From BusinessWeek:
Housing: Curb Your Enthusiasm About A Recovery
Home prices still have room to decline, and it may take 15 years or more to reach new inflation-adjusted highs
Housing booms are short and exciting. Housing busts, on the other hand, are long and painful. So don’t put much faith in those oft-heard assertions that the worst is already over. Prices are likely to fall further in many markets in 2007. In some others, prices may rise, but at less than the rate of inflation. A BusinessWeek analysis of the past three decades shows that if history repeats itself, it’s likely to take 15 years or more for many parts of the country to get back to their inflation-adjusted peaks.
…
For residential real estate, the outlook for 2007 ranges from mildly positive to awful. The major markets that do least badly will be “revenge of the nerds” cities like Dallas and Houston that the boom bypassed. Even if all they generate is low-single-digit price gains, they will look good by comparison. Seattle and Raleigh, N.C., with healthy job growth, should also do O.K. The biggest losers will fall into one of these groups: cities like Detroit that are suffering economic contractions; cities like Los Angeles, San Diego, and others in California where prices are extraordinarily high and have barely begun to adjust; and cities like Miami, Las Vegas, and Phoenix that have a huge overhang of unsold houses or condos.Advice to homeowners: If you need to sell and you’re not getting much interest, cut the price by an extreme amount. If you make halfhearted cuts, you’ll remain overpriced and you’ll follow the market all the way to the bottom. Advice to buyers: Bargain hard. Many sellers are still asking for too much. “As tough as our market’s been, the toughest thing is to get sellers to understand that prices aren’t going up 18% to 20% a year anymore,” says Ned Redpath, head of Coldwell Banker Redpath & Co. Realtors in Hanover, N.H.
…
THAT SAID, RIGHT NOW is not the ideal time to buy or move up, even with the recent price declines. The inventory of existing homes shot up 34% from October, 2005, to October, 2006, and now stands at nine months’ worth of condos and seven months’ worth of single-family houses at the current rate of sales. That backlog will take a long time, and a lot of price-cutting, to clear out. One housing bear, Ian Shepherdson, chief U.S. economist of High Frequency Economics in Valhalla, N.Y., guesses that prices nationally could fall 5% to 10% from the end of 2006 to the end of 2007, going by the Office of Federal Housing Enterprise Oversight housing price index. Using that same measure, Goldman, Sachs & Co. (GS ) predicts a 3% decline from 2006 to 2007. Before 2006, the index’ worst performance since its origin in 1975 was a 0.3% increase in 1990. The OFHEO numbers don’t cover the highest- and lowest-priced homes, which will probably do even worse, says Economy.com Chief Economist Mark Zandi.The Federal Reserve is likely to help the market in 2007 by cutting short-term interest rates, which will make adjustable-rate mortgages cheaper. Offsetting that, Zandi notes, is the fact that banks are being required to toughen their standards for exotic loans such as interest-only and option-payment mortgages. That will make it hard for people with marginal incomes to buy or refinance.
Housing prices were pushed up in part by get-rich-quick speculation. Now real estate has lost its grip on the public’s imagination. Says Richard J. DeKaser, chief economist of National City Corp. (NCC ) in Cleveland: “We’re looking at several years of weak home prices. It’ll return to the time when no one is talking about real estate.”
So I guess that I’ll be living in the house we bought yesterday for the next 15 years. eep!
Is that a problem?
jb
FirstTimeBuyer Says:
December 18th, 2006 at 1:23 pm
So I guess that I’ll be living in the house we bought yesterday for the next 15 years. eep!
Congrats
FirstTimeBuyer – hope you like your neighborhood!
JM
NAHB Builder confidence falls (although only a point). From Marketwatch:
Home builders’ confidence falls in December
U.S. home builders were a bit more pessimistic about the housing market in December, but they’re growing more hopeful that home sales could perk up in six months, the National Association of Home Builders reported Monday.
The NAHB/Wells Fargo seasonally adjusted housing market index fell to 32 in December from 33 in November. About a third of builders view the market as favorable. The index has been roughly flat for the past five months, hovering in a range between 30 and 33.
…
The index had fallen to a decade-low of 30 in September, the sharpest decline in the index’s 20-year history. The index stood at 57 a year ago and peaked at 72 in June 2005.
…
Regionally, the index was steady at 37 in Northeast, rose from 15 to 22 in the Midwest, fell from 40 to 39 in the Midwest and fell from 35 to 31 in the West, the lowest in this business cycle. A year ago, the index was at 75 in the West and stood at 60 as recently as June.
The major markets that do least badly will be “revenge of the nerds” cities like Dallas and Houston that the boom bypassed. … Seattle and Raleigh, N.C., with healthy job growth, should also do O.K. The biggest losers will fall into one of these groups: cities like Detroit that are suffering economic contractions; cities like Los Angeles, San Diego, and others in California where prices are extraordinarily high and have barely begun to adjust; and cities like Miami, Las Vegas, and Phoenix that have a huge overhang of unsold houses or condos.
What category do you guys think the author would place most of Central and Northern New Jersey in? Certainly not like Dallas/Houston or even Detroit. Maybe like Cali? I’d like to think Seattle/Raleigh but a few months of reading this blog have turned me into a pessimist :)
Regionally, the index was steady at 37 in Northeast, rose from 15 to 22 in the Midwest, fell from 40 to 39 in the Midwest and fell from 35 to 31 in the West
How many Midwests does this country have anyway?
CR has this data in chart form, helpful to visualize changes sans spin..
http://calculatedrisk.blogspot.com/2006/12/nahb-builder-confidence-declines-in.html
jb
I’m not a chartist or technical analyst by any means, actually I’m a bit skeptical.
However, it’s interesting to note that a similar blip took place near the 30 mark during the last downturn in the middle of 1990.
http://photos1.blogger.com/x/blogger/2825/754/1600/280372/NAHB1206.jpg
jb
Here are the Northeast numbers from Oct 05 to Dec 06.
67
61
59
56
57
56
50
47
41
37
34
28
35
37
37
This is what the graph looks like. x-axis is month number (1 is Oct 05 and 15 is Dec 06) and y-axis is the indice.
http://img330.imageshack.us/img330/9577/housingrq9.jpg
grim:
Having lived through that one, what I can say is that 1992 was a really bad time in the economy. If you extrapolate the same for 2007 from this set of numbers in 2006……….
I have to say, analyst opinion on financial radio & TV does seem pretty upbeat lately.
FirstTimeBuyer, congrats on the new place. How did the negotiations go? Smooth sailing? Any dirt to share?
syncmaster. absolutely agree. It all seems very “golly gee everything is just peachy” if you take a look on cnn and the like.
Question to the realtors out there. I have been ‘working’ with a particular agent for about a month or so now because the first day I met him, some of the first words out of his mouth were “I encourage you to make any offer, even if its a lowball.”
Between the initial meeting and now, he has tried to temper my pessimism on the RE market somewhat, but not much. This has also been a plus.
I would like to send him some of the more pertinent articles on why I am insisting on prices below the 2005 peak levels. I have already sent him the CNN/Money graphic on the slowdown predicted in the NorthEast and I think this BusinessWeek article is a good one as well.
I think this guy is reasonably bright but he clearly isn’t keeping up with every last article that comes out on housebubble.com. I wish he would get his sellers to read this stuff and try to sell now before they start riding the slide down in the Spring. I just think that they are praying for the spring 2007 rebound miracle.
He isn’t as astute as the realtors on this board who are keeping up with what the media is saying, even if you do thinks it is ‘spin’. And I don’t suppose a listing agent ever puts these sort of articles in front of their clients (or do they) to encourage them to rethink their pricing?
I guess the last thing a client wants to hear is, you aren’t going to get what you want for this house. But isn’t it better to hear that sooner rather than later, at the bottom?
I don’t care how far in the sand you have your head, if you are trying to sell your house now and you are still insisting on prices 10-15% over what your neighbor got last year for the same house, you MUST not be reading anything about the market trends.
the official poop on this…..effectively useless since AGI must
Seneca,
I’m not a realtor, but I have to wonder why you feel you need to convince your agent that you are right. He works for YOU. It’s not his job to question your motives. If he’s giving you too much pushback, fire him and get someone who’ll work with you.
As for sellers, I wouldn’t waste my time sending them articles from CNN. There are very few people who haven’t heard of the bubble at this point. If they still think they are immune, nothing you do will change their minds.
For those with 7 grand lying around…..
http://www.chicagoexec.net/chicago.nsf/Program.html?OpenNavigator&id=18
Ait-Sahalia is the Albert Pujols of teachers….
Seneca
I am not a realtor, but honestly do you really need to justify yourself to a realtor? All you need to do is justify yourself if at all to the seller. Send a letter to the seller of why you are offering the price that you are. Than present the offer to the realtor, if he gives you a hard time say either present my offer or I will find a new realtor. Be firm with realtors. Treat a realtor like a dog, show them you are the boss. I know it sounds silly but if you act all lodi dodi than the realtor will try and take advantage of you and try to steer you away from lowballing. I think he is saying to lowball the at 2006 price 5-10% off. The year is almost done. So since its already proven the % of the price drop this year that what he is talking about when he said make an offer even a lowball. It sounds like that realtor is only concerned with the happening of now, not facts. I’d say boot him and find a new realtor :)
Thanks in large part to this site, we got a good deal. We’re in the Oakview section of Bloomfield (excellent elementary, lowish taxes). The owners are relocating and were willing to haggle, and we got the house at $14k off list and about 15% off 2005 peak. The house is in good shape with lots of original 30s charm. 3bed/1.5bath, finished attic and basement. We’re standing firm on some issues (electric box and 220 upgrade needed) and things seem to be going well. You guys did me right. We’re thrilled to be out of our rental and into a place of our own.
My commission is payable in scotch and beer.
jb
if RE is simply going to be ground down by inflation over the coming years, then this makes the decision of when to buy pretty difficult.
In my case, with the mortgage interest deduction taken into account, I can spend nominally 1/3 more per month on a mortgage than I do on rent and still break even.
My failure to take advantage of this tax arbitrage can be seen as costing me close to $10,000 per year, or 2% of the purchase price of a $500,000 home.
So to the extent that the value of this home is mostly worn away by inflation, rather than seller capitulation, the real price declines each year will only exceed my lost tax savings by a few hundred dollars (assuming that inflation is rougly 2% annually).
I only offer this to say that the buying vs. renting picture has a lot of different dimensions to it, and a strong argument for buying could emerge even without sudden, large nominal price declines
hey, chicago:
if Congress really wants to pump up the housing industry in ’07 and beyond, how about making capital losses on primary homes tax deductible?
From MarketWatch:
Ex-Fannie Mae CEO, others charged with manipulating earnings
Federal regulators said Monday they have filed charges against three former Fannie Mae executives, former Chairman and CEO Franklin Raines, former Vice Chairman and Chief Financial Officer J. Timothy Howard, and former Senior Vice President and Controller Leanne G. Spencer. The Office of Federal Housing Enterprise Oversight (OFHEO)said the charges, “reveal how the individuals improperly manipulated earnings to maximize their bonuses, while knowingly neglecting accounting systems and internal controls, misapplying over twenty accounting principles and misleading the regulator and the public.” OFHEO said it will seek civil penalties of up to $100 million from the former executives, and the return of bonuses totaling up to $115 million from the three.
FirstTimeBuyer Says:
December 18th, 2006 at 1:23 pm
So I guess that I’ll be living in the house we bought yesterday for the next 15 years. eep!
I hope you really like it, bagholder!
syncmaster Says:
December 18th, 2006 at 1:55 pm
I have to say, analyst opinion on financial radio & TV does seem pretty upbeat lately.
———————-
what do expect these “shill” analyst to say?
A “shill” in one idustry is no different than a “shill” in another. A shill is a shill.
You can’t trust many.
#26 – Bob, that wasn’t nice.
Congrats, FTB.
That initially sounds like an awfully bleak analysis and BusinessWeek has been better than most in at acknowledging the possibility of a bubble, but the longer this takes to play out the more it will be the oft-promoted but rarely seen “soft-landing.”
Think about, if we’re talking small declines mostly related to inflation losses you (as a speculator) can get out in ’07 relatively close to where you got in at in ’05, it will hurt but it might not cripple you.
My only problem with that is the supposedly large number of people who were counting on asset appreciation to justify the purchase. Without the appreciation, they are losing money every day. Add in the massive amount of inventory that is now in place, and both nominal and real price drops are almost certainly in the offing.
I’m never a big fan of “it’s different this time” thinking, but there are clearly a good number of people who are in over their heads, and the builders are going to finish the projects in their pipeline so there’s still some extra inventory coming.
Who knows. If we can muddle through this spring without too much ugliness maybe we can spread out the pain over 15 years, I just don’t see how.
skep-tic Says:
December 18th, 2006 at 3:04 pm
“if” prices are going down now….Not IF!
An example of a bad comment:
Take at least 25% off 2005 peak prices Says:
December 18th, 2006 at 3:36 pm
FirstTimeBuyer Says:
December 18th, 2006 at 1:23 pm
So I guess that I’ll be living in the house we bought yesterday for the next 15 years. eep!
I hope you really like it, bagholder!
Since I really believe that we will not see big declines in the house prices, but rather high prices will be eaten up by inflation, it is ok to buy a house right now, if you can afford it with fixed mortage, like it, and it is priced ok for your current income.
I believe that anybody buying their first house deserves a congratulation and not a criticism. It is a big step, and it is a legitimate goal of many people in their lifes.
So congratulations again on your purchase and do not worry about price declines or what other people would say. Enjoy the freedom of your house, hopefully it will work out for you.
P.S. The only thing I really do not like about renting is that my landlord is fixing all the problems for me – I kind of like fixing stuff, but when renting it’s just doesn’t make sense to fix anything yourself. So I guess I will keeep on fixing my car. (if only I wouldn’t have bought a used old Camry with 63K odometer reading… Darn thing never breaks…..)
Chicago-
Thanks for the link. I forwarded to a friend who’s an investment officer in Indpls. BTW, if you know of other good financial seminars in Chicago, please post.
JM
scribe Says:
December 18th, 2006 at 3:46 pm
#26 – Bob, that wasn’t nice.
Congrats, FTB.
———————————
The truth hurts. The person couldn’t wait but wanted it now this moment. Now they have their pacifier.
Congrats to the seller for baggin’em.
Take at least 25% off 2005 peak prices
First Time,
Congrats!! I looked in that area, very nice with a great elementary school. 15% off 2005, good for you. Best of Luck!!
by the way – how do you look up schools??
Someone gave The Kid this site, from a previous post:
http://www.greatschools.net
The Kid
James Bednar Says:
December 18th, 2006 at 2:53 pm
My commission is payable in scotch and beer.
jb
J&B and Shlitz?
skep-tic, I guess I do come off sounding like I am trying to convince my realtor but that is not at all what I meant to indicate. He completely understands where I am coming from and doesn’t argue the point with me. And that is sort of the problem as I don’t think he is arguing the point with his sellers either.
The realtors on this board say it is their job to assist in the negotiation process such that sellers are selling and buyers are buying at whatever price the two can agree to. By definition, this involves some haggling skills. If the realtor won’t haggle with me to encourage me to offer more and he won’t haggle with the seller to encourage them to ask for less, then we have no deal(s).
My question was more about how are realtors offering guidance to their clients who are selling? If the only thing they do is say look to the comps, then they are essentially looking at 2005 early 2006 comps (not much selling lately) and those comps indicate high prices. If you are going to talk your client into charging a fair price, you have to look at the data and analyst and economic opinion. Do realtors do this? Do any realtors do this? Are there any realtors who are being sought out because they are actually closing deals even in this market? If they are, its got to be because they are getting the prices down somewhat. There aren’t enough suckers left out there.
twice shy Says:
December 18th, 2006 at 3:05 pm
hey, chicago:
if Congress really wants to pump up the housing industry in ‘07 and beyond, how about making capital losses on primary homes tax deductible?
W. is still working on trying to get the capital loss carryforward on stocks of $3,000, up to $10,000. There are still dot-com’ers writing off crap.
If primary home capital losses were going to happen, it would need to rewrite the entire code on personal property. Also, I would assume that an exclusion on the downside would be the same as the one on the upside $250K/$500K
Bob,
Yes, you’re right, prices have come down— roughly 5-10% in the last year in real terms.
What has also happen is that inventory growth has plateaued, transaction volume decline has slowed, and mortgage rates have dropped.
This could be simply a pause on the way down, or we could be in flatland going forward, or the market could reignite against all odds as it did in the UK.
If either of the second two is the case, then buying is not so dumb. The truth is that none of us knows which one it is.
You and others here have been very prescient during the last year regarding this downturn, but at times lately it seems like many here are just repeating old news.
In many ways, 2006 has turned out to be the worst year for residential RE on record, and yet there is little acknowledgement that maybe– just maybe— much of the excess could have been wrung out of the market.
CRL Report: Record Foreclosures Expected for
Subprime Market
Haley Settle | 12.18.06
The United States could be facing one of its worst mortgage foreclosure crises, with an anticipated $100 billion or more lost from record foreclosures in the subprime market, according to the Center for Responsible Lending (CRL). The default of subprime mortgages originated from 1998 through the first half of 2006 is expected to hit low-income and minortiy borrowers the hardest.
http://www.dsnews.com/view_story.cfm?id=689
Skeptic,
Yeah you are right, at times I don’t even feel like posting. How many ways can you skin this?? Also, much of what was discussed on this site, in the past, is now coming out in the media. That being said, there are a slew of new visitors, reading these posts for the 1st time.
For what it’s worth, I don’t think we are close to to having the excess wrung out. I feel we are still in the initial stages. There are numerous reports from realtors, some on this site, stating approx 30-40% of recent listings either withdrawn or expired. I feel that the inventory levels will break out to new highs this spring.
excess wrung-out ??? Then why am i still looking at the same old listings month after month after month. geez.
“Since I really believe that we will not see big declines in the house prices, but rather high prices will be eaten up by inflation…”
Al, it that were to happen, it would be the first time in US history that a housing bust did not follow a housing boom:
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
My money is with the trend of the last 60 years, but I’m glad FTB is happy and found a home he/she likes.
For the dollar bears, from Bloomberg:
Venezuela, Oil Producers Buy Euro as Dollar, Oil Fall
Venezuelan leader Hugo Chavez is directing a growing share of the country’s oil profits into euros as the dollar and crude prices fall.
The dollar, down 9.5 percent against the euro this year, may face more pressure in 2007 because Venezuela and oil producers from the United Arab Emirates to Indonesia plan to funnel more money into the single European currency.
“The U.S. dollar has suffered a long process of deterioration,” Domingo Maza Zavala, one of seven board members at the central bank of Venezuela, said in a Dec. 14 interview. “The diversification strategy started this year.”
…
Bank Indonesia is boosting euro holdings, said Senior Deputy Governor Miranda S Goeltom in a Dec. 13 interview in Jakarta. Indonesia has $39.9 billion in reserves. Sultan Bin Nasser al- Suwaidi, the governor of the Central Bank of the UAE, last month said he was considering when to shift as much as 8 percent of the nation’s $24.9 billion in reserves into euros.
The central banks are changing policy “because the oil price has come down a long way and the U.S. dollar has been declining,” said Michael Derks, chief markets strategist at Arch Financial Products LLP, a London-based hedge fund. “The euro stands to benefit.”
skep-tic Says:
December 18th, 2006 at 4:06 pm
Bob,
You and others here have been very prescient during the last year regarding this downturn, but at times lately it seems like many here are just repeating old news.
In many ways, 2006 has turned out to be the worst year for residential RE on record, and yet there is little acknowledgement that maybe– just maybe— much of the excess could have been wrung out of the market.
Skep: you think so? I ain’t no perma-bear, but it is laughable to think that there is any upside here. Don’t get me wrong. The bottom may not drop out, but short of the USD falling through the floor, and every oil dollar and foreign investor diving into NNJ real estate, where is the source of the demand to drive things upward? You have to think that flat to slightly up is AT BEST a 30% likelihood scenario. The probability of a sustained 2003-style revival has to be less than 5%.
Bear in mind that there is probably a 30% chance of a scenario so ugly that it is really sobering. Put that probability on par with a flat-up scenario means that the vast bulk of outcomes range from just “kinda stinky” to “utter sewage, cholera, Love Canal.”
chicago,
yeah the $3,000 capital loss carryover is diddly squat. should be 10K, particularly considering the plummeting value of a buck. ever get the impression that capital losses, either in stocks or property, are UnAmerican? Just like short-selling.
I don’t know about rewriting the whole tax code, but it seems to me they do it every year down in DC. How about allowing a nice round $50K in capital losses on primary residence for starters? Wouldn’t that encourage a lot of reluctant sellers to hit that lowball, and save the sinking RE industry in the bargain?
Hovnanian reported tonite, from MarketWatch:
Hovnanian Q4 net loss $1.88 vs net earns $2.53
Hovnanian Q4 rev $1.75B vs $1.77B
Hovnanian sees 2007 deliveries 16,000-18,000
Hovnanian Oct. 31 backlog $2.9B vs $4.1B last year
Hovnanian ‘disappointed’ with FY06 results
Hovnanian Q4 contract cancellation rate 35% vs 25%
Hovnanian sees 2007 EPS of $1.50-$2
Hovnanian sees Q1 EPS of 5c-10c
From PR Newswire:
Hovnanian Enterprises Reports Fiscal 2006 Results and Provides Initial 2007 Guidance
“Overall we are disappointed with our results in fiscal 2006,” commented Ara K. Hovnanian, President and Chief Executive Officer of the Company. “Although our deliveries and revenues increased over the record year of 2005, our gross margins fell 330 basis points — as we cut pricing and offered incentives to improve affordability and remain competitive in a period of a slower housing demand.”
“We did not anticipate the suddenness or magnitude of the fall in pricing that occurred this year in many of our communities. Our profitability and the pace of new home sales in our markets continues to be adversely impacted by high contract cancellation rates, increases in the number of resale listings and increases in the number of new homes available for sale,” Mr. Hovnanian said. The Company’s contract cancellation rate for the fourth quarter was 35%, compared with 25% in the fourth quarter of 2005 and a 33% rate reported in the third quarter of fiscal 2006.
…
“We believe the quick reaction of the housing markets to set pricing for new homes at lower levels is a significant positive that should allow us to return to a more profitable business environment sooner,” Mr. Hovnanian said. “We have been through downturns in the housing industry many times during our 47 years of operation. Each time, we have emerged as a stronger and better company, with an improved market share. We are confident that we will weather the current slowdown with a similar result. Despite incurring $336 million of land-related charges in 2006, our common stockholders’ equity grew by 9.1%.”
Can someone give me some insight on how a realtor’s mind works? ’cause it aint normal. I was looking at houses with realtor lady this weekend in the 4-5 hundred range. Realtor lady just sends me comp sale listing that sold last year. A 3-story brick mansion on 6.5 acre hilltop that sold for 2.5 million dollars. Now, will someone please explain this to me !
I think “Take at least 25% off 2005 peak prices” was picked on as a child by a homeowners kid.
He may have some valid points occasionally but most of the time he is redundant, rude and makes this blog a less interesting place.
Chicago,
I’m not arguing that there’s a ton of upside here, just that whatever sort of collapse many here were hoping for (including me) may have already occured.
At the risk of repeating myself once too often, I think there have been significant price declines since Q2 2005.
Unless we see a new wave of inventory in the spring, or we go into recession, I don’t know why we should expect another year like 2006.
These are big “ifs” so I do think it’s best to just wait and see, but I think that if neither of these occur by the end of Q2 07, then the liklihood of a soft landing seems pretty compelling.
trouble at hovnanian
115 million loss for the Q
“In the fourth quarter, we decided to walk away from $141 million in land deposits and predevelopment costs and took impairment charges of $174 million,” said J. Larry Sorsby, Executive Vice President and Chief Financial Officer”
Why are the HB’s suprised that the sales cancellation rates are soaring????? The potential buyer is just following their lead!! Why don’t we ever hear the bulls comment on why the HB’s are puking these out???
Hey CH1914, lay off BooYa Bob, he’s the voice calling in the wilderness.
skep-tic #52 and earlier,
your argument does have merit and it’s a distinct possibility. this year’s been weaker than a lot of experts and industry insiders forecast.
one question: is the foreclosure damage going to be restricted to the subprime market? I’m not sure. What about inventory? I’m guessing it will balloon. Lots of listings expired/withdrawn. The discretionary sellers are out and the one’s still on the market are coming down, but not more than 20% by in large. It’s a standoff.
I think the current media spin says the worst is over and we’ll see gradual improvement from here. Maybe not in Arizona, CA or Nevada, but possibly in North Jersey and even MA.
We’ll all stay tuned for signs of a turnaround, and you’ll read it here first. Spring 07 is still key, IMO, and we’ll have to see what develops. In following the market over the past few years, I’ve never seen asking prices drop five, ten, fifteen, even 50k in some cases, before now. Hardly even imagined that was possible in my town!
Not the right place, obviously … but perhaps somebody would know …
looking to make the leap from residential RE to business … specifically, buying a hotel. anyone buy into the hotel industry? Just researching now as the idea sprang up two weeks ago with like-minded friends … any blogs/links would be much appreciated …
Hey Seneca,
As a matter of fact, I’m currently massaging my sellers with recent press, some stats and a low-level dose of this site. I have a couple of listings getting a little long in the tooth. They are nice- not far away from a good price- but the silence is deafening.
Understand that sellers- much like buyers- can only relate to their personal, immediate situations. We as Realtors only gain leverage in changing their minds through their concerns.
I share the opinion of many here that prices may drop another level if there’s a big Spring inventory surge. In that case, the smart seller has an opportunity to preserve maximum equity between now and then by pricing well-below the competition and getting out before it’s too late.
If maximum equity preservation is the seller’s goal, my honest advice is that the above course of action is truly the CONSERVATIVE play right now!
Will keep you posted on how this goes. Be assured, good people in my business are working on the supply side to get it priced to sell. These things go slowly…
And congrats, FTB. Ignore the bilious spew of Booyah Bob; his disdain carries the imprimatur of his life of failure.
Ignore the bilious spew of Booyah Bob; his disdain carries the imprimatur of his life of failure.
Harsh. Well deserved, but harsh.
Please Clotpoll, you don’t even know the guy. He never made a personal attack on anyone. How do YOU define success ?
I made a quick comment at the bottom of an older thread the other day, I’m going to repeat what I said, because I believe it might have gone unnoticed.
I’ve come across a handful of properties this week that are priced roughly at their 4% appreciation trend lines based on prior sales in the mid/late 90’s. The fact that they are still on the market, some 60+ DOM, should be an encouraging sign for prospective buyers. Deals can be found, but they are still quite rare. I pulled tax data on more than 100 listings to find these few.
Granted, just because they are priced at that 4% trendline doesn’t mean they are a deal. The fact of the matter is a number of these are still sitting on the market, so there are, obviously, other factors in play.
I’m content to sit on the fence and see how 2007 is going to play out. I’ll keep my powder dry until then.
jb
“I’m not arguing that there’s a ton of upside here, just that whatever sort of collapse many here were hoping for (including me) may have already occured.”
Skeptic,
One thing to keep in mind. The HB’s do not share this view.
All in the 4th quarter;
KB-writedowns of between $235 million and $285 million related to land holdings and another $90 million related to its abandonment of land options
D.R. Horton- pretax charge of $199 million to write down land and and options
Toll- Pre-tax writedown of $115 million
Hov- $315 million of charges related to inventory impairments and land option write offs.
An astronomical writedown of over $800 billion, between just these 4, in the 4th quarter alone.It doesn’t seem rational, at least to me, to plunder equity at this point if the worst is behind them. They are saying, “no mas”. They may tell you that a floor is starting to be established, activity/interest is increasing, etc…. Their actions speak louder than their words. They are telling me that they don’t see any imminent end in sight. D.R. Horton knows, when markets like this turn, after an unprecedented craze, the corresponding move usually goes much longer/further than anyone can imagine.
Newton’s third law
“In that case, the smart seller has an opportunity to preserve maximum equity between now and then by pricing well-below the competition and getting out before it’s too late.”
Clot,
Why aren’t there more like you out there???
Beware of Greek’s bearing gifts.
I also support Bob on the FTB as bagholder opinion.
In every cycle, somebody’s going to get left holding the bag. 15% is kumquats after a +100% run.
But I have respect for FTB’s gamble on the purchase. We do NOT know for a fact that inventory is going up 50% in the Spring. Who knows…maybe those resets on upsidedown mortgages will NOT force sales. Maybe those recently pulled houses are staying off. Maybe builders will eat profit and hold the line on new home prices (dont’ think so). Maybe the insecurity on Fed rate changes will not seep into the public perceptions of RE purchase risk right now. Maybe the hot spotlight on mortgage fraud will NOT increase the pressure to tighten lending standards. Maybe the run on subprimes will stop.
That’s a lot of maybe.
Clot…can you share with us the ratio of pulled inventory on realtor-owned property vs. non-realtor owned property pulled in the last three weeks?
“I’ve come across a handful of properties this week that are priced roughly at their 4% appreciation trend lines based on prior sales in the mid/late 90’s”
JB,
I missed that earlier post. Late 90’s sales prices at a 4% trendline today and sitting??? That’s incredible and quite significant. That deserves its own thread. Before I get carried away, in NNJ???? Different towns???
Pat-
I don’t think I can accurately do that. However, anecdotally, I can assure you that Realtors selling their own homes are the dumbest players out there. Their prices are uniformly the most aggressive; and even more infuriating, they go “all out” on the marketing in a fashion that they would never afford to their paying clients. It is just like the excellent (and damning) chapter on RE agents in “Freakonomics”.
Realtors are big on the re-listing thing with their own homes. They’ll go 30-40 days and start over. There’s one near me who has re-listed her house about 5 times in the past year. Already bought a house in Fla…moved…and hasn’t dropped her price a penny!
BC Bob, there aren’t many like me out there because the barrier to entry in RE is lower than a high-jump barrier for a Chihuahua.
Hey Zac (from #60)-
Never made a personal attack? Are you kidding me? This guy’d give the business to Mother Teresa! If you missed it, his circle of hate expanded this weekend to include landscapers and electricians.
Bagholder.
you missed the point
FTB is a bagholder!
FTB in a recent post had approved buyers withdrawing money from 401k to fund a house purchase. I hope he/she didn’t withdraw money from 401K and put 20% down.
Sorry, Zac…flew over my head.
Homebuilding costs? Montana, “Stimson’s VP, Jeff Webber, confirmed Thursday that the company will cut some 43 jobs at the Bonner mill, effective Jan. 2. Stimson has seen its margins squeezed flat by high stumpage prices on one end and low lumber prices on the other, said Michael Woodworth. Average lumber prices have fallen by half, to a 10-year low of $240 per thousand board feet.”
Clot,
In one of your earlier posts, you said the year would be ending with a record number of listings that expired or were withdrawn (I think about 35%?)
What’s your gut, street-wise sense of how many of those sellers were serious about selling – people who really need or want to sell – vs. the people who just wanted to test the waters and see if they could still cash out at bubble-level prices?
you don’t have to be a horse to judge a horse show
>>Beware of Greek’s bearing gifts
well said.
Here’s an excellent example of how mania and bubbles turn otherwise intelligent people into idiots:
The end result? Zip, nada. $5 Billion down the drain.
Realtors and the NAR shills are trying to convince consumers that the mania we’ve witnessed these last 5 years was normal, to the point of spending $40 million on a deceptive ad campaign, stating “Now is a great time to buy.”
Hucksters.
Trust no one, watch home prices continue to fall, and make a move when prices truly have returned to normal.
http://money.cnn.com/magazines/fortune/fortune_archive/2006/12/25/8396760/index.htm?postversion=2006121805
More cream for the fat cats
Corporate profits are at their highest level since 1929. Fortune’s Justin Fox tells you what that means for the stock market in the coming year.
After-tax corporate profits equaled 10.1 percent of gross domestic product in the first nine months of 2006. In the 87 years the Commerce Department’s Bureau of Economic Analysis has been measuring them, profits never even hit 9 percent of GDP before 2005. Somewhat ominously, they came closest in 1929 – at 8.9 percent of GDP.
…
Employee compensation dropped from 58.9 percent of GDP in 2000 to 56.4 percent in 2005
…
The message for investors from all this is to be cautious. There’s no reason to think the market is about to tank – on the whole it isn’t obviously overvalued. But there’s good reason to fear that big profit increases may soon be a thing of the past, and with them the big market gains of the past four years.
Don’t read too much into the asset impairment and write-down of the publicly traded homebuilders. They are getting no credit for their earnings, so they may as well empty the cupboard and closets of all cobwebs, detretus, and sundry rat droppings. It is more a commentary on valuations that any signal of a bottom. That said, dumbass analysts and technical analysyts that just monitor period over period results now have great base comps for 2007.
Can someone explain this? I keep hearing if you buy a condo your a bagholder etc. I frequent this website and I’m really starting to wonder about the factual data you guys are presenting. SEE BELOW.
MLS#: 2278446 CO: Essex TOWN: Belleville Twp.
Paid $323,970 on 3/31/2006
Sold $350,970
Bloomfield? yuck
Not Convinced,
Do you know if there was any fixups to the condo? If not whoever paid 350K is a bagholder.
If you go to the following site at the hive (NAR of course)
http://www.realtor.org/Research.nsf/Pages/EHSdata
Sales of condos in North East dropped by 16%
Sales of Single Family homes has dropped 7.5%
I see even NAR statistics also seem to pinpoint bagholders LOL.
Futhermore check Otteau report for Essex County( Belleville twp), the inventory seems to rocketing up.
Without any renovation (which i highly doubt) buyer of 2278446 is a bagholder.
add on to #83]
If i were to guess, the seller must have
1] renovated the house [new appliances, carpet, etc]
2] provided closing costs.
3] offered a vacation package/new car
In any case that condo buyer is a bagholder.
Can someone explain this? I keep hearing if you buy a condo your a bagholder etc. I frequent this website and I’m really starting to wonder about the factual data you guys are presenting.
Please be careful about misinterpreting the intent and purpose of this website by focusing on the comments of a handful of readers.
jb
Those who believe that housing prices are bound to decrease tend to make over-generalized statements. Those holding the contrary view provide counter-examples.
The market is really made up of a large number of transactions. Among these, cases such as the one you provide are not particularly surprising.
Lets take a deeper look at Tami Court.
Since it’s a dense development with similar units, pulling comps is relatively easy. Just pull similar assessed values through the tax records. In this case, I split these up into two groups, those assessed at $4,500 and those assessed at $7,100.
Sales of units valued at $4,500
4/28/2006 $311,840
4/28/2006 $308,800
4/28/2006 $315,010
4/28/2006 $311,570
4/28/2006 $314,750
4/28/2006 $323,830
4/28/2006 $322,290
4/28/2006 $326,950
4/28/2006 $339,465
4/28/2006 $333,000
4/28/2006 $328,320
4/28/2006 $315,990
5/5/2006 $327,180
5/25/2006 $320,360
10/5/2006 $350,000
It’s clear that this most recent sale is either setting the new high comp or has wildly overpaid given what other units have sold for recently.
Let’s take a look at the higher priced units, those show an interesting trend..
Sales of units valued at $7,100
4/28/2006 $473,970
4/28/2006 $464,170
4/28/2006 $466,360
4/28/2006 $440,900
4/28/2006 $464,485
4/28/2006 $463,825
5/10/2006 $460,000
5/12/2006 $457,235
5/26/2006 $410,990
5/31/2006 $384,110
6/9/2006 $417,000
6/15/2006 $400,000
We clearly see a deterioration in pricing in the higher assessed units..
jb
James Bednar Says:
December 18th, 2006 at 8:43 pm
I made a quick comment at the bottom of an older thread the other day, I’m going to repeat what I said, because I believe it might have gone unnoticed.
I’ve come across a handful of properties this week that are priced roughly at their 4% appreciation trend lines based on prior sales in the mid/late 90’s. The fact that they are still on the market, some 60+ DOM, should be an encouraging sign for prospective buyers. Deals can be found, but they are still quite rare. I pulled tax data on more than 100 listings to find these few.
Granted, just because they are priced at that 4% trendline doesn’t mean they are a deal. The fact of the matter is a number of these are still sitting on the market, so there are, obviously, other factors in play.
I’m content to sit on the fence and see how 2007 is going to play out. I’ll keep my powder dry until then.
jb
I* am going to start Looking for a hose, within 40 minute drive from my work right after the holiday season. However I am planning on going in in with lowballs on as many properties I like as possible.
If one realtor will drop me I will get another one and so on.
Since I will be looking for a place within 40 minutes from my work, and I do not work in NY, I am very flexible with the area.
I do find some small homes in towns 30+ miles out west on the I-78 which are priced right at the historical value of 4-5% appreciation, and they are sitting forever.(Investors are gone, and no SANE person, working in NY would opt for 1 1/2+++ (if traffic is bad – indefinite) hours commute. And believe it or not going out west there is just no JOBS there… So I guess I am ok with extra traffic time. taxes are better down there as well.
And right now selection is huge…
All I need is one lowball accepted.
I forgot who said it here: if the seller is smiling getting out of the table after signing a contract – I am screwed.
Every thousand I get off my home price – is a thousand dollars or more save for the future/my kids colledge/retirement.
SO expect some stories from me in January/February/March.
I am planning to have fun on my weekends.
James Bednar Says:
December 19th, 2006 at 7:37 am
Lets take a deeper look at Tami Court.
Since it’s a dense development with similar units, pulling comps is relatively easy. Just pull similar assessed values through the tax records. In this case, I split these up into two groups, those assessed at $4,500 and those assessed at $7,100.
So is there a big difference in size/quality between units at 7,100 and 4,500??? because if units at 4500 are a lot smaller, and not so high quality – why dont just buy units at 7100 for an extra 40K??? However are you sure that there was no Cash back, insentives, paid closing costs and points on the lower end units while higher priced units just lowered their price??? Are we getting the true picture from constract value??? may be 10/5/2006 $350,000 reflects new mercedes and a boat on the driveway and paid closing sosts all together????
Scribe (From #75)-
If I had a feel for how many withdrawn/expired ’06 sellers will be back to test the waters in ’07, I’d be sitting on the beach with a fruity drink in hand.
That being said, I think 75% of them will not be back for more. However, the 25% who do return is a significant number (even though the inventory has shrunk slightly since July, there’s still a 7-month-plus supply in my area); any boost to inventory will place more downward pressure on prices. Even more significant is the price range dispersion AND the prices asked next time around. Those two things will wholly determine the ’07 market’s direction.
We are looking in the northern new jersey area (Montclair, Verona, Cedar Grove, Little Falls) for an SFH (400k). From what we have seen, homes in move-in condition fly off the listings fast and at OLP or a little more. I am almost tempted to ask “what slow down?”. Is the slow down only in the high end market? Or is it the speculative buying that has stalled?
#81 Not Convinced Says:
Remember real-estate is not a very effiecient market in terms of finding price equilibrium. There are many buyers who look at it very emotionally and don’t do sufficient research before buying. For the one example you gave of someone who flipped, others can post many examples of flippers who got burned and those who sold only after the asking price was lowered significantly.
Just finding one home that sold over the asking price or below the asking price is not sufficient information for me to make an informed decision on the RE outlook. You have to look at trend lines , such as prices, inventory, days on market, etc.
In the example you gave, the flipper obviously was smart/lucky. Bag holder = buyer at $350K.
We are looking in the northern new jersey area (Montclair, Verona, Cedar Grove, Little Falls) … homes in move-in condition fly off the listings fast and at OLP or a little more. I am almost tempted to ask “what slow down?”.
The slowdowns are localized. My personal observations and those of people I’ve spoken to (both limited in scope, obviously) tell me there is a significant slowdown in Condos/Townhouses in Central NJ. Even those that are “like new” (2005-2006 constructions). On the other side of town, closer to Edison train station, decent condition SFH’s are flying off the shelves (ok, bad choice of expression).
Interesting how evidence of sales- whether in the general market or individuals posting news here of their own purchases- is now met with such vitriolic spin by the permabears. Anyone who purchases now has become, by dint of simply closing the deal, a “bagholder”. Never mind the particulars of any single transaction…today’s buyer is a fool.
Facts are facts, and sales are sales. Permabears should be advised that if they expect those on the other side of the trade to accept changes in the market, they would do well to heed their own advice.
Interesting how evidence of sales- whether in the general market or individuals posting news here of their own purchases- is now met with such vitriolic spin by the permabears. Anyone who purchases now has become, by dint of simply closing the deal, a “bagholder”. Never mind the particulars of any single transaction…today’s buyer is a fool.
Please do not generalize people here. FirstTimeBuyer got quite a few congratulations.
And I did post that I will look for a house soon, and probably, most people here are looking for a home to buy, otherwise they wouldn’t be here.
If Boooyah Bob calls him Bagholder – well he’s just being himself…
you have to be happy with someone finding the house they like and being able to buy it without tremendouse pressure to bid up before you even hav a chance to look at the back yard.
I think this is what this web site is all about – helping us all make well informed desition.
In addition, couteract a opinion created in the last 5 years, that renters are loosers and poor people with 4K net income who sits in their apartment, while wearing 300$ jeans, meanwhile everybody who “own’s” becomes instant millionaire…
boy my spelling sucks – still can’t type without MS Word auto-correct…
Download the newest version of FireFox, it has integrated spell check.
jb
P- It’s hard to get into Verona and Cedar Grove — good schools and low taxes. Few houses come on the market at or below $400k and none are really fixed up at that price. Little Falls is OK, but I haven’t seen too much that is nice at that price. Have you tried West Orange? The western part of town is lovely, taxes are OK, and schools are very good.
We were looking in the same areas and are in the process of buying in Bloomfield in the Oakview section. Oakview and Brookdale elementary schools are excellent and Bloomfield taxes are lowish. You may be able to find a remodeled house in those areas in the price range you’re looking at — if not now, in the spring. However, you may not wan to stay in Bloomfield if you have high school kids — the high school doesn’t rate well.
You should know that my agent and even some people here have said that housing in the $350-400k range is going to be the last to go down and probably won’t fall as far as the higher ranges. There’s less room to fall and a lot of folks in NNJ can afford houses in the range. Right now, it’s all a matter of what you can get the for the money.
Re: 91, 98
FTB, Thanks for your input. Looks like you are further in your process. How long did you look.. what areas? I notice there are a few that match the 350-400k in Glen Ridge.
Btw, Did you lowball with any luck? I know what these homes were bought for. For example, this house was bought for 280k in Verona in 2004 and now its listed for 389k. Where’s the impact of the supposed slow down in that price?
njrebear: We didn’t withdraw from a 401k. I didn’t exactly approve of this — I said it made sense for some, and it does.
Rich: North and west Bloomfield are lovely. Kiss my a**.
P: Glen Ridge taxes will eat away any savings you get on a house in the $350k-$450k range there. Great schools though.
I don’t think that knowing what someone paid for a house doesn’t has any impact on what the seller is willing to sell it for now. So we looked at sales figures too, but I don’t think that did anything but prevent us from going too high.
I wouldn’t say we successfully lowballed because we didn’t really have to. We found a deal by finding a motivated seller and going into Bloomfield, which is more blue collar than where we live now, but diverse enough to find a neighborhood that meets our needs well. We also did as much research as we could on sites like this to figure out exactly what a home was worth to us, how much we should put down, what resale might be if we had to get out in a few years, etc. The house we got was our third offer, and we got it at $14k under asking and about 15% off 2005 peak.
At this point in the market decline, IMHO, you just have to be willing to stick with what you think a house is really worth (or what it will be worth in 6 months) and be willing to lose houses you like. We were surprised we got this house at the price we did, because we didn’t think sellers were mentally there yet. It’s a happy surprise that we won’t be waiting until 2008 to find something.
I’ve said it before, but you won’t seem drastic declines in prices below $400k, especially below $350k. Supposedly, a lot more qualified potential homeowners can afford homes in that price range in NNJ, so there is more competition keeping those prices up.
This blog is great!
This is a great blog!