/2006 02:10:00 PM  
Anonymous Anonymous said...

It's not easy to be caught in a pickle!

9/18/2006 02:13:00 PM  
Anonymous UnRealtor said...

This one from awhile ago is back:


"Price reduced, Time to buy"

$1,373,923 Short Hills, 5 Bedroom 3.5 Bath - Price reduced, Time to buy

Date: 2006-09-18, 2:05PM EDT

Sadly, my parents are finally selling the house that my brother, sister, and I grew up in. I hate to see it go, but since we've all moved out, I see why it makes sense for them. So, if you want a beautiful home to fill with family memories of your own, check it out. And, don't forget the stellar school system, easy access to NYC, and potential for future craigslist house-posters of your own that come with it! However, if you aren't going to be nice to the house (remember what makes a home vs. a house!) then maybe this isn't for you.

And, if you're going to knock it down and rebuild, then we'll have words.

http://newjersey.craigslist.org/rfs/208948540.html

9/18/2006 02:31:00 PM  
Blogger delford said...

anon; The collapse of LTC would have had global implications, the collapse of Wa-Mu while serious, would not have the same kind of global implications, so I believe they would sacrifice one.

If it becomes like the savings and loan fiasco, then that would in my opinion be a different story.

9/18/2006 02:45:00 PM  
Anonymous Anonymous said...

UnRealtor said...
"This one from awhile ago is back"

That post was a classic. Is this the one referring to Johnny and Sally and school??????? If yes,that plug is gone.

BC Bob

9/18/2006 02:49:00 PM  
Anonymous UnRealtor said...

"Is this the one referring to Johnny and Sally and school?"


Yep, same guy.

9/18/2006 03:00:00 PM  
Anonymous Anonymous said...

unrealtor,

Great entertainment, good find.

BC Bob

9/18/2006 03:28:00 PM  
Anonymous Anonymous said...

That Short Hills house is so ugly. Straight from the 70s...a box with a roof. No wonder they cannot sell it. And that obnoxious posting. I wish them (and their realtor) nothing but the worst of luck....

9/18/2006 03:31:00 PM  

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