From Inman News:
Fitch says recession would stretch housing downturn into 2008
The downturn in the housing market could extend into 2008 if a recession develops before the housing market bottoms out, according to analysts at Fitch Ratings who track the home-building industry.
In a new report, Fitch analysts say home builders will continue to produce new housing at a reduced rate into next year as the U.S. housing market continues a multiyear contraction.
…
Housing affordability, excess supply and “a negative psychology (among buyers) that seems to have become pervasive” are the biggest factors in the current downturn in the housing market, the report concludes.
…
The excess of supply is troubling,” the report says, noting a National Association of Realtors analysis that investors represented a large portion of home buyers in 2005. The “absence (of investors) as buyers in 2006 and the dumping of their housing on the market has caused considerable pain,” Fitch analysts said.Compounding the problem is the “expectation or fear (among buyers) that home prices have peaked and buying now would be a mistake.” That’s especially true for people in the market for “trade-up” or second homes, who can be flexible about when they buy. The likelihood that national home prices will continue “slight to moderate declines” in coming months could reinforce the negative psychology among buyers, the report speculates.
So far there was no reduction in price of the houses. 1% is not a reduction. Untill 50% of first time home buyers will be able to afford housing there will be no market. Right now it is only lawyers and MD’s who can afford it almost anywhere in the country but everyone else is out of it.
Notice – I say Afford which means 30year/fixed.
I Love It “a negative psychology (among buyers) that seems to have become pervasive” APPARATNLY IT IS PSYCOLOGY!!!
– or may be first time home buyers just can not afford the houses anymore – if you mortage is more than 75% of your income after taxes on the totaly run down 2bdr/1bath, 800sqft 40 minutes drive (with no traffic)from your work……
I know some people who drive to Newark from Pensylvania…. talking about 5 house commute every day, and gas prices 80 miles – I’d say 8 gallons a day on average (if there is no traffic less, if there is more)16$X20=320$/month just gas – add this to your mortage.
something gotta give…….or not.
2008-2010
So what do you guys think happens in 2007, more sellers adding more inventory to the inventory that already is sitting, and it all just continue to sit?
There are over 80 houses in my town for sale right now, with more added all the time.
I believe most of it will continue to sit as it has, come Nov through Jan, there will be no activity, so I would imagine most of this inventory comes back in the Spring (07) plus the listings that have already been pulled (lots of them), plus more inventory.
Do you guys think this will all just sit,a nd that it will take anotehr year before sellers finally get it.
re: will sellers get it?
In my suburban CNJ town where I am following the market, the majority of properties in the lower/entry end have sat all summer.
As someone else remarked, many sellers
have been smug, but I think that attitude is starting to change. There have been numerous price reductions, generally between 2 – 8%. Not great, but not bad considering where we’ve been. There is also more on the market that is actually decent, as opposed to recent years when inventory was lower. Only really prisitine, reasonably priced lower end (400 – $500K) homes appear to sell now. Whether they close or not is another story. We’ll have to see. Only one property I’ve viewed over the past several months has gone under contract. That’s one out of about two dozen. There’s more buy/rent coming on the market as well. Higher end ($900K +) appear to still sell, according to the Sold notices in the newspaper. Upscale folks still have a lot of money, I guess. Wish I could say the same!
This winter may be the crucible, or maybe not. Next spring is pivotal, but how it will play out, I’m not sure. I’m sitting in a modest rental for now. Will someone ring a bell when the market bottoms, please?
ts
We don’t need a recession for the market declines to continue.
Since appreciation has left the picture, people can no longer bet that they will re-sell in two years at a profit. Therefore, they will NOT overpay today, and will NOT buy a ‘starter house.’
Flippers are gone as well.
The market has collapsed under its own weight, and once the psychology has changed, there’s no turning back.
“So far there was no reduction in price of the houses.”
Not true Al. We’re at least 10% below 2005 prices, and the market is tanking fast.
for what it’s worth concerning reductions… in SJ (exit 4 if important), several friends have informed me that prices are 5-7% off their 2005 peaks.
UnRealtor comment #6:
I don’t follow your comment about people will “not
buy a starter house.”? Why not? If prices decline to 2003 levels will they still not buy? Won’t there be some demand for homes at the lower end of the market, either from younger couples or older couples who have downsized? (I’m an older couple myself, but I don’t need to sell first.)
Please clarify, as I may have missed the logic of your argument.
Thanks.
ts
“Housing affordability, excess supply and “a negative psychology (among buyers) that seems to have become pervasive” are the biggest factors in the current downturn…”
Because Fitch sells information to people who use it to make money, they are highly motivated to get it right. The above sentence really does sum things up nicely.
Keep it mind over the next year when people are talking about higher interest rates, and tougher lending standards as the reason the market is tanking. Those are really bit players in this story. In our market affordability is the first three reasons why houses aren’t selling.
Factsrule
The inventory rise seems to have stalled in Monmouth County and I’m guessing it’s doing the same elsewhere.
I think we’re going to see inventory drop over the next few months, not because of sales, but the regular seasonal decline. From September to December of last year inventory declined about 15-20%.
The market seems to have lost pretty much all “move up” sellers as they recognize that things have slowed incredibly and if they put their house up it’s not going to move in a week, and there’s nowhere to go unless they get top dollar.
Anybody selling in this market is doing so because they must. For the moment I don’t think there are enough “must” sellers to drive up inventory.
People are going to tough it out the rest of the year, but hold onto your hat come spring.
I thought I closed the bold on Factsrules name, I’m sorry./
Hope that did it
I think I got it this time
sorry again
dang
now maybe?
“I don’t follow your comment about people will ‘not buy a starter house.’? Why not?”
During the boom, people would buy a tiny $600K cape cod (which was too small for their needs, but “affordable”) with the intent that they could re-sell it in 2 years for $700K+ and then buy a ‘real house.’
Those days are gone.
Now, if you buy a small ‘starter house’ you will be stuck there for 8 to 10 years, just to break even when you sell.
twice shy Says:
October 13th, 2006 at 10:05 am
UnRealtor comment #6:
Not true Al. We’re at least 10% below 2005 >prices, and the market is tanking fast.
Please let me know where – all I have seen so far is: Sellers increase 2005 prices by 10% and after that drop them by 10% -what a deal.
why do not increase prices 200% and say we drop the price 3times???
twice shy Says:
October 13th, 2006 at 10:05 am
UnRealtor comment #6:
>I don’t follow your comment about people >will “not
>buy a starter house.”? Why not? If prices >decline to 2003 levels will they still not >buy? Won’t there be some demand for homes at >the lower end of the market, either from >younger couples or older couples who have >downsized? (I’m an older couple myself, but I >don’t need to sell first.)
>Please clarify, as I may have missed the logic >of your argument.
>Thanks.
I’ll buy at 2003 levels: 14%(very lowball#) actually appreciation/year. 14×3=42% off.
On a started home of 400K(not all that unusial in NE NJ, 300K in unusial) it would mean selling price of: 400000*0.58=232.000 (still above national average for ALL housing not only stater’s homes) but thats I believe will be a difference.
So were are those starter 232K homes???
I will buy at around 15% or so off of 2003 prices, because I have to take into consideration that property taxes in my town have increased 40% since 2003,and that needs to be reflected in the price.
Lindsey; Yes I think that the Spring (07) will be very interesting, and with tons of inventory. the people in my town that are listing houses for sale, I do not know what their thought process is, unless in their mind they are thinking there will be a Spring deluge in listings.
“Please let me know where”
Summit, Chatham, Millburn, Short Hills for starters.
Yes, bold has been killed. :)
I guess I will summarize it this way:
The loud Screaming of our goverment about: “HIGHEST AFFORDABILITY OF THE HOUSING IN HISTORY OF THE UNITED STATED” IN REALITY MEANS EXCACTLY OPPOSITE.
THE BARRIER FOT THE FIRST TIME HOMEBUYER and I will repeat: FIRST TIME HOMEBUYER, who wants to live in his house and do not see it as retirement/investment vehicle,
HAS NEVER BEEN HIGHER IN THE HISTORY OF THE UNITED STATES.
See the famous graph of houseing prices adjasted to income/inflation
And i Know my spelling suck, but I do not care
>UnRealtor Says:
>October 13th, 2006 at 11:12 am
>“Please let me know where”
>Summit, Chatham, Millburn, Short Hills for >starters
wait you mean it is down to a 900,000 from a 1,000,000 they were before??
ohh well I am off = have to go work now, by break is over
Al,
I think you’re reading the headlines incorrectly. The news stories (or goverment reports) I’ve read have NOT been saying that houses are affordable.
Unless you’re reading something I haven’t seen? If so please post the link.
Rich
Even there is no recession, nobody can afford the current price. Even the lawyers or doctors, they can not afford the house where they should or like to be.
Even in a blue collar town you need to make 200K to buy a house.– make sense?
Grubbing sellers in for a good slap into reality come this March. When more inventory piles up and buyers refuse to pay 2004-2005 prices.
Even starving realtors admit things are “terrible”.
Good luck grubbers.
Great article over at Ben’s blog:
Whoops, the last part was from me:
“It has indeed been amusing to watch greedy grubbers drop and drop asking prices, to no avail.”
Long time listener, first time caller…
Quick question–can any of you direct me to a good North Jersey real estate website where one can see both how long houses have been on the market and how much the price has been slashed?
(something comparable to Natefind.com for NYC?)
Any leads would be appreciated
“Quick question–can any of you direct me to a good North Jersey real estate website where one can see both how long houses have been on the market and how much the price has been slashed?”
Unfortunately, that info is not made available to the public.
However, you can simply request that a realtor send you daily listings for the zip codes and price range in which you’re interested.
Tell them you’re just getting a feel for the market, so there’s no harassment/pressure.
Also ask they they send a monthly summary of what’s on the market, then save that link to watch the prices drop and withdrawn listings multiply.
Why are we nesting comments? Anyway…
The NAR is gonna lynch Joyce Styne, Exec. VP at Laffey Associates on Long Island. She offers the following advice “Instead of taking comparable sales and adding a premium, sellers must now discount the comparable home sales they see.”
http://www.newsday.com/news/local/longisland/ny-lihome1013,0,7781914,print.story
Another gem of an article on the use of incentives (cruises, cars, etc.) by sellers to make the sale. Money quote:
“Pricing the home correctly is better than any incentive you throw out,” said Ron Haze, a broker with Century 21 Moneyworld.
Indeed, some sellers are simply pricing their homes too high, agents said.
… sellers would rather turn to incentives than lower the price of their home as a matter of pride. They have their own idea of what their home is worth and don’t want to go below that mark, even if they have owned it for several years and will profit handsomely.
“They want to tell people at cocktail parties how much they made on their house,” (a realtor) said.
That is just precious. Talk about cutting one’s nose to spite one’s face! OK, so I will make a deal with anyone wanting to sell their house. I will pay your asking price and then after we close, you give me a 30% rebate on what I paid you. You can prove to all of your fancy friends that I paid you a gazillion bucks and have more fun at your cocktail party.
http://tinyurl.com/tyouc
from NAHB, 10/13/2006, subtitled “gee guy, my data shows it differently”
Housing in Next 10 Years to Outshine Previous Decade
From now through 2015, housing starts are unlikely to exceed last year’s record 2.073 million single-family and multifamily units, according to the long-term forecast just published by economists at NAHB. However, starts won’t be too far from the record in at least a couple of those years, and on average will exceed those of the previous 10-year period.
The real value of residential construction will exceed previous decades by an even wider margin, the forecast says, partly because the size of new homes is expected to continue drifting upward, but even more because of the addition of amenities and equipment demanded by baby boomers trading up.
Production, including manufactured homes, will average about 2 million units per year over the decade, “but average production will be lower in the first half of that period as excess vacancies are absorbed and only a few of the people born in the 1980s establish households,” says NAHB.
The upward trend in housing foreseen for the next 10 years will be largely driven by demographic trends, the forecast says, and not by interest rates.
Mortgage rates appear to have already peaked in the current slowdown, and the Federal Reserve is unlikely to change today’s 5.25% federal funds rate for some time. The NAHB forecast assumes the Fed will begin easing eventually, but won’t return to the low rates that helped propel the housing boom, with the funds rate averaging in the 4% range for the final seven years of the forecast period. Fixed-rate mortgages, now around 6.5%, will gradually rise to about 7.0%, compared to the 5.8%-5.9% average of 2003-2005.
No More Free Lunch
“In recent years, financing costs fell to their lowest point in half a century,” the forecast says, “while returns from alternative investments fell and the actual and expected gains from home appreciation rose….To the extent that recent experience created expectations about future appreciation, the expected cost of owning a home was less than zero, since the rate of appreciation was greater than the rate of interest.”
In the years that lie ahead, the NAHB analysis says, “mortgage rates will be higher, while the unsustainable rate of appreciation in home prices will move lower. Homeownership will still attract most households, but it will no longer appear to be a free lunch.
With strong competition from the condo market, the single-family share of new units produced will slip from the record 77% of last year to about 70% during 2010 to 2015, according to the forecast, which will still be higher than the 67% average share of the 1990s and the 57% share of the 1980s.
Driven by overall growth and aging of the adult population, the number of households is forecast to grow by about 1.5 million annually from 2006 to 2015, more than at any time since the early 1970s, when the initial household formations of the baby boom and an increase in the divorce rate, caused a surge in new households.
The number of households grew by an average of 1.28 million from March 2002 to March 2006, according to the Current Population Survey (CPS). Based on population increases alone, that rate should have been closer to 1.4 million. However, there was an increase in the share of adult men living with their parents, and there were also more adults living with siblings or other relatives, the latter partly attributable to immigration.
Immigrants Help Pick Up the Slack
In the forecast, net immigration, responding to a more restrictive political climate, averages 1.18 million annually, less than the average net migration from April 2000 to July 2005 of 1.21 million in Census Bureau population estimates.
Among immigrants, purchasers of new homes during the next several years will generally depend more on the foreign-born population that is already here than on future immigrants. “Most immigrants don’t buy homes immediately upon arrival, and homeownership rates are much lower for non-citizens than for naturalized citizens,” the forecast says.
About one-third of the roughly 35 million foreign-born people in the U.S. are naturalized citizens.
The retirement of a large number of baby boomers will reduce the rate of growth in the labor force from about 1.4% in 2005 to about 0.6% in 2015, according to NAHB economists, helping to push the sustainable rate of growth in the gross domestic product from between 3.0% and 3.5% now to between 2.4% and 2.9% by 2015.
Most of the slowdown in labor force growth will occur after 2011, and it can be ameliorated by more immigration.
To Occupy or Not to Occupy
As of the second quarter of this year, there were an estimated 16.4 million housing units that were “vacant,” or not occupied as primary residences, representing 13% of the total housing stock, up from 12% from 1996 to 2005.
“There was no single factor increasing vacancies,” according to NAHB, “but an increase in purchases of residential real estate for speculative investment purposes contributed,” especially in hot markets in Florida, Arizona, Nevada and parts of California. “Some of the homes purchased by speculators were rented or offered for rent, but many were kept vacant and reported as held off the market or put up for sale.”
Data from reports submitted under the Home Mortgage Disclosure Act show the share of loans to purchase one- to four-unit properties that were not for owner occupancy increased from about 5% in the early 1990s to 8% in 2000 and 15% in 2004. “These shares include loans for second homes and loans for long-term rental investment, as well as loans for more speculative purchases.”
According to LoanPerformance, a subsidiary of First American Real Estate Solutions, second homes accounted for nearly half of non-occupancy loans in the most recent years, with a further jump in the investor and second home shares in 2005 and a modest decrease in the first half of this year.
“In the long term, investors cannot be expected to continue buying homes without rental income, based on hopes of quick gains,” says NAHB. “Indeed, a correction is already underway.”
To see a free preview of the NAHB long-term forecast at HousingEconomics.com, click here.
Maybe we should all get together, throw in a few dollars each, and place some good size advertisements in newspapers like the Star Ledger, etc., presenting an alternative viewpoint to what real estate agents, the NAR, Fannie, Freddie, etc., foist upon the public (like that nest egg advertisement). Just a thought…
Re the starter house comment. Partially disagree – never bad to buy GOOD starters in GOOD areas.
My philosophy is, buy best starter you can in a sellers market. Put the least amount of improvement in. They maintain best salability and drop the least in $ during the downturn.
The higher priced properties, while dropping the same %, will come closer in price to the lower to allow upgrade buyers to change. And a fixer-upper will drop even more.
Strong location, clean starters will always be in demand (for lesser incomes), even in down times, but the real opportunities are for trade ups in the down times. Higher puchase-power buyers may skip the starters and go higher – but everyone will skip the poor location / poor condition crap in a down market.
I’ve been reading this blog for awhile. First as a potential buyer and now as a recent homeowner.
While there is alot of good advice here, I dont believe in the dont buy at any cost philosophy. If you wait to long for the bottom of the market you might miss it. There are some really good deals starting to emerge and potential buyers might want to start seeing what’s out there. I got a good deal of about 10% off list for a home in pristine condition less than 30 minutes from midtown manhattan. Sellers are worrying and this will work to your benefit.
Whoah. 10% off list is not a discount in a falling market.
If you are super comfortable with the payments no matter what happens (job loss, asset depreciation, etc.) then that’s fine.
But I think we can all safely asume that that home will be falling in value much more in the coming years.
I won’t buy till the prices come down to where they were in the 70’s
Why would I pay more for a house than I paid for my last car?
one last coment. Some idiot said affordabilty is at an all time low. Apparently you were’nt even born in the 70’s- 13+ interest rates on mortgages.How did we survive to produce idiots like you. Don’t buy , live with mommy and daddy till they retire and sell thier bad investment and kick you out into the real world.
Pingback: Anonymous