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Construction spending and ISM due out at 10am.
jb
Just to pick up a thread…arbitrage analysis on primary residence ownership? What am I missing? Seems like quail hunting with a howitzer.
I’m not saying it’s right or wrong, but the part of homeownership so many here miss or deny is the EMOTIONAL appeal. Discount others’ desire to own at your own peril. That emotion is what moves markets…including the negative emotion exhibited by a lot of current potential buyers.
“Fed may have tightened too much: SunTrust’s Miller”
http://tinyurl.com/ynxfvz
Clotpoll, I agree. Maybe it’s time to move to that. And a couple of people here seem to be hung up on the numbers.
JB, is there any concensus among readers here on a formula for a solid buy v. rent calculator? If so, would it be helpful to post (on the main page) a link to three spectrum examples of the buy v. rent calculation?
Once the basic numbers are there, each person could find their own emotional values for the other factors.
For example, last night, I was pondering decision making, and some big decisions I’ve made, and any regrets after the fact. All the regrets were due to not properly valuing the intangibles.
Clot,
The piece was partly a rebuttal to those who called renting unsophisticated or that it was wasting money. Both of which are clearly not true. I had also hoped that the piece would serve to provide some insight into the fundamentals that drive pricing and to show that the arbitrage gap was evidence of a bubble market.
It’s not Howitzer-hunting, however enjoyable that might turn out to be, but it is making a decision in an informed and unbiased way.
Emotion? Absolutely, this forum is a perfect example of that. Some of the staunchest bears here in the den still considering buying.
Don’t make the mistake, I’m all for homeownership. I think that real property and housing can be a great long-term investment…Just not right now.
jb
We are currently under contract, scheduled to close on a house the end of December. Could we have waited? Yes. Why are we buying now? Pure emotion..and we feel the house was accurately priced. Having never owned a home before, this is an exciting time for us.
Will our house be worth less in a few years. I think so.
From the Chicago Tribune:
Economists’ views differ on housing’s impact
“The absolute number of homes on the market has peaked,” High Frequency Economics economist Ian Shepherdson said Wednesday. “But that is not enough; home builders need to reduce inventory drastically. There is a long, long way to go.”
That uncertainty has economists arguing about housing’s potential path through the economy. And a recent debate by economists Stephen Roach and Dick Berner, who sit beside each other at Morgan Stanley, shows the contrast in opinion and underscores what investors should be watching.
“The housing downturn is a very big deal for the U.S. economy,” because of how it spills into multiple industries, Roach said. Among them: a contraction in construction, cutbacks in buying such things as furniture and appliances, mortgage finance companies and real estate brokers struggling for business, and what’s called “a negative consumer wealth effect.”
In other words, consumers will feel less affluent as their homes stop gaining value, and they draw less spending money from home equity.
Roach claims the wealth effect is no small matter. He notes that after the stock market bubble burst, consumers pulled back on spending, and that was a factor in the U.S. economy going into a recession.
Now, he said, consumers are less resilient because in early 2000 the personal saving rate was over 2.5 percent. Recently, it’s been below zero and debt burdens are at an all-time high.
…
Berner, on the other hand, sees positive spillover coming from the business sector. “Capital goods orders accelerated to a 16 percent annual rate in the past three months,” he said.
And surveys of small businesses through the National Federation of Independent Businesses, and export orders from purchasing managers, suggest more growth to come.
For both manufacturing and non-manufacturing, capital goods orders jumped 2.5 percentage points in October, Berner said. Meanwhile, although employment in home building has contracted 2.8 percent, “commercial construction jobs continued to rise in October, indicating a significant offset to the housing recession.”
Moreover, he notes that the mild 2001 recession came because businesses curbed excessive spending on equipment and labor after a late 1990s binge. “We spent the first three years of this expansion cleaning up those excesses,” Berner said. “With those extremes well behind us and labor markets firm, the income-generating capacity of the economy is actually improving, not weakening.”
Couple of things I’d like to bring back up for discussion today.
The first is the disconnect between reported statistics and anecdotal (or perhaps actual) price declines in NJ. A continuation of the much heated discussion that took place earlier in the week.
The second is a discussion of the whether or not the unchanged OFHEO conforming loan limit is going to act as a supressive force against appreciation in 2007. OFHEO also announced that they would drop the conforming loan limit in 2008 if declines were seen in 2007. ( http://www.bankrate.com/brm/news/mortgages/20061129_jumbo_conforming_a1.asp )
The last topic I’d like to touch on is whether or not the recently released (but yet to be adopted) CSBS non-traditional mortgage guidance could have a potential negative impact on housing demand in NJ. ( http://www.csbs.org/Content/NavigationMenu/RegulatoryAffairs/FederalAgencyGuidanceDatabase/CSBS-AARMR_FINAL_GUIDANCE.pdf )
jb
From Reuters:
H&R Block loss nearly doubles on mortgage weakness
H&R Block Inc., the largest U.S. tax preparer, on Thursday said its quarterly loss nearly doubled, and was larger than analysts expected, as the struggles of its mortgage lending arm worsened.
…
H&R Block reported a $39 million pretax loss at its Option One Mortgage Corp. subprime unit, which lends to less credit- worthy borrowers, as lending fell, margins shrank and defaults rose. The unit earned $48.8 million a year earlier.
“H&R Block would be a totally different company if it weren’t being clobbered by Option One,” said David Roberts, a principal at Harvest Investment Advisors LLC, which owns H&R Block shares. “It has a good collection of assets that is being weighed down by a bad business.”
Subprime loan volume sank 46 percent to $6.62 billion. Compared with the prior quarter, loan volume fell 15 percent and margins fell by more than half.
Re: the rent vs. buy discussion
we all know that housing affordability is at an all time low, and that almost universally, renting is the way to go right now.
BUT none of us can reasonably claim that in every single case, it will always make sense to rent vs. buy the equivalent today.
One thing to keep in mind is the lag in the official numbers, and the manipulation.
Many of us here seem to believe that housing prices have dropped far more than the numbers currently reflect. We also tend to believe that inventory is much higher than is currently reported.
We also know that there are many builders (particularly the smaller ones) who are very stretched right now financially. They need cash and buyers are cancelling on them right and left. And they are still building!
When you put all of these factors together, it is not hard for me to believe that someone looking to buy a condo (of which there is an extreme glut) could strike a very good deal right now.
People on this forum have been very perceptive in calling this downturn. But I think there is danger in convincing yourself that you have the market completely figured out
Well I am a confused Bear on Housing.
Wall street says the worse is behind us.
However, Inventory of unsold homes is at about
7 months.
Housing stock on an up trend, so much for
the hot money.
As JB pointed out there was a “slightly” heated debate with the relase of median prices. I don’t understand the uproar. Median prices, to me, are misleading (either increase or decrease). They don’t indicate how much appreciation or depreciation has occurred. It’s simply the midway point between the least expensive and most expensive properties, half bought higher, half bought lower. All it really indicates is which price range is the most active. Remember, not all price ranges experience the same activity at any specific point in time. When more buyers are buying more expensive homes (top half) the median price rises. On the other hand, when more buyers are buying less expensive home, the mediam prices fall. It’s is hard for me to believe that a “professional” would be cheering this like the lottery was won, I guess this is the only spin to latch on to. It indicates, to me, the desperation setting in. The only true indicator of the value of a particular sfh/condo is the price a ready, willing and able buyer will pay. Everything else is a bunch of worthless noise.
“Wall street says the worse is behind us.”
That’s not true. Read my post yesterday regarding counter trend rallies.
In other news, Fairfield County, CT sales declined 30% YoY in Sept.
BC,
I believe it was SG who threw this out the other day. Basically, the we’re not seeing the median change, because potential buyers may just be sticking to their budget. The buyer would potentially pay up to their budget amount, regardless of any price movements that take place. The potential buyer looking to buy a $400,000 is going to buy a $400,000 house. The question is, did he or she get more or less house for that money this year. The median wouldn’t necessarily capture this behavior.
jb
Some interesting news crossing the wire. From Reuters:
KeyCorp, a large Midwest U.S. bank, said on Friday that it planned to take a net after-tax charge of $164 million, or 40 cents a share, due to a $170 million write-down of goodwill associated with the sale of its Champion Mortgage finance business.
KeyCorp said it was selling Champion Mortgage to a unit of HSBC Holdings Plc and that it had entered into a separate agreement to sell its origination platform to an affiliate of hedge and private equity fund manager Fortress Investment Group LLC.
Also from Reuters:
Europe’s biggest bank HSBC Holdings has bought the $2.5 billion mortgage loan portfolio of Champion Mortgage, a division of KeyBank, it said on Friday.
HSBC said the portfolio contained mortgages of 30,000 customers and will fit well with the HSBC Finance consumer lending business.
Champion Mortgage, based in New Jersey, markets a range of products through direct mail, the internet and other media channels and serves mostly non-prime customers in 26 states across the United States, with concentration in the Northeast.
Great post (#10), Skep-tic-
The deals are there in condos; we marketed a 2BR, 2BA yesterday for almost 20% off the ’05 high. Classic seller capitulation, too: he purchased a new home several months ago, thought he could get top $$$ selling FSBO, got nowhere on his own, called us in way too late and ended up lucky to have the offer he got…there are now 20 other owners in the range who are slowly sinking and will likely be forced to accept even less than we did.
RE statistics are so hard to handle because of the trailing nature of the info and the inherent illiquidity of the asset. Even though it’s not scientific, I think anecdotal evidence does provide some real-time context for the stats.
I want to ask the board for their opinion. There’s a new listing in the town I’m looking at (Maplewood, MLS 234 7222). Priced at $359K. I haven’t seen the house yet, but it seems to be priced right, based on what I’ve seen.
Asked my realtor about it, and she said she thinks its priced about $25K under market, and that it will likely go to a bidding war, and sell for above asking.
I am not getting this at all – if we are in a buyers market, why, in God’s name, would things still be going to a bidding war?
As a first time homebuyer with a combined income that’s fairly substantial (though, not substantial enough), I’m constantly feeling defeated.
Increase in Lis Pendens Could Mean Trouble for New Jersey
Haley Settle | 11.30.06
New Jersey experienced a 44 percent increase in lis pendens filings during the third quarter compared to third quarter last year, an indication that foreclosures could soon surge in the Garden State. Data from SheriffSalesOnline.com, a home foreclosure data service for subscribers, shows a third-quarter rise in lis pendens filings to 3,577 from 2,486 last year.
The hike in lis pendens, which is Latin for “suit pending,” is one of the best indicators of the housing market’s increasing instability in New Jersey, and it could be a sign of things to come.
“Lis pendens are the first legal step taken in the home foreclosure process that indicate a homeowner is behind in his or her payments and headed for foreclosure,” said Jeffrey Posner, president of SheriffSalesOnline.com. “A house in a lis pendens proceeding means it is about eight or nine months away from being sold in a sheriff’s sale,” said Posner.
So what is fueling this rise in default? The 17 interest rate hikes by the Fed since mid-2004 have made money tight formany homeowners. And with approximately $200 billion worth of adjustable rate mortgages resetting to higher rates in 2006 and more than $1 trillion scheduled to reset in 2007, borrowers in New Jersey and across the nation are finding it more difficult to make the higher payments.
Sheriffsalesonline.com is a subscriber service providing timely notice of troubled properties in the lis pendens, public notice, and sheriff sale stages. For more information, visit http://www.sheriffsalesonline.com.
In defense of medians, there are things for which they are very useful.
While month to month they may be susceptible to volatility because of a certain skewed sample, or when a sample size is really too small, for comparisons such as the ratio of median income to median price, they are the best measure of affordability, one of my personal favorites.
They also can give a sense of a particular area, i.e. a town or region. I would note that the median \asking price of an SFH in the Southern Monmouh MLS is close to $800K. The larger and more diverse Eastern Monmouth MLS has a median SFH asking price of about $450K.
If nothing else, that tells you that there really isn’t much in the way of a low-end or starter home inventory in Southern Monmouth.
FTR, Southern Monmouth would best be described as coastal southern Monmouth. It doesn’t go any further west than Wall Township. If Howell was in the mix, it would be another story entirely.
“why, in God’s name, would things still be going to a bidding war?”
Yuo’ve answered your own question, your realtor told you that!
Lina,
I’m inclined to believe their opinion as well. The owners of that home, 14# Parker, purchased it for $350,000 in November of 2002.
Based on their current asking price of $359,000, along with a 5% commission, they are looking taking a bit of a loss if it closes at the current asking.
jb
Let me clarify, not that it will necessarily go into a bidding war, but that the asking price does seem aggressive given the purchase price.
jb
Clot,
Is that one specific sample (20% off 2005) or is this becoming more of the norm??? By the way, I enjoyed your post regarding putting buying and sellers together, not getting overwhelmed with prices going up/down. It was always my contention, in this market, realtors are not necesarily seeking the highest price but more concerned with closing the deal, quality buyers and contingencies are more important/crucial than an additional 5% on the price.
Okay, but if they purchased it at the peak (in 2002), and it does indeed sell for above asking (let’s say the realtor is right, and it sells for $25K above), then there is no bottoming out of prices.
Prices are still increasing at a much higher rate than just with inflation, and buyers are still willing to buy at those inflated rates.
So, no bubble bursting in my opinion.
lina,
The year 2002 did not represent a peak in pricing or volume by any stretch. In my opinion, in 2002 the North Jersey market was still relatively affordable.
To give you an idea, the median price in Northern NJ in 2002.Q1 was $286,000 and the average was $322,500. In 2006.Q3 the median price in Northern NJ was $465,200 and the average was $463,300.
Prices would need to fall rather dramatically to return to 2002 levels. I think many here, perhaps myself included, would purchase at that level.
jb
I own a condo now but looking to get into a place that’s larger, in 2008. I was telling a friend the other that was looking to buy next year and my advice was to wait until 2008. The reason being…there is way too much NOISE in the numbers (especially considering they are lagging) to make a decision. Furthermore, I am almost certain that the difference in home prices between 2007 and 2008 will not be SIGNIFICANT (mostly talking to appreciation because I believe the downside is greater) enough that if you waited a year to let the stats catch up you will miss out on anything. That being said, in regards to renting versus buying if I was in that position….I personally would like a one year rent commitment than a 30 year mortgage commitment. Plus you could spend 2007 saving more money for the down payment and doing things to improve your credit score if needed. Purely emotional and not looking at any calculators.
I guess prices didnt go up too much in Maplewood if your realtor only thinks $25K is the delta between 02 and now. The other way of seeing it is that the current owners paid too much in 2002.
PAUL KRUGMAN on how bond market is pointing housing burst induced recession next year.
http://select.nytimes.com/2006/12/01/opinion/01krugman.html
I know some of you hate him because of his partisan views. Still a good read on bond marker prediction vs stock market prediction on future economic growth
Lina-
Is the Maplewood house marketed by Schweppe? They tend to price low and force bidding wars so they can say they always get above asking. A good agent won’t want to deal with them and if you decide to make an offer, won’t let you go in blind.
Also, remember an offer isn’t a bid. Especially in this market.
We feel defeated by this process too.
lina, when I’m shopping, I try to stay away from houses that were purchased in the recent boom; so I have a better negotiating power.
just my 2 cents
FirstTimeBuyer,
That was a good call, the house is indeed listed by Schweppe Burgdorff.
jb
“the part of homeownership so many here miss or deny is the EMOTIONAL appeal”
I’d LOVE to own a house, but am currently “priced out forever.”
Lina #18,
1) Check Maplewood schools.
http://education.state.nj.us/rc/rc05/menu/01.html
2) Your realtor is either lying, or still living in 2005.
I’m still looking for value and opportunity in this market. Asking prices are all over the map, from the egregiously overpriced to market priced to aggressive. Right now I’m starting with 2004 comps as a base. Considering we’re a few weeks before Xmas, with Jan and Feb. around the corner, I think a “bidding war” for anything is ludicrous. Count me out.
This is a slow time of year anyway, and in the present market conditions it’s near comatose. Bargains, even steals can be found by the persistent, informed buyer, but they are few and far between. If I find the right lead I will pursue it. As a rule, I look for longer-term owners.
From Marketwatch:
U.S. Oct. construction spending falls 1.0%
Spending on U.S. construction projects dropped by 1.0% in October, as outlays on private residential construction matched a low hit in July 2006, the Commerce Department said Friday. Private residential construction spending fell by 1.9% in October, the latest evidence the U.S. housing market has pulled back sharply. Private construction spending dropped by a sharp 1.5% in October. Spending on private nonresidential construction projects fell by 0.7%. The decline in overall construction spending beat the 0.3% drop expected by economists surveyed by MarketWatch.
pesche22 Says:
December 1st, 2006 at 8:38 am
Well I am a confused Bear on Housing.
Wall street says the worse is behind us.
Housing stock on an up trend, so much for
the hot money.
pesche22: Make sure to draw a distinction between the broad housing market versus the results of the publicly-traded homebuilders. The information, trends, and focus are similar, but not the same. Also, “new home sales” matter much more to the publics…..
chicago
Dollar falls sharply.
“NEW YORK (MarketWatch) — The dollar fell sharply against other currencies, touching a fresh 20-month low vs. the euro and 14-year low vs. the British pound, after a key U.S. manufacturing survey came in well below expectations.”
http://www.marketwatch.com/news/story/dollar-falls-sharply-after-ism/story.aspx?guid=%7BCF115E94%2D514C%2D4BA3%2D99E2%2DE47B2956F44E%7D&siteid=
“We continue to look for signs that a recovery is imminent but can’t say that one is in sight,” Robert Toll, chief executive of the Horsham, Pennsylvania company, said on a conference call. “Nobody wants to buy something that they think will cost less two weeks or two months later.”
Is Bob Toll or the cheerleaders from the other side of the aisle more pertinent???
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajcm9waqkTio&refer=home
From Marketwatch:
U.S. Nov. ISM factory index at lowest level in three years
Factory activity in the United States contracted in November for the first time in more than three years, the Institute for Supply Management reported Friday. The ISM index fell to 49.5% in November from 51.2% in October. The decline was unexpected. The consensus forecast of estimates collected by Marketwatch was for the index to rise to 51.8%. Readings below 50 indicate contraction. This is the time the index has been below the 50 threshold since April 2003. New orders fell to 48.7% in November from 52.1% in October. Production fell to 48.5% from 51.9%.
A pretty bearish (grim?) day today. From the AP:
Housing Construction Drops in October
Construction activity in October plunged by the largest amount since the recession in 2001 as home building fell for a record seventh consecutive month.
The Commerce Department reported that building activity dropped 1 percent to a seasonally adjusted annual rate of $1.18 trillion in October following a 0.8 percent fall in September. It was the biggest decline since a similar 1 percent drop in September 2001, a month when the country was hit by the terrorist attacks as it was mired in a recession.
Residential construction fell for a seventh month in October, the longest stretch of weakness on record. The 1.9 percent drop in this category in October was the biggest decline since July.
The weakness in housing was compounded by a drop in non-residential construction, which fell by 0.7 percent, the second straight decline in this category.
Lina #18, to add — that someone might be taking a loss, is largely irrelevant.
I’ve posted several listings here, along with the MLS #s, for people who have lost between $75,000 and $350,000 since buying 2-3 years ago. Their loss is irrelevant to the buyer, who will either pay a certain price, or not.
As adjustable rate mortgages adjust upward, people will be forced to sell. Or they will downsize, die, divorce, etc.
The market is the market, the seller’s profit or loss are not your concern.
Chicago,
Why don’t we hear very much about the yield curve in the financial press anymore? At the end of last December, the slight inversion was big news and brought down all the major indices. Now we have a 53 basis point, and apparently growing, inversion between the 3-month and 10 year, but there doesn’t seem to be much concern about it…at least publicly.
Lina, also consider that location – you are on a main road very close to Newark. Those folks clearly overpaid in 2002, because there were homes in the better neighborhoods going for around that amount or slightly higher in 2002. Don’t reward their mistake.
You can see the interior photos at burgdorff.com. It’s in ok shape, but nothing spectacular.
It’s a rainy Friday, so “crank up those desktop speakers” for an oldie:
http://www.garynorth.com/public/1216.cfm
today we have crappy construction numbers and a contraction in the ISM index. the economy might be slowing down quicker than the maestros would like meaning we could see a rate cut as early as next Fed meeting.
would rate cuts devalue the dollar even further?
Good point #42. Bernanke spoke this week and did he once remark on the inverted yield curve, or more importantly, the falling dollar? I’m pretty sure the dollar has gotten his attention, as well as Paulson’s, but so far they’re keeping their poker faces and playing it close to the vest. What can one infer from that?
Emotion? People make the worse decisions in life if they rely on emotions. Buying a house is a MAJOR buisness transaction for most folks. Treat as such. it can determine your financial future.
These starving realtors try to manipulate your emotion. Many of them are snakes.
IT NOT A GOOD TIME TO BUY A HOUSE OR CONDO AT THE ASKING PRICES.
“IF” YOU CAN GET AT A MINIMUM 25% OFF PEAK PRICES PREFERABLY MORE ESPECIALLY CONDOS GO AHEAD AND BUY, BUT ANYTHING ELSE YOU WILL PROBABLY LOSE MONEY IF YOU HAVE TO SELL WITHIN 7-10 YEARS.
If you want to give some schmuck homeowner a 80-100% increase in their home for just driving home every night from work then go ahead. Unfortunately you have given away any possible appreciation for yourself and most likely losses.
BOOOOOOOOOOOYAAAAAAAAA
Bob
You can get some insight into the Fed Futures markets at the Cleveland Fed site, specifically their graphical representation of Fed Funds Rate Predictions:
http://www.clevelandfed.org/research/policy/fedfunds/Index.cfm
I highly recommend the above link, they do a great job tying in relevant economic news.
jb
Warsh made some very interesting comments a few days back. The WSJ did a good job covering the topic, the “mirror problem”, the article ran on the 21st. Unfortunately I don’t have a direct link. Here is a snippet of his comments from Bloomberg:
Fed’s Warsh Says Inflation High, Economy May Rebound
Fed policy makers must be careful when using financial- market prices to shape decisions, he said. In particular, such information may be shaped by the Fed’s own views, suggesting central bankers must be alert to a “mirror problem” in which markets fail to provide independent information, he said.
“I am a strong advocate of incorporating forward-looking information from asset prices into the Fed’s decision process, but we should not take market readings as determinative of policy,” Warsh said.
Clear communications from the Fed are important “in preventing the signals from getting crossed,” he said.
Spel,
An interest rate cut will take the dollar down hard. The Asians would run, not walk, to diversify out of dollars. Given the likely shredded value of the greenback in the months/years ahead, I’m beginning to think loading up on a long-term loan to repay in a devalued currency ain’t such a bad bet! Plus, with short-term rates higher than long, the banks aren’t making much on the spread. Hmm. I’m coming up with all sorts of good ideas this morning. Must be that extra cup of high-test.
CNN video report:
10Y @ 4.41%
ouch..
Cover story of this week’s Economist:
The falling dollar
Nov 30th 2006
A further drop is likely as the American economy slows
http://tinyurl.com/yy7x2d
THE dollar’s tumble this week was attended by predictable shrieks from the markets; but as it fell to a 20-month low of $1.32 against the euro, the only real surprise was that it had not slipped sooner. Indeed, there are good reasons to expect its slide to continue, dragging it below the record low of $1.36 against the euro that it hit in December 2004.
The recent decline was triggered by nasty news about the American economy. New figures this week suggested that the housing market’s troubles are having a wider impact on the economy
…
America’s growth, thus, has been driven by consumer spending. That spending, supported by dwindling saving and increased borrowing, is clearly unsustainable; and the consequent economic and financial imbalances must inevitably unwind. As that happens, the country could face a prolonged period of slower growth.
…
Two countervailing factors, it is argued, will tend to support the dollar. First, emerging economies hold so many greenbacks that they fear the capital loss that they would incur if they encouraged the dollar to drop. Second, they want to keep the value of their currencies down to help their exports. But the longer they continue to pile up dollars, the bigger the eventual losses. That thought is likely to discourage them from buying even more dollars.
…
If a steady slide in the dollar would be good news, a sharp plunge as investors take fright and run would be another matter. That could increase risk premiums and unnerve frothy financial markets around the world. A tumbling dollar would also add to inflationary pressures in America and so make it harder for the Fed to cut interest rates to cushion a collapsing housing market
It’s a long article, so I only posted exerpts
Twice Shy.
Thanks. As i understood it Bernake is in a tough spot since lowering the rate would hurt the dollar yet further while raising it puts another strain on the housing market. Somebody had mentioned that when push comes to shove it will probably be housing that will lose out to investors.
Interesting times indeed.
From Bloomberg:
Mortgage Bonds Hurt by Delinquencies, Housing Slump
The mortgage bond market is beginning to buckle under the weight of the worst U.S. housing slump in six years.
Yields on so-called sub-prime mortgage securities rated BBB have risen to 6.52 percent on average from 6.28 percent on Sept. 5, data compiled by Bank of America Corp. show. The yield premium, or spread above the one-month London interbank offered rate, a lending benchmark, rose to a seven-month high of 1.2 percentage points.
About 3.3 percent of the $160 billion in sub-prime loans made this year through July have payments that are more than two months late, the highest ever for mortgages in their first year, according to New York-based Fitch Ratings. Housing starts tumbled in October to an annual rate of 1.486 million, the lowest in more than six years. The economy grew at the slowest pace since 2005 during the third quarter.
“The higher delinquencies do set off an alarm for many people and make us more conservative,” said Alex Wei, a senior vice president at Delaware Investments in Philadelphia.
…
Sub-prime mortgage securities have returned 1.38 percent in the past three months, less than half the 3.63 percent return for corporate debt. The difference between yields on the mortgage bonds and Libor widened 0.25 percentage point in the past three months while the gap for similarly rated corporate debt narrowed 0.05 percentage point. Prime mortgages have returned 2.78 percent.
Sub-prime lenders New Century Financial Corp. of Irvine, California, Accredited Home Lenders Holding Co. in San Diego and Columbia, Maryland-based Fieldstone Investment Corp. are paying more in interest on the bonds they sell to fund mortgages.
Interest expense for New Century rose 29 percent to $375 million in the third quarter from a year earlier. Accredited’s jumped 62 percent to $138 million. Fieldstone’s payments climbed by 57 percent to $91 million.
…
About 38 percent of the most common sub-prime mortgages this year were for the full value of the home, up from 31 percent in 2005 and 21 percent in 2004, according to Bear Stearns. Sinha said 45.5 percent of the loans this year required “low documentation” of borrower income and net worth, up from 44.5 percent in 2005 and 40.1 percent in 2004.
The data reflect “common methods of allowing first-time homebuyers to borrow more than they can afford,” Sinha said.
…
Fitch is considering whether to put “a few” sub-prime issues on review for a possible ratings cut, Managing Director Grant Bailey in New York said in a Nov. 20 interview.
“There’s no doubt that there is going to be some increased credit risk,” Bailey said. He declined to be more specific.
Sorry for the long piece, I thought this one was particularly important.
jb
JB,
I’ve just recently discovered your web site and have been reading posts the last several days. I’m compelled to tell you this is the most informative, comprehensive & interesting RE site I’ve found. The links you and others provide are very helpful. Thank you all.
Brief story of my RE experience since March 2005:
Shore house I liked listed in 3/05 for $620,000. Made offer of $545. Seller said take a hike and did not counter. Seller got another offer of $610 and went into contract. After inspection that deal died. I come back with $590 with the intent of a major chop after inspection. The seller is jumping for joy because at the same time they bought another house. After inspection and learning the house needs $75K in improvements/renovations, the seller offers $25K credit. Purchase price is then $565K. I say no and walk away.
Fast forward 9 months to December 2006: The house is still for sale. New price $550K. I offered $450K. Seller says $500K. I’m sticking to $450K. No response yet from seller who is now carrying two mortgages! Just a little story.
JB, why on earth would HSBC purchase subprime mortgages from Champion when there is a high probability some of these loans will default?
>>An interest rate cut will take the dollar down hard. The Asians would run, not walk, to diversify out of dollars
there’s nowhere for the asians or anyone else to run to. it’s a mexcian standoff with export driven economies needing our consumers and vice versa. expect the dollar to slide further. we might see the 10-year near 4% before this is all said and done. the fed will start cutting rates in the next meeting or two, you can bank on it.
The asians will readjust their currency to match the dollar. Europeans will get hurt.
JB,
It’s a incredible day. Bells and whistles must be going off in the Grim lab, the dog must be howling.
1)ISM
2)Construction Spending
3)10 year
4)Dollar
5)Lis Pendens
6)Widening spreads in sub-prime
This is a quarter worth of news in a day. If you are considering buying, maybe you should first absorb this and then decide.
JB,
Thanks for the mortgage bond article. My question of the day is what will be the extent of the ripple effect throughout the banking industry from the housing bust? Are we talking something comparable to the Savings & Loan mess? That new bankruptcy bill seems to have been passed with this whole scenario in mind.
Hehehe
couple follow ups to 60 and 59.
I’m thinking Asians will diversify into Euros, pound sterling, Swiss franc, gold, etc., as well as the Saudis. Dollar may not be the world’s reserve currency for long. So, that’s where they’re going, in response to your comment Richard, IMO.
re: HSBC and the sub-prime mkt. Even if the default rate hits 3%, that leaves 97% still performing. And those sub-prime folks are paying a big premium on their loans. In short, the house still makes money.
BC Bob,
Today is one heckuva day. As a bottom-fisher I always start to circle when there’s blood in the water. Methinks I’ll do some shopping this weekend, and I don’t mean Christmas.
twice shy, you said – “the house still makes money.” and “Methinks I’ll do some shopping this weekend”..
do you mean to say it’s a good time for bargains in housing?
I am planning on a low-ball offer 525k offer on a 599k list price this weekend
Twice,
You are right about Asian diversification. China is not stupid, they played us like a fiddle. They realize that they can’t rely on the US export market entirely in the future and are making massive domestic changes to compensate. Like it or not, the balance of power is slowly shifting east.
The UAE has stated that they are seeking to adjust their foreign currency, from 98% dollars to 50-90%.
Japan life ins companies have also cut back. Russia is pushing to have crude priced in Euro’s.
All of this has been in the works for the past few years, it’s a slow moving process. Ridiculous deficit spending, bankrupt SS/welfare, unfunded pensions, housing bubble, credit bubble, debt bubble will eventually take its toll. The world is telling us its time to get our fiscal house in order. We like to tell China to allow their yuan to float. Who are we to dictate terms to one of our banker’s, isn’t it usually the other way?? The markets are now demanding concrete/fundamental change, if not the carnage will continue. Lip servive from the fed/treasury will not be sufficient.
By the way, when you go shopping, beware of dollar bounces. One report/event and this thing can have a massive short covering rally. However, the trend is firmly entrenched.
Just an observation, not a recommendation.
Twice,
FYI.
http://realtime.barchart.com/mri/qp/premium.asp
Sorry, you can’t open that link.
DXZ6 – U.S. DOLLAR INDEX DECEMBER 2006 (FINEX)
Date Open High Low Last Change Pct. Change Volume Open Interest
12/01/06 82.81 83.01 82.28 82.44 -0.41 -0.49 5065 0
TrendSpotter (TM) Sell
7 Day Directional Indicators Sell
10-8 Moving Average HiLo Channel Sell
Price vs. 9 Day Moving Average Sell
9 – 18 Day MACD Oscillator Sell
20 Day Bollinger Bands Sell
Short Term Indicators Average 100% Sell
20-Day Average Volume – 3259
20 Day Commodity Channel Index Sell
Price vs. 18 Day Moving Average Sell
9 – 40 Day MACD Oscillator Sell
50 Day Parabollic Time/Price Sell
Medium Term Indicators Average 100% Sell
50-Day Average Volume – 2980
40 Day Commodity Channel Index Sell
Price vs. 40 Day Moving Average Sell
18 – 40 Day MACD Oscillator Sell
Long Term Indicators Average 100% Sell
100-Day Average Volume – 3430
Overall Indicators Average 100% Sell
Price Support Pivot Point Resistance
82.44 82.58 83.31 83.31
I looked up “Economic Depression” on google news and found this editorial on India Daily. It sounds alarmist, here is an excerpt. What do you guys think?
“The mortgage bond market is beginning to collapse under the weight of the worst U.S. housing slump in six years. Every time banks and mortgage-banking sector collapsed, the mortgage bond market led it. It happened after one year from the time when real estate started collapsing.
This time one thing is different. 42% of the mortgages were issued to people that cannot afford to own a property with hefty monthly payments. 36% of these people were outright investors with little net worth. They hoped to flip the property to make a quick profit. They got caught in the housing collapse.
The mortgage delinquency is rising exponentially over the last four months. Foreclosure and bankruptcies are rising and will follow the same trend. The stock market will collapse when the players finally realize the economy is in an overt depression from the covert depression that started in 1981.”
Lina (post #18)
Dont get involved in bidding wars for that maplewood house.
As a rule of thumb, I’d refuse to ever get involved in bidding wars esp. since it is buyer’s market. For that matter I’d never buy a house at the asking price. Even in ‘normal’ times of 1996-2000, everybody used to get ‘some’ discount on asking price – even if that may be as small as 2-5k.
Still searching (post #59) – your story is great and should serve as reminder as inspiration to all of us bubble believers.
Anyone know any good websites to search for tax leins on properties?
Thanks
For those of you like me, saving up our cash for a downpayment (or for whatever you may be saving for), what is the smartest way to hold that cash in the face of the declining dollar? Is there anything to do, or are high yield savings accounts going to remain pretty safe? How will the fall of the dollar affect those of us with lots of cash? Are we looking at horrible inflation that will simply erase the value of the cash we are holding?
RentinginNJ Says:
December 1st, 2006 at 10:19 am
Chicago,
Why don’t we hear very much about the yield curve in the financial press anymore?
rent: It is a forward indicator, and we originally heard about it when it “indicated”. We have to wait for data that reflects a recession. Until that time, people are noticing it, are worried about it, but ultimately have to wait. If and when the economy weakens, you will hear people refer to it “well we’ve had this inverted yield curve now for …… months.”
Bottom line, people are making big bets that the Fed is going to start cutting, hence the Street is reacting buy (1) driving up the value of other currencies relative to the USD (2) pundits are delivering a message that will drive money to support their bets toward winning.
chicago
NJGal
You know what is usually a good protection against inflation – real estate…
Anyone done some research Mahwah area..How inflated are the asking prices there . I was following 3 Br Twnhse.Asking price 430k planning to lowball offer 370k.
On the same note I am very thankful to this site.I wouldhave bought couple of months back sure would have lost tons.
>>You are right about Asian diversification. China is not stupid, they played us like a fiddle.
to an extent. they’re growing their economies on our debt collected backs that’s for sure. however to do that they have to keep the money flowing and the goods cheap hence why they buy our Treasuries and keep their currencies devalued in lock step with the dollar. they can’t ‘diversify’ away from the US dollar in any substantive way due to this arrangement as it would be akin to cutting off your nose to spite your face. secondly if China goes from 90% to say even 70% that means a diversification of over $200 billion and this doesn’t count the ongoing ‘arrangement’.
no, china won’t be able to do to much to substantively affect things. it’s in their own bests interests not to.
I think both issues being discussed, the inverted yield curve, as well as asian long-term treasury purchases, are inextricably linked at this point.
Frankly, I’m not entirely sure the yield curve is signalling recession at this point. Yes, I think the yield curve is an indictor. Yes, I believe recession risks are currently elevated. However, I think the behavior of the yield curve is reflecting very high demand for long-term treasuries relative to short.
Given this situation, I think a catch-22 currently exists. A drop in rates by the Fed could temper demand for longer term treasuries, driving yields up. In this scenario, a cut in rates might actually cause the long-end of the curve to begin to shift back upward, driving longer term mortgage rates upward as well. Perhaps there is no safe harbor for housing in a rate cut.
jb
Re: Lina (#18), house in Maplewood
That house is at 14 Parker Ave in Maplewood? If I remember corectly, it looks like that house is right across the street from Columbia High School and also there’s a gas station right on your corner near Valley St. In my opinion, that area always looked a little dismal to me.
I don’t know why people always talk about Maplewood being nice. I would say overall, it’s only “okay”. From my observations, the town is basically divided by Valley Rd. The part west of Valley Rd (downtown area, train station) is in the good part, and not that large a section of town. The part east of Valley Rd basically goes downhill from there as you get to Ivy Hill (Newark) and Irvington. My opinion only, please don’t get offended if you disagree. :)
Central J #66,
to clarify, when I wrote “the house” makes money, I meant the bank that holds the subprime loan, not your house if you own one.
This market is struggling. Deals can be found; bargains made. Yes, this is a good time to lob a lowball, which I define as minimum 10% below asking on an already aggressively priced property. Market priced to overpriced should be taken down 15 to 20%. Don’t be surprised if you’re rejected or outbid. It’s just part of the game. For now, my default is still to walk away unless seller meets my terms.
As to BC Bob’s post on the dollar. I’m not a currency trader or technical expert, but I am an active investor in the capital markets and a 100% sell rating is a shocker. What’s a central banker to do?
DA says:
“You know what is usually a good protection against inflation – real estate…”
Why is that?
“they can’t ‘diversify’ away from the US dollar in any substantive way”
You’re right, they are doing it slow and gradual. However, they are smart enough to know that this gravy train will not go on forever.
>>The part west of Valley Rd (downtown area, train station) is in the good part, and not that large a section of town. The part east of Valley Rd basically goes downhill from there as you get to Ivy Hill (Newark) and Irvington.
you are mostly right, but there’s a section just east of valley and west of prospect near the tuscan school that’s very nice indeed. to your point though the big money houses are west of and near the town.
NJGal,
I’m not gonna hold myself out as someone who is an expert in investing, but the conventional wisdom I’ve heard is that if you’re worried about inflation, you want to stay away from fixed income and be in stocks and real estate.
Just anecdotally, my REIT index fund is up 5.5% in November alone.
Another option is inflation protected securities. These have been up about 1.5% in the last month (they are flat for the year though).
Finally, to the extent that you’re worried about the dollar specifically, might want to check out foreign stocks.
None of these may fit your risk preference– just some suggestions. And again, I’m no expert.
lina-
you should consider that the current owners overpaid in 2002. The ’06 assessment is 213,700 and that is after updates.
Just because the asking price is at or near what the owner paid doesn’t mean the property is a bargain at close to their asking price.
Please don’t get bullied by a real estate agent who is using the classic — “hurry up and get it before someone else does!” sales tactic. We’ve been looking for over a year and have gotten so used to that (tired) sales pitch.
We can’t wait to see what happens in the spring. I have heard so many people saying that they are going to re-list in the spring.
Including an acquaintance of our family who built their new retirement house without selling their old house first…. they are pretty deflated about trying to sell…. first listed at 999,900 then dropped to 800,000 and still hearing nothing but crickets chirping at their open house….
Take it from a reformed “gotta buy it now” house hunter….we are
Still looking!
http://tax1.co.monmouth.nj.us/cgi-bin/m4sr.cgi?&srch_type=1&ms_user=monm&district=07114681
Richard #77,
Good points all. Yes, China is the enabler for the drunken elephant in the living room wallowing in debt across the Persian carpet.
The Chinese are smart as heck, fierce competitors, and are eating our Ramen. I’m totally out of my league here, but to hazard a guess, I’d say they get around their quandary through sophisticated hedging techniques, which, not being a quant, I can’t pretend to even describe or understand.
Twice,
Caution is advised with the 100%. These are just tecnincal indicators. An explosive counter trend rally can occur at any time.
wall street chasing xhb housing stock continue
upward and onward. so much for the housing
slowdown.
we may be a tad to negative here at this blog.
sooner or later you have to look for good
business opps.
Spelunker Says:
December 1st, 2006 at 1:12 pm
DA says:
“You know what is usually a good protection against inflation – real estate…”
Why is that?
Because it has been historically. There have been studies to prove that.
DA so is it just as a matter of trend or is there a economics reason behind it. just truly curious.
Yes, I know real estate is generally a hedge against inflation but for personal reasons we just cannot buy at this minute, nor frankly, do we want to.
Skep-tic, I am in stocks, but probably only about 10%. The rest is cash. Perhaps I will look into some foreign stocks.
Because it has been historically. There have been studies to prove that.
True, RE has typically kept pace with inflation. I would, however, be cautious about using history as a guide here. In the last 6 years, RE has become anything but typical. It has completely detached from its normal historic pattern of tracking inflation.
I think RE will again return to its role as an inflation hedge again in the future, but must first undergo a correction to reestablish that role.
“Frankly, I’m not entirely sure the yield curve is signalling recession at this point”
JB,
You may be right. It seeems like half the street says it’s indicating recession, another half says it’s a result of the huge/unprecedented flow of dollar’s into the 10 year. The world is awash in dollars and they are being parked here, for the time being; petro dollars, China, Japan, etc..
Goldman says 4% ff’s in 2007, JP says 6%. If inflation (core) is running outside the feds band, currently it is, and they cut, I agree the long end will be driven up. How about that for a double whammy for the housing market?? Short end comes down (won’t matter with the increasing spreads for subprime) and the long end goes up?? Wow!!
Which is a bigger concern, inflation/economic slowdown??? Chi???
pesche22
Just step up and buy.
I don’t know that the economic data points to significant inflation fears. Real etate as a “real” asset typically protects its value against inflation, of course if the “real” asset happens to be overvalued then all the bets are off.
There is a question of where all the “sideline money” are invested. Currently the short term rates are attractive, although that wasn’t the case a couple of years ago and probably won’t be the case much longer.
I am curious what you guys are thinking/doing with your money while blogging…
“Because it has been historically. There have been studies to prove that.”
True. But not between 1920-1945. We needed a war to get out of that funk. HMNNN!!!
DA,
Yes, housing is an inflation hedge. However, when you say “studies have been done to prove”, I expect you to cite those studies. No problems with expressing opinions, but when you make that kind of statement, you’ve got to back it up.
While housing typically moves upward along with inflation, it does move downward with deflation, Japan being a prime example of that.
Do you expect inflation or deflation? Will the Fed try to increase liquidty and let inflation run wild? Or do you expect deflation due to credit contraction/liquidity crisis?
jb
those of you who do this for a living:
if you’ve got cash for a downpayment, a small amount in a foreign large cap stock index fund (say 10-15%) should provide decent diversification against dollar w/o much additional risk, yes?
I’d also like to echo what Chi said earlier..
Make sure to draw a distinction between the broad housing market versus the results of the publicly-traded homebuilders. The information, trends, and focus are similar, but not the same.
BC Bob:
Good point! Oh wait, there was no point. Good to hear from you anyway. Especially since you seemed to be bashing the war and i can’t imagine there are too many war supporters at this point.
JB,
I guess i thought this was a well established fact, and since i am not used to this academic rigor i don’t have any studies that i myself reviewed. but being that this is the age of internet i googled the following link:
http://findarticles.com/p/articles/mi_qa3759/is_200107/ai_n8958553
“Especially since you seemed to be bashing the war”
DA,
I was not bashing nor promoting any war. Your words not mine. Just making a factual statement regarding when housing again achieved returns at/near the rate of inflation, after more than 20 years returning less than the inflation rate.
I am curious what you guys are thinking/doing with your money while blogging…
My short term (i.e. down payment for a house fund) is parked in 6 month T-Bills (5.18% yield and no state income tax).
My longer term (i.e. retirement) money is split between a few different mutual funds, which are weighted toward foreign stock markets (mostly Western Europe & Japan). The mutual fund in foreign denominated currencies provides some protection against a falling dollar…and its up about 20% YTD.
Did I lose my post? or my mind?
KL
NJGal, I’m no expert in investing but here’s my take:
T Bills/cash ‘real’ return is close to zero or negative due to inflation. And we know (it’s debatable) official inflation numbers are understated.
For the down payment (which could be required over a near term), I would recommend staying away from foreign stocks. Yes, they have been on a tear the last 3-4 years, and a lot of money has been poured into them. Beware of the recency effect. They corrected 10-15% in the middle of this year……can you handle the volatility (noise) of the near-term?
Short-term global bonds (unhedged) could be a better alternative to get foreign currency exposure instead of foreign stocks, given your short time frame. An allocation of money market, floating rate, short term corporate bond funds and short term global bond funds (non-US denominated) should provide a higher return than cash in the bank. Consider the NJ municipal money market fund if you are in a high tax bracket, since the income is federal and state tax free.
If you want to be more aggressive, perhaps allocating 10% of the entire downpayment to a US large cap equity-income fund might help; the dividends (granted its a measly 2-3%) are a more tax-efficient way of receiving income with the ‘potential’ for some capital appreciation.
Just my .02 cents….
BC Bob,
Can you include a link to historical inflation/real estate comparison. I am having a problem finding anything that would break returns into periods of time.
thanks.
Still Searching Says:
December 1st, 2006 at 10:57 am
JB,
I’ve just recently discovered your web site and have been reading posts the last several days. I’m compelled to tell you this is the most informative, comprehensive & interesting RE site I’ve found. The links you and others provide are very helpful. Thank you all.
Brief story of my RE experience since March 2005:
Shore house I liked listed in 3/05 for $620,000. Made offer of $545. Seller said take a hike and did not counter. Seller got another offer of $610 and went into contract. After inspection that deal died. I come back with $590 with the intent of a major chop after inspection. The seller is jumping for joy because at the same time they bought another house. After inspection and learning the house needs $75K in improvements/renovations, the seller offers $25K credit. Purchase price is then $565K. I say no and walk away.
Fast forward 9 months to December 2006: The house is still for sale. New price $550K. I offered $450K. Seller says $500K. I’m sticking to $450K. No response yet from seller who is now carrying two mortgages! Just a little story.
JB, why on earth would HSBC purchase subprime mortgages from Champion when there is a high probability some of these loans will default?
GOOD BLEED’EM DRY STORY..
YOU SEE GRUBBERS YOU WILL LOSE BIG IN A MARKET WITH MASSIVELY NEGATIVE SENTIMENT. JUST TAKE THE OPOSITE OF THE PAST 5 YEAR BULL MARKET. IT’S GOING TO GET REALLY UGLY THIS SPRING. PANIC FAST BEFORE THE EXIT REALLY CLOSES AND THEN NO HOPE AT ALL.
BOOOOOOOOOOOOYAAAAAAAA
Bob
Here goes Bbob again, crawling from under that bridge
centralJ Says:
December 1st, 2006 at 11:51 am
twice shy, you said – “the house still makes money.” and “Methinks I’ll do some shopping this weekend”..
do you mean to say it’s a good time for bargains in housing?
I am planning on a low-ball offer 525k offer on a 599k list price this weekend
WHAT LOWBALL?
GO BACK DO SOME MORE WORK BOY!
BOOOOOOOOOOOOYAAAAAAAAAAA
Bob
Time for the disclaimer:
Under no circumstances does this discussion constitute a recommendation to buy or sell securities. The information on this site is provided for discussion/entertainment purposes only.
jb
Guys,
my low-balls are not working.
I just heard the lowball i was planning has other bids. I’m letting it go. No worries.
I’m diversified in large-cap, mid-cap and international-stocks by about 30%. The rest is gathering dust at 4.5%
If I were to plan on RE purchase 6-9months from now, whats the best place to invest.
I have thought about –
a) Gold, but don’t know how/where to buy gold
b) currency investing in euro or pound
c) aggressive stocks
Any ideas for someone like me(cash on hand) who’s a bubble believe who wants to wait 6 – 9 months before a home purchase?
Fed’s Moskow: More rate hikes may be needed
Chicago Fed President says policy tightening may be required to bring down inflation pressure in economy.
http://money.cnn.com/2006/12/01/news/economy/fed_moskow.reut/index.htm?postversion=2006120113
to #110 and #111,
fyi, i just heard there are other bids on the house for more than asking price(Yea, I’m surprised – but suckers can pay, i can wait).
Real estate is a great hedge against inflation. Just as stocks are as well. However, the key to remember with these studies are that they are over 10 to 30 year periods. If your time horizon is shorter, say the next three years (2010) then it may not be such a great investment.
DA,
Go to the Robert Shiller chart. It’s posted on this site numerous time a week.
I just noticed in the tax records that two houses I was shown closed in October at 1) 3% off asking, and 2) full asking price! 455K and 400, respectively.
I never got around to bidding on either one, but they were in good shape and attractive. Point is, there are still buyers out there, as recently as October. These two sellers are definetly popping the bubbly!
I guess this market’s got a ways to go…
I plan to lowball…but for a used car this weekend. Lets see if some dealership will bite.
Devil’s advocate Says:
December 1st, 2006 at 2:24 pm
Here goes Bbob again, crawling from under that bridge
When is the last time you earned a commish check?
babababa
TOUGH!
LEAN TIMES ARE HERE…..IT’S CALLED REALITY.
DO NOT BE A BAGHOLDING UNDERWATER FOOL. YOUR FUTURE FINANCIALS RELY ON A RATIONAL DECISION.
REALTORS – DO NOT LISTEN TO ONE’EM.
YOU HAVE A DOWN PAYMENT 20%, SOUND FINANCES, YOU OWN THIS MARKET. COMPRENDE!
BOOOOOOOOOOOYAAAAAAAAAA
Bob
dreamtheaterr Says:
December 1st, 2006 at 2:31 pm
I plan to lowball…but for a used car this weekend. Lets see if some dealership will bite.
GOOD MOVE! LOTS OF BLOOD FLOWING IN USED CAR LAND. NICE MERCHANDISE. BOB’S ON THE PROWL FOR A FEW GOODIES.
HEHEHEHE
BOOOOOOOOOOYAAAAAAAAAAA
Bob
I am starting to suffer from CAPSLOCKOPHOBIA :)
I don’t think anyone is arguing against real estate being a hedge against inflation.
jb
Heck, what commodities aren’t?
jb
Bob, I never got the chance but wanted to say Hi to you!! There are a lot of words of wisdom in your posts, and I hope more people would realize it…….
You guys are on the ball today. I am totally risk averse, which is why I asked the question. I am going to talk to my financial advisor who handles my stocks and see if she can recommend specific ways to get into the foreign markets without too much risk. I certainly don’t want to put the majority of my cash elsewhere, and I will likely hold onto the stocks I currently have (boring stuff, like JP Morgan) and go from there.
The Robert Shiller historic housing price chart:
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
Share with your friends and neighbors.
“..without too much risk.”
Please define risk in your own terms.
“If I were to plan on RE purchase 6-9months from now, whats the best place to invest.
I have thought about -”
a) Gold, but don’t know how/where to buy gold
b) currency investing in euro or pound
c) aggressive stocks
Just my opinion;
A) No
B) No
C) No
Note: I am not talking my position, just not the right place to put a down payment to be utilized in 6-9 months. I would keep it in short term bills, short term cd’s and mm’s. A 6-9 month time horizon should be as far away from commodities and currencies as possible.
Keeping a down payment you are planning to use in the short-term in securities, foreign currencies, or commodities seems incredibly risky to me, especially given the time horizon in question.
I keep my downpayment cash in liquid CDs, MMMFs, and short-term treasuries. Yielding approximately 5% on this money is just fine with me.
That cash has nothing at all in common with my investment portfolio, which has an entirely different time horizon and risk profile.
jb
You beat me to it BC.
jb
“…boring stuff, like JP Morgan)”
Boring?
A massive derivative book is boring. Who is valuing those trillions of illiquid derivative contracts?
Renting is for suckers.
Buying is for suckers.
SQUATTING is where it’s at!!
then again, a lot has been said about true inflation in last 6 years
IMO,don’t risk your down payment. Be concerned more with the return of your money rather than the return on your money. Boring stuff made Buffett what he is today!!
Re: centralNJ (#112)
If you really wanted to invest in gold, the easiest way to do it — and I’m not that I’m saying you should invest in anything gold-related — would be to buy GLD, which is an ETF.
I have my money in a 5% apy Citibank savings account for now. Not a bad rate, no liquidity problems.
jb, BC, thanks for your insights!
Same boat relative to the cash for the house. What we lose to inflation, I’m trying to make up with more savings. I was the kid who came home from the candy store and hid the bag of candy somewhere in the house, and then my sister ate it. So I’ve been fighting inflation my whole life.
If I could only find my passwords, I could reallocate my retirement savings. ;) My password mgmt. disability has made me a loooong-term investor, and allowed me to benefit from many high points in the market, which I would have otherwised missed.
If you want excitement, go to Vegas.
Investing should be as boring as watching paint dry. Determine your risk tolerance, set your asset allocation, use index funds or ETFs, and commit to investing regularly. Rebalance yearly and tax harvest where possible.
For money required less than a year, use MMMF. For money required with 1-5 years, use bonds with roughly the same duration. >5 year timeframe, go with stocks. Stocks will outpace inflation over the long term, but are notoriously unpredictable over the short term. For example, the Down is still 20% below its 00-01 peak adjusted for inflation.
PS – I am an IT guy, so take the advice above with a pinch of salt.
Posting this thread from late yesteday.
Oouch !!! That’s the only way I can describe this transaction. The TWH is in Bridgewater, NJ. As per deed filed yesterday,
1004 Bayley Court, sold for $360,000
Previous Txns.
1004 Bayley Ct May 06 $425,000
1004 Bayley Ct Apr 03 $304,000
Net Loss: 425 – 360 = $65K
I believe this was company relocation as recent deed says seller was “Cendant Mobility Financial Corporation”.
http://www.c-n.com/apps/pbcs.dll/article?AID=/20061201/NEWS05/612010352/1006/NEWS01
I am not sure why one would still debate the direction of Market. You can’t be hitting bottom so soon. No RE down cycle has been so small.
I met this guy who squatted it in it during that time.
As crazy as it sounds, there really is such a thing as “squatter’s rights”. It’s called adverse possession. If you occupy property for 30 years and meet a host of other criteria, you can actually sue the real owner for title to the property.
This is long, but I think it’s worth it.
OK, since we’re ostensibly on the rent vs. buy issue it is time to ask and answer the big question:
Why is buying a house (generally) a good investment?
I’m not talking about how it makes you feel. I’m not talking about somebody’s opinion about how much a property might increase in value. I’m talking about the math of buying something that you use, but can sell at a later date.
The equation is really not that complex, especially since I’m going to oversimplify it for the sake of brevity.
Here it is:
(DxP)+(BxT-RxT)=P+P(AxT)-(Y+E)
T
Where:
D=Down Payment
P=the price of the house
B=the monthly expense of buying (mortgage, interest, taxes, maintenance)
R=the monthly expense of Renting
A=Appreciation
Y=The amount of money owed on the mortgage
E=.06xP+P(AxT) [it’s the expense associated with selling real estate]
T=Time [how long you live in the house]
Here is the equation with constants in place of variables in an effort to make it more concrete:
D=.2 (20 percent)
P=$200K
B=$1,200
R=$1,200
A=0
Y=0
T=30 years
If you plug in those numbers what you end up with is $40K today equals $188K in 30 years, i.e. If you put down 20% on a $200K home and there is no appreciation, when you own the home outright in 30 years, paying exactly what you would have paid for shelter anyway, you have an additional $148K.
What has happened here is you were able to gain complete control of an asset worth $200K by giving up $40K and waiting 30 years.
Please note I left out C (closing costs) because,
1)I don’t know how to properly write it for this comment section
and
2) the significance of closing costs diminishes over time and an investment such as real estate is something that you would be expected to hold for a significant amount of time
I did not want to complicate the issue by trying to account for inflation.
SG Says:
December 1st, 2006 at 3:10 pm
Posting this thread from late yesteday.
Oouch !!! That’s the only way I can describe this transaction. The TWH is in Bridgewater, NJ. As per deed filed yesterday,
1004 Bayley Court, sold for $360,000
Previous Txns.
1004 Bayley Ct May 06 $425,000
1004 Bayley Ct Apr 03 $304,000
Net Loss: 425 – 360 = $65K
I believe this was company relocation as recent deed says seller was “Cendant Mobility Financial Corporation”.
http://www.c-n.com/apps/pbcs.dll/article?AID=/20061201/NEWS05/612010352/1006/NEWS01
I am not sure why one would still debate the direction of Market. You can’t be hitting bottom so soon. No RE down cycle has been so small.
BOOOOOOOOOOOOOOYAAAAAAAAAAA
KEEP THE BLEED’EM DRY POSTS COMING…SOME PIGEONS NEED REPETITIVE STUFF FOR IT TO SINK IN.
Bob
Dang, the equation formatting got screwed up anyway. In case its not clear, the top part:
(DxP)+(BxT-RxT)=P+P(AxT)-(Y+E)
is supposed to be divided by T
Can someone explain to me why buying gold is or is not an effective way to protect one’s wealth from a falling dollar?
Knumbnuts should of paid $320K then Bob would approve.
LETS GETS SOME REAL DEALS POSTED. SLICE 25% OFF OF 2005 PEAK PRICES FOR A HOUSE NOT CONDO THEN YOU GET A PAT ON THE SHOULDER.
CONDOS BETTER SLICE OFF 35%…CONDOSHACKS ARE RISKY.
Why not oil or Ng companies?
BC Bob,
After looking at the Shiller chart (thanks Unrealtor), it clear that housing values help up during 1920-1945 period, since these numbers are inflation adjusted.
Did i miss something? Can you explain?
DA, it’s a fair take to view only the last 60 years of that chart, when we had a “modern” economy (television, etc).
Lindsey…what happened to the two hundred grand I could have had if I had simply invested the $40k in my safe little mutual fund?
I lost control of a nice chuck of change there, in return for that $200k POS and a bad back at the end of the 20 years.
Are you one of those shell-game guys?
Booyaa Bob,
Why do you prefer oil over gold? Aren’t they similar in terms of investment?
A big part of the rent v. own calculation is what you’re paying in rent.
My wife and I live in a great neighborhood in Queens (ChicagoFinances’s favorite), and pay less than $1700 for a 1000 sqft two-bedroom, a half-hour from our jobs in the City. It is allowing us to save a ton of cash each month and have a life. To buy anything right now would double our monthly outlay, at a minimum.
Perhaps if we were spending $3200 on a Manhattan apartment things would be different.
However, until the housing market settles, it seems to speak towards renting, for the short-term future.
Hey BC Bob (from #24):
Transactions like this are becoming the norm…for the segment of sellers around here who are out of time and MUST sell. That camp of sellers is growing, for sure.
However, I agree with many here that the Spring market will be crucial to where prices go for the rest of 2007. Do the crazy sellers who tried for top dollar and withdrew or expired in 2006 re-enter the market? And, at what price levels do they re-enter? Locally, we’re going to end ’06 with a withdrawal/expiration rate of close to 35% of all listings. Just gigantic.
I’m also expecting to see some increase in listings flowing from the growing number of owners subject to foreclosure.
Again- all disclaimers apply- the absolute easiest stock play in a declining dollar environment is US-based multinationals, especially ones that do a majority of business overseas. When they repatriate profits, the exchange rate turbocharges them. Even a “ho-hum” drone of a company like Hershey (HSY) goes ballistic in this type of environment.
Linsay,
Your “equation” does not help at all. You ignore so many factors that it’s a miracle if this “equation” produces results with the correct sign.
At the same time you tried – gotta give you an “A” for effort. Are you a math teacher?
Take at least 25% off 2005 peak prices Says:
December 1st, 2006 at 2:21 pm
Still Searching Says:
December 1st, 2006 at 10:57 am
JB,
I’ve just recently discovered your web site and have been reading posts the last several days. I’m compelled to tell you this is the most informative, comprehensive & interesting RE site I’ve found. The links you and others provide are very helpful. Thank you all.
Brief story of my RE experience since March 2005:
Shore house I liked listed in 3/05 for $620,000. Made offer of $545. Seller said take a hike and did not counter. Seller got another offer of $610 and went into contract. After inspection that deal died. I come back with $590 with the intent of a major chop after inspection. The seller is jumping for joy because at the same time they bought another house. After inspection and learning the house needs $75K in improvements/renovations, the seller offers $25K credit. Purchase price is then $565K. I say no and walk away.
Fast forward 9 months to December 2006: The house is still for sale. New price $550K. I offered $450K. Seller says $500K. I’m sticking to $450K. No response yet from seller who is now carrying two mortgages! Just a little story.
JB, why on earth would HSBC purchase subprime mortgages from Champion when there is a high probability some of these loans will default?
GOOD BLEED’EM DRY STORY..
YOU SEE GRUBBERS YOU WILL LOSE BIG IN A MARKET WITH MASSIVELY NEGATIVE SENTIMENT. JUST TAKE THE OPOSITE OF THE PAST 5 YEAR BULL MARKET. IT’S GOING TO GET REALLY UGLY THIS SPRING. PANIC FAST BEFORE THE EXIT REALLY CLOSES AND THEN NO HOPE AT ALL.
BOOOOOOOOOOOOYAAAAAAAA
Bob
BOB- U made me laugh. Keep up the spirit of all us bubble believers.
We all should repeat what still searching did in post # 59.
COOL
After looking at the Shiller chart (thanks Unrealtor), it clear that housing values help up during 1920-1945 period, since these numbers are inflation adjusted.
Did i miss something? Can you explain?
Yes. Massive deflation. Housing prices went down along with the prices of everything else.
new article from david lereah (aka crack smoker)
http://www.philly.com/mld/philly/living/home/16077385.htm
NEW ORLEANS – National Association of Realtors chief economist David Lereah takes issue with “academic economists,” among others, and is painting a much different picture of the residential real estate market than the one seen on TV.
Addressing the association’s annual convention, Lereah insisted that “all real estate is local,” and, echoing feelings expressed by many Realtors, said that the media’s focus on national numbers is harming the industry.
“This is a unique housing cycle,” he said. “We should not use history as a guide. The media, academics, and even Wall Street economists are looking at past recessions in housing and drawing the wrong conclusions.
“In the recessions of the early 1990s and in the late 1970s and early ’80s, mortgage rates rose significantly enough and choked consumers out of the housing market, while vast numbers of jobs were lost,” Lereah said. This time, “jobs are being created, not lost, interest rates are near historic lows, and even in overheated markets such as Miami and Los Angeles, there are still good fundamentals.”
He said 74 percent of the housing markets in the United States were not “involved in the boom-bust world that the media and the academics like to paint. I am focusing my attention on that 74 percent, and I expect the housing market to expand in most of them.”
Among the rest are markets Lereah referred to as “hot-boom,” including the usual suspects: California, South Florida, Arizona, Nevada, and the District of Columbia. There are also “boom-lite” markets like Atlanta, non-boom markets like Houston and Dallas, and average-boom places like New York City, he said, “where the correction is just about over and buyers will soon be back, if the media leave us alone.”
One of the chief causes of the current situation, Lereah said, was a jump in housing prices in many markets that reduced affordability.
“Don’t be afraid if prices are falling,” he said. “Falling prices are a correcting mechanism… . We got to a place in which houses were becoming unaffordable, and we reached the breaking point. We had balloons, not bubbles. We are deflating in many of the higher-price markets.
“It shouldn’t cost $740,000 for a two-bedroom, one-bath house in San Francisco with very little land.”
When 2006 is over, Lereah believes, existing-home sales will be down 9 percent from 2005, which will make it the third-best year ever. He compares that with the downturn of the late 1970s, when interest rates of 15 percent and higher resulted in a 48 percent decline in sales, and with that of 1990, with 10 percent mortgage rates and an 18 percent sales drop.
Today’s 30-year fixed rates are about 6.5 percent, he said.
“Remember, balloons deflate, but they can reinflate,” he said, and singled out the Wall Street Journal for “reporting that the housing boom will bust starting in 2001, and continuing to do it. We are all looking at the same data. The academics are predicting 30 to 40 percent drops in home prices, and I just can’t see it, and I’m truly trying to be objective.”
People need to understand that the current buyer’s market will end soon because, Lereah said, “job growth [1 percent in 2006] leads to housing demand, the number of households is expected to grow by 15 million over the next 10 years, and there is abundant inventory and more negotiating room now than there will be later.”
He listed reasons why real estate is on the road to recovery:
A return to a sustainable sales pace of slightly above 6 million existing houses in 2006.
A bottoming of new-home sales, with increases in the last two months, and a drop in inventories of existing and new homes, meaning that buyers’ choices are starting to narrow.
The fact that, despite continued lower consumer confidence, declines in home prices are attracting buyers.
Not only are mortgage rates continuing to decline, but mortgage applications have stabilized instead of dropping substantially, as they had been, Lereah said.
If housing prices drop 5 percent, Lereah said, he estimates that it would increase sales by 250,000 houses, and “the impact of a price drop on consumer psychology could more than double these numbers.”
Sales and not prices are important, Lereah said, anticipating that sales will be flat in 2007.
“Remember, impending rising demand will push up prices,” he said. “Housing is a sound investment. Look at the facts and not the news.”
I just opened a mini account with XE. Made around $10k last month on the demo account, so want to try the real thing now. If $ is sure to go down, why not make money on the Euro.
RentinginNJ Says:
December 1st, 2006 at 4:18 pm
After looking at the Shiller chart (thanks Unrealtor), it clear that housing values help up during 1920-1945 period, since these numbers are inflation adjusted.
Did i miss something? Can you explain?
Yes. Massive deflation. Housing prices went down along with the prices of everything else.
*****
You must be talking about pre-1920 period. After 1920 there was no massive deflation. You are misinterpreting the graph.
Are we looking at the same graph?
Lereah – I hate him. He is such an a–hole. Sorry, but that last article just made me throw up in my mouth a little. Where does he come up with his nonsense?
In other news, construction spending fell at its fastest pace in five years
Any comments lereah?
dreamtheaterr Says:
December 1st, 2006 at 3:04 pm
For example, the Down is still 20% below its 00-01 peak adjusted for inflation.
dream: I haven’t calculated this figure myself – did you include dividends? if so, did you make an assumption about reinvestment?
Bost: I am going to err on the side of recession…….when you hear rumors of Home Depot being taken private in a leveraged transaction, it is obvious that there is too much money sloshing around, and sooner or later liquidity will be reigned in…….I will admit that we may be in a position of having a permanent level of greater capital market efficiency due to financial innovation…
Where were you in 1993?
It wasn’t easy buying real estate at the time. It was misery. Real estate was BAD investment at the time and it was tough to step forward and buy.
Today, he pressure to buy is still there. NO BOTTOM YET!
Housing massacre and Negativity will be widespread. Housing will be hated soon by the grubbers.
Just hope the few buyers out there have the patience to get a reasonable fair entry price for house. 25-35% Houses fair to bargain off of 2005 peak
and condos 35-50% fair to bargain. This talk of 1998 or probably 2000 prices is non-sense but 25 at least needs to happen to staighten out the disparities.
I will admit that we may be in a position of having a permanent level of greater capital market efficiency due to financial innovation…
HUUUHHHHHH????
HOW ABOUT STUPIDITY?
WHEN HAVE YOU SEEN GREEDY MONEY OVER TIME DO RATIONAL SMART THINGS?
PRIVATE EQUITY? DON’T MAKE ME LAUGH! THESE FUDGERS HAVE BIG EGOS AND WANT BIG FEES. WRECK COMPANIES FOR THEIR RICHES.
WATCH THE BLOWUPS. KINDA LIKE 1988-1989 BEFORE THE EARLY 1990’S BUST.
BOOOOOOOOOYAAAAAAA
Bob
“If $ is sure to go down,”
MJ,
Don’t go by what you made in the demo account. Nothing like putting your real a** on the line. Nothing is a sure thing. Usually, if it’s so obvious, it’s obviously wrong. It’s all timing. Make sure you understand the technicals and fundamentals. Just be prepared for huge volatility. That being said, I agree with your position. However, I’ve been in the trade for 3 years and I’m hedged. The point being you can be 100% right in your analysis and 100% wrong in the trade.
http://www.inman.com/hstory.aspx?ID=59657
This week’s economic data fit the classic slowdown sequence: the economy is slowing, slowing broadly now, but the Fed still has an inflation problem on its hands and does not dare to cut rates with the unemployment rate under 4.5 percent — nor under 5 percent, for that matter…….The biggest push to lower rates came this morning with the drop in the purchasing managers’ index into contraction territory at 49.5 (a reading below 50 reflects contraction, 45 is the recession level). The internal, future-looking aspects were even weaker, except for a rise in the prices-paid component, which confirmed the Fed’s inflation box. Other data were similarly weak: orders for durable goods crashed in October, and home sales continued their gentle decline, unsold inventory rising to the seven-month-supply mark……..I continue to believe that a worsening economy might take housing from flat to trouble, but housing will not deteriorate on its own into a blown-“bubble” unless mortgage defaults cause a withdrawal of credit. Delinquencies on subprime loans have roughly doubled in the last year, and that deterioration is the thing to study, not all the “bubble” screeching from nouveau housing experts (otherwise fine economists Robert Schiller and Gary Schilling at the top of the shill list)……The key to a deeper decline in rates: next Friday’s report of November payrolls. In any economic slowdown the job market is the last element to crack, and this week brought signs of both its 2006 strength and possible cracking. The Fed’s “beige book” mentioned outsize growth in wages in very tight parts of the skilled-labor workforce just before news of an over-Thanksgiving surge in new applicants for unemployment insurance.
All the talk about buy/rent a couple of very basic fundementals keep being left out.
Buying is great if you are at a time when stability is important, when you like your neighbourhood and house, have (relatively) reliable employment and know your family size (kids etc) and don’t want a landlord to sell from under you.
Renting is great if you want flexibility – job and family status are likely to change and you don’t want the complications of upkeep.
Yes, there are financial reasons to pick one or the other as well as emotional reasons. However it seems foolish to focus on any one as inherintly BETTER than the other as they each have their pros and cons.
What Lieareah fails to include in his analysis is that prices surpassed fundamentals and choked demand, by pricing out all of the disciplined buyers who would not just pay anything to own. The US will dip into a recession, how bad will it be? I’m not sure and will not speculate. As R/E winds down the number of jobs lost will increase and that is why Lieareah continues to claim sales are key (in addition to feeding his fellow realtors). As jobs are lost affordability will worsen and create a self perpetuating decline. Sales will continue to decline and as they due jobs will be lost as jobs decline housing will stop selling. I think sales need to fall to 5.xMM before prices really begin to decline and sales fall back to normal. I think at 6.xMM the market is still fairly hot. CR had a graph showing sales going all the way back into the 70’s. If I remember correctly sales had been fairly consistent, up until the late 90’s when they jumped into the 6-7MM range.
http://www.moneyweek.com/file/22442/why-poor-americans-have-stopped-buying-houses.html
Some commentators were cheered by a rise in prices month-on-month, arguing that it suggests the market is stabilising. Their logic is that sales may still be dropping, but at least builders are no longer having to slash prices to make those sales.
But a quick look at the raw data shows that the average price only rose because the majority of the lost sales were in lower-end properties. The conclusion? Rich Americans are still buying real estate, but most of their less-affluent compatriots have suddenly become rather less keen. And housing isn’t the only place we see that disparity…
Despite a lot of hyperbole over buoyant Thanksgiving weekend shopping – which was based on some very dodgy data from the National Retail Federation – large retailers seem to have had a miserable November. ….
But it’s the breakdown between different types of stores that tells the big story. The main exceptions seem to be the upscale shops such as Tiffany’s, which reported a +23% rise in third-quarter profits and is very bullish on sales for the rest of this year.
There’s nothing strange about this. Over the last few years, most of the salary gains have gone to the top end of the workforce. Lower earners are struggling – their wages have barely kept pace with inflation. The bulk of consumers have financed their spending by dipping into savings and/or borrowing against the value of their houses.
With the housing market seemingly in freefall, mortgage equity withdrawal starts looking very unattractive. If US consumers are to continue spending, their incomes will need to rise…..
More recent figures suggest that incomes may finally be rising, but that consumers are -shockingly – saving much of this windfall instead of blowing it all on a new 42-inch plasma TV. Well, we say ‘saving’, but what we really mean is that they’re looting their savings less feverishly than a few months ago. The personal savings rate – which should probably be renamed the dis-savings rate – improved to -0.6% in October, from -1.7% as recently as July. Yes, those are minus signs and have been now for 19 straight months.
Still, that small step towards financial responsibility explains why consumption is flat over the last two months (the much-trumpeted October increase was offset by a downward revision to September). This may be the first sign that hitherto-tireless US shoppers are finally losing enthusiasm for their credit-fuelled spending spree.
Meanwhile, a steady drip-feed of indicators points to weakening in the rest of the economy too. For example, yesterday’s Chicago Purchasing Managers’ index dipped below 50, the lowest since April 2003, signaling that the manufacturing sector in the region saw business contract this month. More significantly, durable goods orders and shipments for October were very soft, suggesting that the business investment boom that looks vital if the US is to avoid a severe slowdown has yet to begin.
This gloomy data may help explain why the US dollar has suddenly tanked in recent days, hitting a 14-year low against sterling. Despite Ben Bernanke’s hawkish talk about inflation being the biggest threat, currency markets seem to believe that he’ll need to ease rates soon in a bid to avert recession.
GLD is a Gold ETF you can invest in if you want Gold exposure.
FXE is a Euro ETF you can invest in for the Euro.
For those of you interested… Have a nice day!
central; I find it amazing that there are still people out there out bidding each other in bidding wars. I am truly shocked, although maybe I should be.
Do these people not read a news paper or watch the news. Ok you some are stiill buying for whatever reason, but bidding wars.
If I had bought the house I was looking at last year, I would have been 50K+ or more under water right now. No i will wait until the Spring, it should be very very interesting. The part is over, the music is stopped, I guess there arre some who still do not know that. Amazing.
Like Grim has said a few times, I think many people just have a budget of what they can afford to purchase. As houses move into their range, they buy them. They don’t try to anticipate whether the house will be more or less expensive in 6 months.
Housing remains unaffordable for most 1st time buyers, but as prices come down, buyers will jump in as long as they have jobs and financing
bergen.. Yes, it’s incredible that there are bidding wars.
I thought my agent was lying for a second, but I doubt it.
Just to put things in perspective…the property i mentioned was initially listed at 699k (yea, greedy indeed!) in April 06.
reduced to 629k.
had an offer that during attorney review.
back on market at 599k
my agent made a verbal offer for 532k on my behalf and was told that there were already two bids over 600k.
From my email.
Interesting excerpt: “Look for first-time buyers purchasing starter-homes to be the first segment to recover”.
Full text follows:
OCTOBER SALES TREND HIGHER
The New Jersey housing market improved in October as home buyers took advantage of recent declines in home prices and lower mortgage rates. In October, contract-sales jumped 10% after being down by 20% through the first 9 months of 2006. That this improvement occurred at a time when seasonal trends traditionally bring a decline in purchase activity is significant. Also, the number of unsold homes on the market declined by more than 4,300 houses in October, reflecting a 6.4% decline overall from the September inventory level.
According to Freddie Mac?s Primary Mortgage Market Survey® (PMMS®), the 30-year fixed-rate mortgage (FRM) averaged 6.14 percent for the week ending November 30, 2006, which is lower than the 6.26 percent rate of one year ago. Also contributing to the October sales performance was continued job creation with more people now working in New Jersey than at any time in history, falling energy prices which affect both home heating and commuting costs, and rising wages resulting from the tight employment market.
A closer look at Unsold Inventory indicates an overall supply of 8.9 months, down from 10.4 months in September. One year ago, Unsold Inventory reflected a 5.5 month supply. When analyzed by home price, the market continues to show the greatest strength below $600,000 with a 7.9 month supply as compared to 19.4 months above $1 million and 45.2 months above $2.5 million (see table at right).
The improvement in the housing market is a direct result of the gain in housing affordability outlined above and makes a strong argument that the current housing slump is more correction than crash. Housing affordability suffered greatly from 2000 to 2005 during which time salaries in New Jersey rose only 16% as compared to an 87% increase in home prices. Given the recent gains in housing affordability outlined above it appears that the market may be approaching the balance point at which recovery will begin. Look for first-time buyers purchasing starter-homes to be the first segment to recover, following which the recovery will spread to the other market segments. However, the current sensitivity to both home pricing and housing affordability will prevail well into the recovery cycle ensuring that home prices will remain relatively flat once the decline subsides. Therefore, Right-Pricing! will remain essential to successful home marketing well into 2008.
Jeffrey G. Otteau
Otteau Valuation Group, Inc.
#64-Twice shy
Only 3% default on sub-prime? Time will tell.
Today on bloomberg radio Champion advertised the new banking/lending suggestions for non-conforming loans as posted on #8.
I was at the DOL datafest today in Trenton. The featured speakers were Seneca and Hughes. The theme for the day “construction in New Jersey”. Long story short, they trotted out the usual line from economists but also looked back at the late 80’s and recited the stats associated with it. (it almost followed the NY Times piece) And then said that unlike other economists calling the bottom they are reserving judgement and are casting a somewhat jaundiced eye toward the market.
What I did not like is they discussed income growth and consumer spending but did not mention MEW other than just mentioning HELOCs and a joke about how during the runup Hughes was making more money going to bed rather than working.
From today’s Otteau Report…
“The improvement in the housing market is a direct result of the gain in housing affordability outlined above and makes a strong argument that the current housing slump is more correction than crash. Housing affordability suffered greatly from 2000 to 2005 during which time salaries in New Jersey rose only 16% as compared to an 87% increase in home prices. Given the recent gains in housing affordability outlined above it appears that the market may be approaching the balance point at which recovery will begin. Look for first-time buyers purchasing starter-homes to be the first segment to recover, following which the recovery will spread to the other market segments. However, the current sensitivity to both home pricing and housing affordability will prevail well into the recovery cycle ensuring that home prices will remain relatively flat once the decline subsides.
Therefore, Right-Pricing!
will remain
essential to
successful
home marketing well into 2008.”
Thank you Jeff.
And didn’t I expound on this on another thread?
Just reviewed the r/e updates for the day and FSBO who rejected me for pricing his reno project too low in October, just had a price reduction and is now only $4K above what I told him to list at.
Some are worth losing. :)
I apologize for not scolling back before I posted…#175 covered Otteau’s recent post.
Hate being redundant!
Re: Bidding wars. Your agent should advise you to walk. I would.
Ex.: I have a buyer for a 4 family. Found one in JC, expressed interest, obtained sellers disclosure. Week later, receive a call from LA, another offer on the table. FF 2 weeks ahead, property not even in attorney review. I hate cheap ploys.
Further, same buyer…viewed another 4 family in BC, exceptionally overpriced. However recent comp. sale in same town (and surrounding towns) will never support the owners asking price; therefore won’t appraise and obtain lender’s approval. We placed an offer at market value ($200K below asking).
They won’t respond, but it’s worth making the statement based on the fact that a) it will never appraise b) the return based on their demand price is not profitable.
from 175-
According to Jeff Otteau, housing is affordable because in the last 1 year
1] mortgage rates dropped from 6.26% to 6.14%
2] Oil actually went up from $60 to $63( -$3)
3] Net jobs in NJ (Civilian Labor Force) increased (Oct 05-Oct 06) from 4456.5K to 4472.2K = 15K!!!
4] Unemployment in NJ Oct 05-oct 06 = 195.5K – 195.7K = -0.2K. Total unemployed actually went up.
5] Hourly wages increased by $1.94.
http://www.wnjpin.net/OneStopCareerCenter/LaborMarketInformation/lmi16/tablea.htm
RE is finally affordable!!
OK all of you now go back and use your $1.94/hr wage increase to buy the next 500K property that you come across.
Just got back from helping my friend start renovations on his 1910 Victorian. Closed the sale on Monday. Original price, $499; Bought for $320. Prospect Ave., Plainfield, 7 houses away from Jim McGreevy.
BoooooYaaaaaaaa.
Post 150 Pat,
The constants I put in were just an illustration to keep the math very straightforward. The reality is far different. B does not necessarily equal R and it almost certainly will be smaller than R over a long time if you have a fixed rate mortgage.
Appreciation, at 1% over inflation is quite lucrative, if it happens to be negative (i.e. depreciation), that could create or would exacerbate a loss. In the jargon of economics the oxymoronic phrase “negative appreciation” actually is an acceptable way to express depreciation).
The whole point of the equation is that when you get a number you don’t like, you have made a bad investment.
I am not a math teacher, but I do a lot of math. BTW, earlier this week someone here told me I should be an english teacher.
Post 154 Devil’s Advocate,
Plug in whatever numbers you want. I did not provide equations to get the variables, (i.e. B’s change over time due to higher tax rates etc., or R’s changes due to inflation) because this is meant to be a quick and dirty calculation to get a rough idea if a purchase makes sense from an investment standpoint.
Obviously the assumptions you can start with can be wildly different. If R is substantially lower than B, the return at time of sale is much smaller. (I think that’s the situation we’re in now around here, i.e. real estate is a bad investment). A particularly short time between purchase and sale can make C (the left out closing costs) very significant.
Also, it is not uncommon for people to look at their nominal gains as real gains. I didn’t want to muddy the water by trying to explain that a nominal increase may not be as much as perceived because of losses to inflation.
I hope that helps you understand what I am trying to say.
Since I’m in at the moment, I’ll bring up something from the New Homes report the Census Burea released the other day that seems significant, but hasn’t gotten any attention.
If you look down at the “not seasonally adjusted numbers” (more economics jargon, it really is what they believe actual sales in the period were), you can see that sales in the Northeast east were 3,000. That’s 3,000 for the entire Northeasthern US. Now look a few columns over and you will see unsold inventory at 54,000.
It takes more than one month’s numbers to set a trend, but in October the inventory of new homes in the Northeast represented an 18-month supply. Even as an anomaly, that is noteworthy.
More Census Bureau fun. On Nov. 17 the bureau’s release on residential construction data contained this eye-opener in Table 5:
Completions in the Northeast: 12,500.
If you’re wondering why that might be significant, think about the sales number, 3K.
The ratio of completions to sales was better than 4-1. Looking back at the same month from 2001 to 2005, the ratio was never higher than 2-1. With the exception of 05, in all of those years RE sales were growing, they are now shrinking.
checking something
Lindsey,
“Completions in the Northeast: 12,500.”
A 4+ month inventory excluding those planned or under costruction.
trying again
http://cosmos.bcst.yahoo.com/scp_v3/viewer/index.php?pid=16573&rn=289004&cl=1322349&ch=633459
1]owning costs 35% more than renting.
2]Depending on market conditions it may be better to rent.
I wonder it’s even possible
What are you trying to do?
i thought unemployment was doing better.
U.S. weekly jobless claims highest in over a year.
http://www.marketwatch.com/News/Story/us-initial-weekly-jobless-claims/story.aspx?guid=%7BD82D7BE0%2DD6EF%2D46EB%2D8DFA%2DDE4B89C4FB9E%7D&siteid=mktw&dist=morenews
now?
V,
Just playing with something.
I’m not sure I accept that Buying costs 35% more than renting line. Have you tried to use the equation I posted in 142?
If you can follow the math and you’ve got a number for each variable, it should tell you something.
If you do, let me know what you get.
“Transactions like this are becoming the norm…for the segment of sellers around here who are out of time and MUST sell. That camp of sellers is growing, for sure.”
“Locally, we’re going to end ‘06 with a withdrawal/expiration rate of close to 35% of all listings. Just gigantic”
Clot,
Thanks for your candid input. I hear very similar #’s from realtors in so.bc. These #’s are incredible/just huge. I’m suprised nobody commented on this. I agree with you, the spring will be crucial, the final arbiter?? The inventory will be backed up to the Delaware water gap. Regarding your helicopter pilot, watch around Feb., I feel the Fed will try to jump start the spring selling season. Unfortunately, I don’t know if they really get it. This market is not stuck in the mud as the result of rates.
Spelunker, #192:
“U.S. weekly jobless claims highest in over a year.”
From the same article:
Unemployment is currently at 4.4%.
We’re hovering near historic lows.
(In Europe it’s consistently above 10%!)
yikes. No wonder they spend so much time in cafes.
Thanks.
Dec 08 08:30 Unemployment Rate
consensus – 4.5%
You must be talking about pre-1920 period. After 1920 there was no massive deflation. You are misinterpreting the graph.
Are we looking at the same graph?
Of course, here is monthly CPI data going back to 1913 from the BLS.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
In 1920, the average CPI for the year was 20. By 1935, it was 13.7. This means that nominal housing prices between 1920 and 1935 could have fallen by 32%, but when adjusted for inflation (or deflation in this case), prices were flat.
Since a mortgage is in nominal dollars, you could easily end up owing more on the mortgage than the house is worth.
Close
Close
Spelunker and Unrealtor
The way unemployment is counted in the US and European nations isn’t the same. I’m not sure if it makes all the difference, but it makes some. Check out workforce participation rates here and there, I don’t have the numbers in front of me, but I believe they are very close.
Here’s a good rent vs buy calculator.
http://www.dinkytown.net/java/MortgageRentvsBuy.html
Behind the face,
The calc suggests that i rent for the next 30 years :)
From Marketwatch:
Economy hard to figure out at present: Fed’s Kohn
It’s always hard for the Federal Reserve to accurately gauge economic activity in the U.S. economy, but it’s especially hard at the moment, said Federal Reserve vice-chairman Donald Kohn on Friday.
Measurement uncertainty always bedevils policymakers, but “these difficulties are especially pronounced at times like the present, when resource utilization and the rate of economic growth are probably not far from their long-run potential, inflation trends may be shifting and policy interest rates are close to their historical averages in real inflation adjusted terms,” Kohn said in a speech to a Fed research conference.
…
Kohn said a better measure of expectations in the housing market would help the central bank understand whether the recent gains in home prices were simply a speculative bubble or justified by economic fundamentals.
In light of such uncertainty, Kohn said a central bank should move gradually and be cautious and never put all its weight on any one model. But there are some circumstances will the central bank may have to surprise markets to counter risks to the outlook.
Rachel,
Did he already pay that agency a fee? Is the agency asking for yet a second fee payment for this?
jb
unrealtor says:
Lina #18, to add — that someone might be taking a loss, is largely irrelevant.
Their loss is irrelevant to the buyer, who will either pay a certain price, or not.
I have been taken aback many times by the amount of “profit” that some short term homeowners have made and when I bemoan that this is not right, especially when they complain that we are insulting them with our low offer! I have been told:
“That someone might be making a profit, is largely irrelevant”
“Their profit is irrelevant to the buyer, who will either pay a certain price, or not”
Whose wrong here?
KL
“Did he already pay that agency a fee? Is the agency asking for yet a second fee payment for this?”
Yes, $500 to relist and the broadcast email. He also wants to negotiate the contract for another $500. I think there will be another spring re-list as well. In the end, this will probably cost the same as full service.
Rachel
damn italics.
oops sorry about the italics
Is it closed?
Yes.
Selling bonuses are the most ridiculus way to promote your home.. I used to see them once in a while, now there’s a ton of them. I can’t imagine not telling the buyer about the bonus, so I think it puts the home at a disadvantage. They are now not only going to pay a premium for a home but they are paying me too. If they lower the price by the amount of the bonus I still get paid, the seller’s still get the same amount and the buyer does’nt have to pay me also. I can not tell the buyer to lower his price by the bonus amount and I will not take it, because it is not mine to give away. It goes to my broker who would take her part and then give me mine. If I wanted to give the buyer just my part, I would have to do it privately so I would be taxed for recieving it but I would not be getting it. Very stupid Idea.
I have a great need to sleep at night, and I conduct my business in a way that is conduvice to that. Not disclosing this very pertinent fact may not be lying but it is saying “oh you don’t need to know”
We should’nt be deciding what the buyer’s need to know, full disclosure benefits everyone.
KL
Although I do need to add, being in this business for a little while I noticed that human behavior can be very funny sometimes,and this might be quite surprising, but some people really enjoy the view from where their heads are.. really! (-:
Question: What would be a “fair” % of annual appreciation on a SFH since 2001?
I’ve read posts that suggest 5% annually. Using this formula, the Shore house I referenced in #59 would be valued today at approx. $200K, which seems way too low.
The currently listed price ($550K) reflects an annual appreciation of 43%.
The currently listed price ($550K) reflects an annual appreciation of 43%.
That’s the crux of this whole debate.
By the way, has anybody recently gone to motor vehicles to get a license renewed??? They turned me away. I had a passport, a birth certificate, a bank statement and a utility bill!! They said my birth certificate was invalid since it did not have a raised seal. By the way, the same birth certificate used to get my passport. I can fly all over the world but not drive in Jersey??? One of the most damn liberal states in the country and I can’t get a driver’s license!! What the hell are the illegals doing to get their licenses renewed??? Should make the traffic a little more tolerable in NJ!!!
BC it is the new 6 point system. All of the artifacts you need to produce are a bit over the top however you will get your license in record time. I just renewed and it took me under 15 minutes.
you should have been able to use your old license too no?
By the way, has anybody recently gone to motor vehicles to get a license renewed??? They turned me away. I had a passport, a birth certificate, a bank statement and a utility bill!! They said my birth certificate was invalid
HAH!
Yes, and if you were born in Hudson county after 1960 your screwed. You need a state birth certificate not a county one. Too much corruption in hudson county. Don’t forget the advantage you have over me as I have a different name… so I had to produce a marriage certificate. Worse is the predicament my husband is in right now. Lost his wallet. Can’t get a birth certificate without proper id can’t get a license without a birth certificate, he is driving around with a police report that gives his license number and he is jumping thru hoops, certified mails to vital statistics and all kinds of crap, and he has to do it himself, because I refused to get involved, that alone makes it a herculean effort. I am enjoying the view. (-:
KL
The amount of postings this morning are the result of a deep dread of christmas tree lights!
BC Bob, illegals are getting their licenses renewed in Kentucky, North Carolina and Pennsylvania. Although recently KY has become more stringent.
#208:
“Whose wrong here?”
Neither. The market is the market. The disconnect is that many of today’s sellers are still living in 2005, rather than 2006. They’re hoping to find buyer mania that no longer exists.
BC Bob (from (#195)-
No, the market is not stuck because of mortgage rates. However, application of some hot, loose money is such an appealing panacea to so many economic challenges that I don’t think the Fed can resist.
To Rachel (from #6…or #206?):
Your boyfriend is a moron. Good riddance. This “flat-fee” scammer is just extracting more payment and churning the listing. Why should this agent care whether the unit sells or not? His only compensation is what ever he can extract- upfront- from your ex.
BTW…a top-quality broadcast e-mail to Realtors costs $75. Just a little margin built into that quote, huh?
Spelunker,
I had my present picture license. I was aware of the 6 point system. I had enough points. The problem was my birth certificate. Since they did not accept that, the points failed. Can you believe if I had another ATM card, I would have been OK. I stated that “I only have one, how many should I have”; answer, “everybody has more than one” I lost it and got escorted out. The cop said, outside, “he loved the show, sorry the state is f*cked up??? I said, “you’re preaching to the choir” Bottom line, I have to go back!!
KL,
Bingo!!! Margaret Hague, good ole’ JC!!!
Searching,
Maybe I should have bought a bottle of bourbon and gone to Kentucky!!!
Clot,
That’s what I said, not stuck because of rates.
I just posted this on Kannekt, how long until you think it will be removed?
Flippety Do Dah, Flippety Day
My Oh My What A Terrible Day
All Of The Buyers Running Away
Flippety Do Dah, Flippety Day
My Condos Will Be In Foreclosure
It’s The Truth, It’s Actual
How Very Unsatisfactual
Flippety Do Dah, Flippety Day
Terrible Feeiling
No One Will Pay!!
Lyrics by HeHeHe :-D
Greenspan opined two moths ago that the housing market has bottomed.
“…Fundlach chief investment officer…….at TCW Group begs to differ from this sanguine view. “Greenspan is out of his mind to declare a bottom in the housing market after just a six-month slide.” he said last week. “This is the kind of silly optimism that one would expect from somebody who’d just paased his real estate brokerage exam and was hoping to drum up business.”
HAHAHAHAHA
All greenscam is doing is trying to pyschologically impact buyer sentiment because the Blame for this mess is coming his way.
Greenscam is a currecny wrecker and printer. He deserves the blame for the disastrous dollar position we find ourselves in today.
“In fact Gundlach …sees lots of trouble ahead for US residential real estate. ..he sees no bottom in the slump until at least 2008 and no meaningful recovery until at least 2010”
Bob approves this meesage
NO SPRING REBOUND—-SPRING HOUSING MASSACRE COMING TO A HOOD NEAR YOU.
BOOOOOOOOOOOYAAAAAAAAAA
Bob
MAKE’EM PAY FOR TRASHING BUYERS FOR SEVERAL YEARS.
IT’S PAYBACK TIME BABY….
BLEED’EM DRY
BOOOOOOOOOOOYAAAAAAAAA
Bob
HEHEHE HOHOHO :)
BOOOOOOOOOOOYAAAAAAAAA
..Housing bust is only in the early innings”
..shoddy home lending practices abounded as never before, amplifying the housing bubble..”
“Borrowers were allowed to qualify for mortgages far beyond their incomes.”
“property Values were inflated by bogus appraisals.”
HOUSING MASSACRE SPRING 2007…NO REBOUND SCHMUCKS
BOOOOOOOOOOOOYAAAAAAAAA
Bob
“If the economy does take a tumble, the Fed’s normal course of action would be to lower interest rates to stimulate borrowing and spending. Problem is, a falling dollar is inflationary almost by definition, and the Fed’s primary responsibility is keeping prices stable and inflation in check. Were Bernanke to lower interest rates, money would exit U.S. bonds in favor of, say, euro-dominated ones with higher yields. That would push the dollar even lower, perhaps leading to late-’70s style stagflation.”
“The good news is the dollar’s slide is likely almost over”
[Oh really??]
“Faced with such disadvantages, they naturally will pressure their respective governments and central banks to take steps to relieve the currency strain.”
[They don’t get it. Currency intervention by cb’s are a temporary fix, just a band aid. They’ll shake out the weak hands and give the markets an opportunity to sell again (dollar)at higher prices. The markets will push like there’s no tomorrow and test the cb’s resolve. The markets win. Currency intervention only works once the fundamentals change and are confirmed by the technicals.]
http://money.cnn.com/2006/12/01/news/economy/dollar.fortune/index.htm?postversion=2006120117
Bleed out every drop…MAKE”EM PAY
Abuse a realtor this weekend.
put a 50% lowball off some delusional sellers house just to tool on’em…
It’s PAYBACK time!
BOOOOOOOOOYAAAAAAAAA
Bob
Greenspan opined two moths ago that the housing market has bottomed.
“…Fundlach chief investment officer…….at TCW Group begs to differ from this sanguine view. “Greenspan is out of his mind to declare a bottom in the housing market after just a six-month slide.” he said last week. “This is the kind of silly optimism that one would expect from somebody who’d just passed his real estate brokerage exam and was hoping to drum up business.”
hehehehe
BUST!
BRING it on!
The misery is only beginning…We want more.
BOOOOOOOOOOYAAAAAAAAA
Bob
BOOOOOYAAAAA,
I just got finished reading that in Barron’s. Loved the quote pertaining to King Alan.
It lasted nearly 20 minutes. New record.
Just think if you don’t sell your house this week your house will fall in price next week.
Hehehehe
Remmeber priced out forever….how about depreciate by the month…
HOW does it feel?
maybe a few lessons will be learned.
Tool on a Realtor weekend.
babababa
I think we should all go to some open houses this holdiay season, provide a little traffic, raise some spirits for the holidays.
“raise some spirits for the holidays”
On the contrary we should stop attending all open houses. I’m thinking of not attending any open house this month.
Greedy grubbers are known to twist any statistic in their favor.
BOOOOOOOOOOYAAAAAAAAA
That know doubt is true!
“We’re just sitting and waiting,” says Paul. “I’ve never seen houses sit on the market for so long.”
“We can’t move until we sell the house,but we feel the price is extremely reasonable. We’re not going to give it away.”
“The regional economy is steady”
Still searching,
You got me on the bourbon kick;
http://money.cnn.com/2006/12/01/real_estate/help_the_Jantzens/index.htm?postversion=2006120109
“..but we feel the price is extremely reasonable.”
Denial denial denial.
As why inventories are skyhigh and will go even higher come january.
IT’S NOT 2005 GRUBBERS….WAKEUP!
many grubbbers are in for a shock if they knew how low the price of their shacks are going down. They would be rushing to list lower than anyone else quickly instead of sitting like a knumbnut fool waiting for home evaporating home equity or even losses
BETTER WAKEUP.
BOOOOOOOOOOOYAAAAAAA
Bob
“You know what is usually a good protection against inflation – real estate”
its an ok protection against inflation, but if you are ever planning on moving again or have to move because of a job situation, it may not be.
Best thing against inflation is the metals.
SAS
“Can someone explain to me why buying gold is or is not an effective way to protect one’s wealth from a falling dollar?”
It is the best way, in my opinion:
Gold is real money, tangible and liquid.
Real estate, tangible but not liquid (just ask any current seller in NJ, and you will find out just how illiquid RE really is.
Shares & Bonds are liquid but not tangible. i.e just a piece of paper.
Gold has cultural value. i.e everyone knows what gold is. (example, someone says they don’t speak englsih, pull out a gold coin and say..”oh yes you do, now speak” they will suddenly speak english. get the drift?
You get paid in USD, you buy some gold, before a dollar decline and sell it after a decline for a profit.
If you don’t believe me:
ask the mexicans in 94, the Argentines in 99, the Germans in 1923, dig up someone from the depression, I am sure they would agree with me.
yes, those people above are extreme examples. You can also look at the charts from the 70s, and the gold charts vs. USD chart over the past 5 years.
That a good question actually….
anyone know which one went up more % wise over the past 5 years. Gold or real estate?
In any case, you get idea.
SAS
SAS,
In conjunction with this Gold is priced in dollars. As the dollar gets whacked gold actually gets cheaper for our foreign trading partners, just like they buy crude cheaper than us.(currency adjustments since 2002)
Also, which was up more over the past 5 years, gold or the dow??? look at the gold bugs (hui)index. Also, take at hard look at industrial metals. Do you think this is the US consumer buying on credit????
http://www.financialsense.com/editorials/griess/scoreboard.html
I have just one problem with gold – It is thing everyone is talking about. Ask Joe Public what is a good investment these days and he will tell you GOLD.
It seems that when something is on everyones lips, it is the start of the end.
lisoosh,
I would have to disagree with you.
Yes, it has gotten some fan fare in the past 2 weeks because it really rallied.
If you ask someone what they thought about gold only a few months ago, when it was tanking…it was the joke of the town.
remember… I called that pullback “a window of opportunity” some on here saw it as such. Although, I am still eating crow about my $100 crude call ; )
My point, I still think we are in about stage 2 of the bull market in the metals. Fundaments are there, just not the market psychology.
As for Joe 6 pack, they are still into RE and wondering if they should buy.
Just as RE has a ways to the bottom, in my opinion, has a ways to the top.
SAS
BC,
Wow! That’s what I call a chart!!
This may help some on here.
Here are my 4 phases of a bullmarket:
phase 1- Born on pessimism.
2- Grows on skepticism.
3- Matures on optimism.
4- Dies on euphoria.
Now, as you read the above, ask yourself what is most opinions of gold. I think most are in phase 2. yes?
Also, ask yourself where RE fits in the phase…clearly…. the bullmarket in RE died on euphoria in the summer 05, as every seller was doing a dance.
Just one opinion.
;)
SAS
SAS,
What do you think about silver?
A friend of mine is buying all he can and says it has more potential than gold.
thanks for your thoughts,
Anyone have a look see at the economic indicators this week?
look at the 5 yr charts:
-consumer spending (some are feeling the pinch)
-personal savings rate (a major problem, people spend more than they make)
-manufacturing index (thanks China, when you open your xmas presents this year, count how many were Made in China, and thank yourself for putting americans out of a job to have a widget for little Emily & Jacob).
-Balance of trade (credit bubble anyone?)
-Housing Supply- Just take a drive through NJ, don’t even need to look at the charts. If I was a seller in this state, I’d have diarrhea.
wow.
SAS
Lisoosh.
I don’t agree. The public is not in this trade. The public is like Pavlov’s Dog, cheering the Dow, because that’s what CNBC is telling them. The general public can’t name 3 of the top gold stocks, hell they probably can’t name 3 gold stocks at all. When gold sold off in into early Oct (hedge fund and central banks), everybody said it was done. What happens?? It climbs the wall of worry and is now $100 higher. That being said, there will be vicious down moves to test support/200 day moving avg. This could come from this point or after another $50-75 advance.Everybody will again say it’s done. Just the function of the market, shake off the excess before the next up move begins. I would get concerned when everybody at cocktail parties/john q public is asking where is the best place to buy gold bars. Then it’s time to run. IMO, there is a much better chance of gold hitting $1,000 within the next 3 years than real estate appreciating 10% off its 2005 highs.
******Usual disclaimers apply, just an opinion not a recommendation
“What do you think about silver?”
It follows gold. But as they say in the biz, silver is nothing else but poor man’s gold.
I don’t mean that in a negative way. Silver is great. I know silver has some industrial use. So, I like silver just as much as gold.
Also, I have never been a big fan of the metal ETFs. I always believed that metals is something you want to have in your hot little hands.
But, this is just one opinion. So the usual disclaimers apply because I am not a financial advisor.
SAS
SAS,
Present supply/demand, fundamentals are really bullish for silver. Not as liquid as gold. How does an economic slowdown affect it?? Gold is being viewed as an alternative currency. That being said, silver is vulnerable anytime to a big move down. It could pull back $2-3 and still be technically positive. It’s not for the faint of heart. I have the ETF’s in my IRA and trade the futures in a reg account. A $1 move in gold futures is worth $100, a .01 move in silver futures is worth $50. 1 gold future equates to 100 oz of the physical metal, 1 silver future equates to 5,000 oz of the physical metal. A $1.00 move in the ETF may not seem like a big deal, it’s worth $5,000 in the futures. IMO, you should be hedged if you trade these.
Same disclaimer as SAS.
The $1 move in ETF and $1.00 move in futures,$5,000 pertains to silver. Also, buying coins and holding is something entirely different. Maybe somebody else could comment on that. I don’t buy the coins. Not because, I think there is anything wrong with it, just that my preferences are the metal stocks,etf’s and futures.
Looked at a property today, because they just dropped the price $75K. When I get home, I see that a house on the same street, with a larger lot, just closed for $70K less.
Boooooya! Exploding comps.
We have a long way to go folks. Each housing bust phase in modern times is equal in magnitude and duration to the boom phase:
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
Lots of price drops and ‘negative equity’ in the future for Greedy Grubbers.
Read this funny Ben Bernanke spoof email at
http://globaleconomicanalysis.blogspot.com/
Either Kannekt’s message boards are down or they have blocked me out of their message boards. Bummer, I was having so much fun.
Bush May Lift Drilling Ban in Alaska’s Bristol Bay, Home to Endangered Whales, Salmon Run
http://biz.yahoo.com/ap/061202/bristol_bay.html?.v=3
HE
I just came from there, they are up. You may have a wanted poster in their neck of the woods.
It is funny you know? kannekt that is. it is the sentiment on this board turned 180 degrees but not even half of the supporting intellect. there is a lot of “its not crashing because i say so” sentiment there.
BTW if you guys haven’t tried Firefox 2 it is wonderful. A lot less spelling mistakes for me since i upgraded.
I am a first time home buyer who must be out of there current living situation in June.
I was thinking of offering 230,000 on a one bedroom in Fort Lee, they are asking 279,000 but it has been on the market over 100 days, is an estate sale and the apartment needs work (new appliances, the bathroom needs work, cabinets old, other things as well).
What do you all think? 230,000 a good offer or should I go lower?
from breakoutwatch.com:
Weekly Market Summary
The macro economic data released this week foretold a very weak 4th quarter and there are now several indications that a recession will follow in the coming months, perhaps by the second quarter of ’07. Weakness in the housing market continues and inventories continue to grow, durable goods orders fell sharply and manufacturing is now contracting. Weakness in construction has spread from the housing market into the non-residential sector and is at its lowest level in 5 years. This across-the-board weakness led to unemployment claims jumping sharply. Consumer confidence is slipping, despite lower gas costs (which are about to start rising again, however, as crude oil futures rose each day this week) and Thanksgiving retail sales were correspondingly weaker than hoped for. Adding to the gloomy outlook were: signs that inflation is not decreasing quickly enough and further warnings, this time from the Chicago Federal Reserve President, that interest rates may need to go higher; and a further fall in the dollar. The bond markets reacted to this by further increasing the yield curve inversion and the federal funds futures market have priced in an 80% chance of a cut to 5% by March. The Federal Reserve’s own model is predicting a 52% chance of recession.
—
Recession on the way!
Offer lower on that 1 bedroom apartment, you can always go up if need be, but you cannot go lower from wence you start.
I am sure there are many others for sale, and the market is definitely trending down.
Just look @ this Sundays paper and look @ all priced reduced ads.
JIM
Thanks,
I told my real estate agent today that I was thinking of making an offer and he suggested 250 as an offer.
I told him no way…since there were bigger places going for 250 in the same town, He said…Your absolutley right!
This sight has really helped me alot in terms of being bolder to “low ball” Although, how much off really is a low ball….would 210,000 be a better offer or go for 190,000 and then walk away if they balk.
Can a realator refuse to put in an offer?
Thanks everyone for your help!
http://www.cnn.com/2006/WORLD/meast/12/02/saudi.sleeper/index.html
Saudis say they foiled imminent terror attack
Saudis arrest 139 ‘sleeper cell’ suspects
• Suspects believed to be affiliated with al Qaeda, official says
• Official: Roundup conducted just before expected attack
• Suspects are from several Arab nations
Also when does the spring season begin in RE? January?
v, isn’t it strange that this round-up should occur just a few days after our beloved cheney visits his Saudi biz brothers?
I guess it’s guilty unless proven otherwise
also, v, how do you think this news affects RE here
Thanks Spelunker. I think they must be blocking my IP address. I guess there is only so much reality those people can handle.
ks2nj,
Interesting, I didn’t know that.
Maybe Cheney will ask the Saudis to adopt democracy ….. not.
“I was thinking of offering 230,000 on a one bedroom in Fort Lee”
Resale value on a 1 bedroom is weak.
If you are going to buy, think about a 2 bedroom. If you can’t afford a 2 bedroom, continue to rent.
Actually, rent all through 07, and than pick up that 2 bedroom for 230,000 in 08.
SAS
“how do you think this news affects RE here”
If we have another terrorist attack in nyc again (and I think we will in the next 5 years), your RE value will do down quicker than the crash of October 1929. These type of actvites originate in areas of the article that V posted.
Like I said earlier:
Real estate is tangible but not liquid.
Very….very… important to remember if there is another attack on nyc, or perhaps anywhere in the states.
I know these are “what ifs”.
but, realistic “what ifs”, in my opinion.
Now if v was posting about the price of onions in downtown Hong Kong, then I would say:
“how do you think this news affects RE here”
SAS
“Take at least 25% off 2005 peak prices Says:
December 1st, 2006 at 2:34 pm
dreamtheaterr Says:
December 1st, 2006 at 2:31 pm
I plan to lowball…but for a used car this weekend. Lets see if some dealership will bite.
GOOD MOVE! LOTS OF BLOOD FLOWING IN USED CAR LAND. NICE MERCHANDISE. BOB’S ON THE PROWL FOR A FEW GOODIES.
HEHEHEHE
BOOOOOOOOOOYAAAAAAAAAAA
Bob ”
Hey Bob, a dealer bit the bait on my lowball. Got a 2 yr used car for 60% off its 2004 price. For a car that Consumer Reports rates very high for reliability, it was good value.
Xmas shopping time sure is a dreary time for dealerships…it was empty inside today, so any sale is a good one for them!
dreamtheaterr,
cool.
SAS
Speaking of 1929, I love this quote:
“ Anyone who bought stocks in mid-1929 and held on to them saw most of his adult life pass by before getting back to even.”
— Richard M. Salsman
Let us do a little modern revision, shall we ;)
“Anyone who bought real estate in 2003-2005 and held on to them saw most of his adult life pass by before getting back to even.”
— SAS
Here is someone in the water.
MLS 2641496
Asking $545k
River Edge
Bought it in 2005 for 599k (unwise!)
If (big if) sold for asking that is a lost of 65K ,before factoring last year closing cost , thats probabaly 5-6k min., this year commision and Transfer taxes we are talking about 85k loss ( difference between buying and selling last year 54k+ closing 6k + commision at 4% 22k + Transfer Tax say another 2k, add moving expenses etc.), Probably it will go for 495 at most , considering the market. That will even make it much worse.
Ouch over 100k loss in one year.
Yeah the market bottomed up
ks2nj,
“also, v, how do you think this news affects RE here ”
price of oil.
v, SAS, I was talking about fear-mongering. Not a real Terrorist attack.
How does fear-mongering by this administration affect RE?!
Hey Bob, a dealer bit the bait on my lowball. Got a 2 yr used car for 60% off its 2004 price. For a car that Consumer Reports rates very high for reliability, it was good value
NICE! BLEED”EM DRY!
BOOOOOOOOOOOOYAAAAAAAAAAAAAAA
Bob
Regarding the new house in Maplewood on 144 Parker. Did a drive by yesterday. Looks nice from the outside. On a corner lot (any thoughts on a corner lot? Seems like you get more land, but also more traffic).
Not going to even bother looking at it, though. Will be interesting to see if it is still around after the holidays, given the urgency that my realtor has shown about it.
BTW – Someone mentioned Shweppe (Burgdorff) as an agency that underprices, and always sells over asking price (thanks for that info anyway). Anyway, my agent is with Burdgorff. Would you more experienced buyers suggest not using them as an agency?
NO REBOUND SPRING 2007 – SPRING HOUSING MASSACRE COMING TO A HOOD NEAR YOU.
BOOOOOOOOOYAAAAAAA
Bob
ks2nj,
In my opinion it is too early to write off all such arrests as fear mongering tactics.
The arrests in Saudi may have been local to which an al qaeda touch was added or they may really be al qaeda. All in all, any instability in Saudi land is bad news. Again the arrests may have been made a month or two ago. I however have a feeling that arrests were made. The number (100+) is too big to just make up a story.
“fear-mongering”
ok, is my glass half empty or half full?
we can debate that till the cows come home.
SAS
SAS, that’s true.. let’s stick with RE; I hate to go into politics.
unsure home seeker Says:
December 2nd, 2006 at 10:32 pm
Thanks,
I told my real estate agent today that I was thinking of making an offer and he suggested 250 as an offer.
I told him no way…since there were bigger places going for 250 in the same town, He said…Your absolutley right!
This sight has really helped me alot in terms of being bolder to “low ball” Although, how much off really is a low ball….would 210,000 be a better offer or go for 190,000 and then walk away if they balk.
Can a realator refuse to put in an offer?
Thanks everyone for your help!
YOU PUT ANY BID YOU WANT IN, BUT AT LEAST BE ABLE TO JUSTIFY IT. Realtor balks then FIRE”EM and move on. GO BACK TO 1998 -2000 AND SEE WHAT PRICES WERE BACK INT THE NEIGHBORHOOD BEFORE THIS PHONEY RUNUP IN 2003-2005. THEN GIVE ABOUT 4-5% APPRECIATION OVER THE 5-6 YEAR PERIOD AND SEE WHAT COMES UP. LOOK YOU WANT TO PAY ANYWHERE NEAR THESE BLOATED DELUSIONAL ASKING PRICES THEN BETTER ACCEPT THAT YOU GAVE AWAY ANY HOPE APPRECIATION ON THE HOUSE/CONDO.
FOR HOUSES TAKE 25% AT A MINIMUM OFF 2005 PEAK PRICES AND 35% FOR CONDOSHACKS AND YOU SHOULD BE ABLE TO ACCEPT THIS.
BOOOOOOOOOOOOOOYAAAAAAAAA
Bob
GRUBBERS COUNTING ON NORMAL SPRING.
THIS SPRING WILL BE PAINFUL FOR GRUBBERS WHEN THEY FINALLY REALIZE THE MARKET IS IN NOSEDIVE AND NO BAGHOLDERS LEFT.
BUYERS DO NOT GIVE $#@! WHAT YOUR NEIGHBORS GOT IN 2005. YOU AIN’T ENTITLED TO THIS PRICE.
BUYERS DEMAND MUCH LOWER PRICES
BRING IT ON. SPRING HOUSING MASSACRE.
BABABA
Greenspan opined two moths ago that the housing market has bottomed.
“…Fundlach chief investment officer…….at TCW Group begs to differ from this sanguine view. “Greenspan is out of his mind to declare a bottom in the housing market after just a six-month slide.” he said last week. “This is the kind of silly optimism that one would expect from somebody who’d just passed his real estate brokerage exam and was hoping to drum up business.”
hehehehe
BUST!
BRING it on!
The misery is only beginning…We want more.
BOOOOOOOOOOYAAAAAAAAA
Bob
To those of you blessed with MLS access –
Is it possible to find the total number of properties withdrawn from the market in Nov? If so, can you please post the number?
fROM HOUSING BUBBLE BLOG
From the topics thread. “I live in Santa Monica, I sold my home about a year ago and now I’m renting. My home did not appraise for the price the buyer offered, but they insisted on buying my house anyway even though it was valued 30k under their bid.”
“The value of the home I sold dropped and I received a letter from my buyer (via my real estate agent) stating that they believe they overpaid and they had the nerve to ask me for 30k, the value of the property today.”
“They gave me a long song and dance about how much money I made on the property and how it would only be fair for me to return the money. Of course I told them to take a hike. Would they have shared the $$ with me if the property increased in value? Buyers remorse is a bitch.”
The nerve of this stupid buyer. YOU BUY ANYWHERE NEAR ASKING YOU ARE A BAGHOLDING FOOL. TAKE respsonbility for your stupid decision.
BOOOOOOOOOOOOYAAAAAAAAAAA
Bob
Here are my 4 phases of a bullmarket:
SAS,
Bingo!!
“The value of the home I sold dropped and I received a letter from my buyer (via my real estate agent) stating that they believe they overpaid and they had the nerve to ask me for 30k, the value of the property today.”
Hysterical! We need a new term for this level of Bagholder.
Back to JB’s(# 8) post regarding prices;
There is so much discussion regarding pricing, don’t let the releases of reports pertaining to this cloud your view of what is happening in this market.(although I see closed sales at approx 10-15% off 2005 in my area). Remember, this is not the stock market where the negative wealth effect of a collapsing market is more immediate as compared to a housing slowdown. Stock prices are marked to the market. You have instantaneous prices (internet access), monthly/quarterly statements. The data in the housing market indicates the beginning of a major adjustment in prices, I say a bust. I’ve said this a long time ago. I will repeat since I feel there are quite a bit more bloggers here now. IMO, when all is said and one, we will see approx a 30-40% fall from 2005 highs. A house that sold/appraised for 400k in 2000 and subsequently sold for 800k in 2005 will fall back to approx 480-520k. We will retrace the entire move from 2000, the normal inflation gains will apply (during this time 3-4% annually). Every action has a corresponding reaction. When you throw a ball in the air, it falls back. This ball (RE 2001-2005) defied gravity and took off to the moon, nothing to do with fundamentals of the market. Markets always retrace back to fundamentals. As a result of this, the corresponding fall will be much more dramatic/pronounced. Prices overshot dramatically on the updside, they will probably do the same on the downside. That being said, prices will come down slow. This can occur for years, maybe 3-5 years, a mutli year period of slowly falling prices. Lower prices are not a leading indicator of a potential build up in inventory. On the contrary, a large build up in inventory, combined with sales falling off a cliff, are a precursor to falling prices. Housing price value changes are not experienced by property owners until they try to turn the property into a liquid asset, either by selling or by refinancing. Remember, nothing is selling and the subprime can’t refinance. Therefore, we have not given this (prices) enough time to unravel. Home owners sell/refinance at different times, again nothing is selling, consequently there is/will not be a rapid negative wealth effect as there was after the dot.com crash.
Concentrate on the the data, inventory backed up to the NJ Turnpike, sales in the depths of the Hudson, property values inflated by pie in the sky appraisals, no verification of income for the subprime(I/O’s),flippers,massive speculation, etc.. You don’t even have to read the comments here, just look at the charts that Grim posts on this site. There is a major blizzard coming this spring. Right now it’s just cloudy skies with a light dusting of snow. Be patient, if you give it adequate time prices will follow.
People like the buyers from #83 are a walking argument for eugenics.
jb,
It will be nice to have a “Rebuttal” section on the top right hand section of the front page. It should contain all the evidence you have collected against NAR’s spin machine. First time visitors will find such information very useful.
For example the otteau report rebuttal posted by you is now lost (4 posts deep?) but the report itself is probably being floated around to push buyers. First time buyers who visit this site to cross check the latest propaganda campaign will be just a click away from information that can change their decision.
We currently have categories but the number against each is too high for anyone to even start looking at them seriously. There are 143 entries under housing bubble. I bet few of them are way too important than the others. Quote by mentally sane economists can also make it to the vip list.
I know this will take time and effort. We don’t have to go over existing data but any new additions you make can be added to the rebuttal section. I feel rebuttal is more than just a category.
to lina- 2 questions,
– is there a specific reason you have to
1)buy in maplewood?
2)buy soon?
I lived (rented!) a one bedroom apt in millburn for 8 yrs – (it was a great arrangement and price — )
Have you looked at the area? The schools are great too… Millburn has consistently had a top rated highschool for years….
Waiting might enable you to buy there instead.
To those of you blessed with MLS access –
Is it possible to find the total number of properties withdrawn from the market in Nov? If so, can you please post the number?
v,
Without historical context, I’m not sure how you could interpret that number. But here it is anyway.
From GSMLS, Bergen, Essex, Hudson, Morris, Passaic, Somerset, Sussex, Union, and Warren Counties.
Withdrawn: ~1072
Temp Withdrawn: ~378
Expired: ~1680
James,
Thanks.
GSMLS has dropped over 2k the past month. I wanted to make sure that there was no increase in sales. I see that the withdrawn/expired share make up for more than the drop in listings.
JB
I agree with v ‘s(post# 294).
It would be good to have link to all the ‘evidence and hard facts’ on front page. Occasionally potentail buyers may get drawn into the propaganda of the ‘rea(lie)tors’ – they need to be constantly reminded of the hard facts.
As someone mentioined in another post, whenever they get the itch to make an 10% off lowball offer, they come to this site to calm their nerves and get motivated to wait out this bust.
I myself would like to see the data again and again, till it sinks deep into my brain and heart.
JB.
Another thing. Can you also include the data for middlesex county in the graphs that you’ve created here:
https://njrereport.com/images/oct06-snapshot.gif
https://njrereport.com/images/oct06-snapgraph.jpg
Thanks.
gsmls — also includes middlesex cty. no?
still looking,
no reason to buy soon, just that i’d like to be moved in somewhere by the end of next year. so can wait out the market.
maplewood: i know some people who live there, and i like the diversity of the town.
i have time on my side, so am going to try to wait it out.
anyone have any experience with lowballing on foxton’s listings? would their listings be more receptive to lowball offers (b/c of lower commissions)?
“YOU PUT ANY BID YOU WANT IN, BUT AT LEAST BE ABLE TO JUSTIFY IT. Realtor balks then FIRE”EM and move on. GO BACK TO 1998 -2000 AND SEE WHAT PRICES WERE BACK INT THE NEIGHBORHOOD BEFORE THIS PHONEY RUNUP IN 2003-2005.”
how would i look 98-00 prices up?
Thanks in advance.
“Two-thirds of the 116 percent return Americans have gotten from the Dow Jones Stoxx 600 Index since January 2002 has come from the decline of the dollar against the euro. The dollar reached a 20-month low last week against the euro and a 14-year low versus the British pound.”
“Now investors face a potential double whammy. The dollar’s weakness may curb exports to the U.S., hurting economies and stocks around the world. And the currency’s slide might end, eliminating the added kick for American investors.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aEsVEOxTnr.A&refer=home
To Lina (#92):
Always worth a shot to take a run at Foxtons listings. The agents (most of them super-inexperienced) don’t really negotiate and don’t advise their clients to hold out for more. The agent has no incentive to get the seller a higher price, as they are salaried and have made all they can make the minute they take the listing. Since they don’t concentrate on building long-term business in selected neighborhoods, they also don’t care about marketing houses for less; they do not need to build a track record of good sales in order to get future listings.
You should also let the seller side know- right from the beginning of the offer process- that you’re not going to let the seller put the discount to the usual RE fee (around 2-3%) in his pocket.
Finally, make sure you puzzle out the real market value of any Foxtons listing. Many of their current sellers have gone with them because they will accept ANY listing at ANY price. Good agents are refusing to work with many sellers who want ’05-like prices, so those sellers end up with Foxtons. Don’t discount down from an inflated asking.
I’m planning to purchase (6-12 months) a single family in South Brunswick township. Any feedback about the house market in this area. I’m looking for a 3 br, 2.5 bath, garage, basement
#292 BC Bob:
Insightful commentary/overview. Thanks.
Does anyone here have access to data/statistics/MLS/graphs for Monmouth County? If so, please share.
Update: Shore house seller won’t budge from 500K.