Prices falling at an accelerating rate. Deliquencies rising. Defaults rising. Sales falling. KB homes guy (as you noted) expects another 20% fall in home prices. Looks like a self-feeding process for now.
I think that this data will scare away some tentative buyers. Even more, the more savvy investor is going to wait further along the sidelines. What inning is this?
You gotta love the speed of the decline. And it's accelerating. By the time Barney Frank and congress get behind a bailout plan (after the elections) it'll likely be to late too make a difference.
Hang in there renters. Perhaps prudence will actually be allowed to prevail.
Let's hope so Angry Saver, because just in case the next edition of the New Heritage American Dictionary is going to update the definition of "renter" to mean "schmuck".
homedad, grip the edge of your desk while looking at the graph, like you would the bar on car as you go over the top just before you hit that cork screw thingy Then go back to typing after you've thrown up.
of course, if you bought before 2001 you can just enjoy the ride and laugh at the ones who throw up while you keep your breakfast safely contained.
--
Case-Shiller Index Annual Rate Change For the Past 6 Months:\t
\t
_______AREA\t6-Month Annual Rate
\t
Las Vegas\t-33.2%
Phoenix - AZ\t-31.6%
Los Angeles\t-30.7%
San Francisco\t-29.7%
San Diego\t-29.5%
Miami\t-26.6%
Detroit - MI\t-23.5%
Tampa - FL\t-21.5%
Minneapolis - MN\t-21.5%
Composite-10\t-21.1%
Composite-20\t-20.5%
Washington\t-19.1%
Cleveland - OH\t-18.5%
Denver\t-16.7%
Atlanta - GA\t-14.9%
Chicago\t-14.4%
Dallas - TX\t-13.1%
Seattle - WA\t-12.4%
Boston\t-11.9%
Portland - OR\t-10.2%
New York\t-8.2%
Charlotte - NC\t-6.7%
\t
The top 5 states are the usual suspects. The whole of CA (not all zip codes and cities, but broad metro areas) is sinking at 30% annual rate, which translates to 75% of the GDP.\t
Home prices in L.A. and Miami area are still double of what they were at the end of 2000 when employment was booming. Nationwide they are up 50% since the end of 2000.\t
Excellent point on employment. I'd also mention that the cost of living is rising at a 4% + rate. Interest rates are also rising. Same with downpayments.
NEW YORK (AP) -- MasterCard's profit more than doubled in the first quarter, the card processor said Tuesday
Shares rose $19, or 7.8 percent, to $261.50 in morning trading Tuesday. The stock is up more than 21 percent since the beginning of the year.
CEO and President Robert Selander said during a conference call with analysts that he continues to see U.S. consumers shift away from luxury purchases, such as home furnishings, toward necessities like food and gasoline, which are rising in cost.
Shouldn't the investors be thinking that if Americans are putting necessities on their plastic, it means that they will soon be defaulting on that plastic?
Once upon a time you dressed so fine
You threw the bums a dime in your prime, didn't you?
People'd call, say, "Beware doll, you're bound to fall"
You thought they were all kiddin' you
You used to laugh about
Everybody that was hangin' out
Now you don't talk so loud
Now you don't seem so proud
About having to be scrounging for your next meal.
How does it feel
How does it feel
To be without a home
Like a complete unknown
Like a rolling stone?
Shouldn't the investors be thinking that if Americans are putting necessities on their plastic, it means that they will soon be defaulting on that plastic?
If that were "instead of" then I'd be worried. From the article, I can't read that into his statement. Still, it's interesting that credit card sales are up.
"Shouldn't the investors be thinking that if Americans are putting necessities on their plastic, it means that they will soon be defaulting on that plastic?"
Mastercard is not a lender - the bank/other entity that issued the card is the lender. Mastercard gets its revenue from the fees it charges the merchant on each transaction. Defaults don't hurt MC. Volume, any volume, helps it.
Slight quibble -- only 19 of the 20 cities showed a year-over-year decline.
I believe Charlotte is still showing a 1.5% gain year-over-year.
That said, even the mighty Charlotte MSA appears to have peaked at 135.88 in August 2007. Now down to 131.22.
Good point, F&%$ this 19 out of 20 thing. Charlotte get the F*** in line and start dropping at 10-30 annual rates just like the rest of the country.
FYI the only reason charlotte hasn't tanked is the same reason that Wachovia and BofA are still doing their pick a payment loans. Everyone here is in denial saying, but we're different we have Wachovia and BofA.
Yeah right, I'm buying when prices have dropped 90%
Excuse me I also meant to add that everyone here in charlotte doesn't think real estate and housing were huge speculative bubbles, that is why the banks are still doing pick a payment. Either that or FNM,FRE, or FHA are in denial and will still purchase this garbage
Mercutio writes:
I don't understand how prices are falling so fast. It's genuinely surprising. Almost unbelievable... literally.
Mercutio | 04.29.08 - 10:35 am | #
They are the dumbest big bank I have ever seen. It goes way beyond the Golden West mortgage fiasco too. I have personally watched them keep extending credit to dead companies. I can only surmise that they are just putting off the day of reckoning.
I don't understand how prices are falling so fast. It's genuinely surprising. Almost unbelievable... literally.
I don't think it's all that surprising.
We know sales numbers are way down from the peak and inventories are way up. It stands to reason that the homes that are selling are those where the seller is desperate to get out, and FC's and the like where the bank just wants to get what they can. Thus your sales are coming predominantly, and increasingly, from the left side of the pricing bell curve.
No data to back this up, but I'd bet that median sales prices are probably in the 20th-25th percentile of comparable listing prices at this point - there are just too many homes still out there where the sellers refuse to face reality, though I suspect that'll start to change soon.
I don't understand how prices are falling so fast.
We have an almost complete shut-off of the buyer supply, thanks to a lock-down in credit and poor confidence in the direction of the market. Anybody selling right now is either desperate or trying to get out quickly before things erode further.
I'm in the latter camp. Took a 3% haircut off asking, which was already 10% off the peak. Now I'm going to wait a year or so...
They are the dumbest big bank I have ever seen. It goes way beyond the Golden West mortgage fiasco too. I have personally watched them keep extending credit to dead companies. I can only surmise that they are just putting off the day of reckoning.
Angry Saver | 04.29.08 - 10:38 am | #
your so right Angry Saver. A friend who was an underwriter in Wachovia's heloc group has told me repeatedly about how they were not allow to block any questionable heloc's below 100K no matter what. I think a lot of people figured that out. Last Dec as the markets were blowing up they still were not allowed to block heloc's under 100K. BofA is only slightly behind Wachovia in stupidity.
I think they are busy looking at each other from their skyscrappers in Charlotte saying to themselves, well they aren't changing anything so we can't change anything
I still looking to buy a bigger house for our bigger family. Asking prices in suburban Phila for listings on the market 60 days are down about 10- 25k.
425-> 400
420-> 410.
Actual examples.
Still, not 20%, more like 2 to 5% from the peak. but they are moving down...
This blog confounds me b/c there is a ton of data being reported but it never covers where I live, specifically. Only in aggregate and-- it is impossible to extract, to a zip code-- what is happening here.
I know Phila & S. Jersey well. I'd recommend PA over NJ. Cost of living is much lower - especially taxes. Quality of life is similar. Avoid the city of Philadelphia like the plague. The taxes are ungodly.
New home sales plunged to the lowest level since Oct 1991 -- Sales of newly built homes plunged 8.5% in March to a seasonally adjusted annual rate of 526,000 units, the lowest level since October 1991:
�� A critical difference, however, is that by October 1991, the unsold inventory was running at 6.7 months' supply, not 11.0 months' as is the case today (up from 10.2 months' supply in February and 8.3 a year ago).
�� Not only that, but by October 1991, the recession had been over by more than six months, the job market was starting to stabilize, and we were a good three quarters past the worst part of the credit crunch not quite the situation we have on our hands today.
-x-x-x-x-x-x-x-x-x-x-x-x-
New Home Sales and home prices will bottom no sooner than 15 months after the beginning of the recession. We will definitely go well below 400K for SFH. Home prices will be down at least 50% and New Home Sales down at least 75%.
If only CR knew the real demand for housing, but he is an economist and must estimate rather than look at the measurements (Census survey data). It is amazing that the whole profession was misleading the public with demand estimates of 1.65-1.9M. Herd mentality? Much more so than among the general population. Dismal scientists is a well-earned reputation for the profession. BTW, Buffett, who is never loose on data, says that the household formation is 1M. If we have a severe recession or worse, the number will go negative for the duration of the recession.
I still looking to buy a bigger house for our bigger family. Asking prices in suburban Phila for listings on the market 60 days are down about 10- 25k.
425-> 400
420-> 410.
Actual examples.
Still, not 20%, more like 2 to 5% from the peak. but they are moving down...
Asking isn't necessarily the selling price (Bob-Dog refers to it as wishing price)... offer some of them 20% off asking and see if they nibble... in this market 20% isn't out of line... if they freak, move on & ask another wisher.
ipodius writes:
of course, if you bought before 2001 you can just enjoy the ride and laugh at the ones who throw up while you keep your breakfast safely contained.
Except they are in front of you and throwing up in your face. Regardless of the imagery, lot's of '96-'01 buyers Heloc'd and ATM'd. I know I did. Being "olde skool" Iat first i wondered how all these people I knew could afford their lifestyles. Eventually I stopped wondering. I may never have joined in but I am still guilty of failing to understand the greater consequences.
Falling? Hey, we aren't even back down to normal yet, let alone below that.
People are still selling and buying homes for more than their long-term sustainable price.
I know Phila & S. Jersey well. I'd recommend PA over NJ. Cost of living is much lower - especially taxes. Quality of life is similar. Avoid the city of Philadelphia like the plague. The taxes are ungodly.
And I second everything AS says. My wife works in NJ but we live in PA anyway - it can literally cost a middle-income family $10,000 more a year in higher income and property taxes to live in Jersey.
There's a site I found that tracks actual sales, not listing prices, for a whole bunch of the (western) PA suburbs here:
Usually a month or two behind but it's great for assessing neighborhood / zip-code level trends, albeit within a very specific geography. Hope it helps.
It estimates equity gains/losses in the 20 major metros if you were to buy today. It says that you will lose nearly $350,000 in equity over the next four years if you buy in the San Francisco Bay Area today.
I don't understand how prices are falling so fast. It's genuinely surprising. Almost unbelievable... literally.
As one who dislikes riding roller coasters, I was sitting in the car on the way up wondering why everyone else thought it was fun. I guess they like the adrenalin-rush terror of the drop. I hope they're having fun.
Jas, My wife and I were talking last night about how the prices are still double what they were in late 90's. Just thinking about first time buyers trying to come up with the down payment and how much cost of living has risen since then. It seems to me the problem for the move up market is that people who normally put down 10% on a first home and worked like a dog to pay off the high interest second and after a few years had maybe 10% increase in value and were suddenly sitting on 30% equity in their home to start thinking about moving up to a bigger home as their family grew are not going to appear for another decade. High down payments and flat or declining values for years will mean much less moving up. No economics just logic. Oh, and wait until new parents see what it costs for diapers and daycare. Daycare cost is scarier than the price of rice for what it means for dual income Americans.
After the election, renters will be deemed economic terrorists and will be required to subject themselves to enormous amounts of mortgage debt to prove their fealty to the USA.
People are still selling and buying homes for more than their long-term sustainable price.
As with any crashing market, not until the first batch of would-be knife catchers throw up their hands in disgust and sell at a loss can a true bottoming process begin.
Whether this happens at, above, or below the long-term sustainable price trend line, I think we can all agree it sure hasn't happened yet.
It says that you will lose nearly $350,000 in equity over the next four years if you buy in the San Francisco Bay Area today.
DH@TH | 04.29.08 - 11:28 am | #
The problem with these so called experts is that their sound advice comes after it is too late for the majority.
Also, I doubt that 350K loss includes heloc losses.
The calculations for equity after four years assume that the house price adjusts over this period to a
trend value that is pegged at 15 times the annual rent of the property. The annual rent is assumed to
be 1.333 times the fair market rent as described in the text. This figure is further adjusted upward by
a factor of 12.55 percent which would be the rent in four years, assuming an average annual rental
inflation rate of 3.0 percent.
I keep thinking that everybody who bought seven or ten years ago or more will probably stay above water no matter what.
And then I remember the HELOCs. It's hard for me to factor that in, because nobody that I know did that. They're either savers or old money. They either didn't spend it, or spent it out of their own pocket. Who are the HELOC people, anyway?
I was a HELOC person for almost 2 years. Looking back, not sure why we were influenced to get a HELOC versus straight ARM, but we had a killer rate with HELOC, which @ one point was 3.5%, so we just pumped as much cash as we could into monthly payments, to pay down the loan -- then we did a refinance on a lower balance and put down a much larger downpayment and then locked into a 30 year fixed...
Regarding Charlotte's unwillingness to join the crowd, I thought this was an interesting quote:
"...Las Vegas was hit the hardest, with home prices falling 22.8%, but Miami, with a drop of 21.7%, was not far behind. The only metro area to see price appreciation was Charlotte, up 1.5%. Interestingly, despite the declines, Miami still has the best price gains in the composite since 2000, up nearly 120%, while Charlotte is one of the worst-performing cities with only a 31% gain...."
(asterisks mine)
One of the worst-performing cities with only a 31% gain since 2000.
I go to a mortgage broker yesterday, at the behest of my wife, who tells me we MUST get a house. The nice man eagerly offers us a FHA loan (aren't those for poor people?) at 6.2%.
I tell him I want 100% financing. "We can't do that. That has caused some problems." So I have to cough up 20k cash next month. Mind you, I just got out of college and I have student loan DEBT, not cash.
In a novel approach, the broker asks me how much I want to pay per month. I answer honestly: "$2000 per month." That's twice what I pay in rent right now, and a huge sacrifice for us. I'm offered a thirty year fixed rate for... drumroll please ... $250,000.
I am honest with him: "I can't buy a condo for $250,000." He replies "sellers are becoming more reasonable. You never know."
I announce that I am leaving. See you next year. This groundhog has seen his shadow, and will continue to hide in his very nice rental for $1000 per month.
On the way out, I notice how deadly quiet the brokerage is. People waiting at their desks for the phone to ring during the 'peak buying season.'
I have great income and credit and I can't buy a house. That means somebody else can't sell theirs. And so it goes for millions of us, trapped in a purgatory of debt and artificial prices.
when we are told by those who have a reasonable handle on changing RE prices that a 20 % to 30% reduction is expected as the market returns to the new mean...
recall the rule...
prices frequently overshoot and oscillate above and below a new mean before settling in.
if only one could identify, that first overshoot below the new mean...hello money
Honestly, I don't know too many people under the age of 40 who don't have some sort of 2nd lien on their property.
They got 'em in the first place because it was cheaper and easier than PMI. And they used 'em afterwards because, hey, it was just so darn convenient! And the added debt won't matter because home prices only go up, right?
I'm positively archaic among my age group in my attitude to debt. Your average couple in their early 30s is paying not just a mortgage but two car loans, 3 or 4 credit cards, a couple of revolving loans ... and let's not forget one or two sets of student loans, which the majority of folks I know are still paying off 8, 10, 12 years after graduation. Viewed in that light, a HELOC is just one more ball to juggle.
make your wife go read irvinehousingblog.com on a daily basis, and all the back up analysis. That should fix the MUST problem. People are not supposed to be able to buy houses (or condos) directly out of college. That's nuts. Renting, cheaply, is a good good thing. Building up savings is a good thing. Patience grasshopper. I know, it sucks not being able to paint. It sucks having to move every few years, but it could be worse.
A very positive, graphic picture of a crisis abating. Now, if Washington could just get the 'future homeowners of America act approved'. Specifically, geared to rapidly lower housing prices to reach affordability. Including:
Tighter mortgage lending standards.
A short term 'affordability interest rate premium' for any buyers who buy in the next 6 months of +2%.
A 10% tax on the value of the house purchase price for anyone who buys in the next 6 months.
This should keep the ball rolling towards affordability. Write your congressperson.
☺☺"If only CR knew the real demand for housing, but he is an economist and must estimate rather than look at the measurements (Census survey data). It is amazing that the whole profession was misleading the public with demand estimates of 1.65-1.9M. Herd mentality? Much more so than among the general population. Dismal scientists is a well-earned reputation for the profession."
Jas
Jas Jain | 04.29.08 - 11:04 am | #
"Perhaps economics was, after all, the dismal science--or, let us say, the dismal area of disagreement, assumption, and conjecture."--Frederick Lewis Allen
"Depression shows man as a senseless cog in a senselessly whirling machine which is beyond human understanding and has ceased to serve any purpose but its own."--Peter F. Drucker
"The abstractions of scientific materialism illuminated one aspect of physical reality that helped seventeenth-century physics to fructify. But when we come to the truths of human experience, these abstractions are utterly inappropriate... They have been a total disaster in the scientific study of mental and social processes."--Daniel Yankelovich
Yesterday I looked at Redfin data for a hard-hit RE area CA; Pittsburg. For homes currently on the market I plotted percentage change between previous selling price and the current asking price against the date of the previous sale.
Hoped to find a "change from the peak" but instead found:
- 90% of the homes for sale are either REO or short sales
- 90% of those had been sold during 2004 or later
- A fair number (about one-fourth) of the "previous sale" was the bank paying the balance-due price at auction during the last 6 months.
As a result, didn't get the data I was looking for BUT found that the ASKING price is 33% below the prior sale price, relatively independent of when the prior sale was made.
This indicates that in this type of market there is a very long way to go before there is a "bottom."
OTOH...I also examined in less detail other Bay Area markets, e.g. Saratoga, Palo Alto, Marin and it's night and day. These markets didn't have the "froth" the lower price markets did, and as a result didn't have nearly as large percentage of sales around the peak. Even though home values appreciated, it was not as much and driven by small volume so even when prices drop fewer will be underwater and the community as a whole won't be destroyed, as is happening in the Pittsburg-like areas.
groundhog: "I have great income and credit and I can't buy a house. "
But here's the thing - you've been renting, which costs 1/2 of your desired mortgage, and you have nothing saved. If you have not been saving at least the difference between your rent now and your mortgage (plus maintenance), each and every month, then you should be denied a mortgage, because you can't afford it. If someone did give you a mortgage, they would be hurting you, as you have a proven track record for what you can afford to spend on housing, and it is 1/2 of the mortgage payment you want.
Somewhere out there on Youtube there is video of the Shiller history of home prices mapped to a virtual roller coaster program. The roller coaster commentators might enjoy it.
Rob Dawg:lot's of '96-'01 buyers Heloc'd and ATM'd.
Here's one a few blocks from my home:
Purchased in 1975 for $57K
Foreclosed in 2008 owing $550K
I think this was a rental. Looks like no investment has been made is this place at all. I guess the landlord just pumped out as much money as he could, then either walked away or couldn't make the loan payments from the rent he was getting.
You gotta love the speed of the decline. And it's accelerating. By the time Barney Frank and congress get behind a bailout plan (after the elections) it'll likely be to late too make a difference.
More important, less taxpayers money will be wasted if appraisals are made after the fall. Maybe 85% of that appraisal IS close to bottom.
I go to a mortgage broker yesterday, at the behest of my wife, who tells me we MUST get a house. The nice man eagerly offers us a FHA loan (aren't those for poor people?) at 6.2%.
I tell him I want 100% financing. "We can't do that. That has caused some problems." So I have to cough up 20k cash next month. Mind you, I just got out of college and I have student loan DEBT, not cash.
Welcome to the new normal, same as the old normal. Gaze back, to 1993, at DH and I and our newborn first daughter crammed into a two bedroom rented condo wondering why two lawyers can't afford a house. Because we just got out of law school and we haven't saved hardly any money yet. We got our 1600 square foot starter home when DD was 2, and that was with some parental help, and paying PMI for several years. Everything about moving cost more than we thought, and we spent everything we had saved. Used our college hand-me-down furniture and dishes for several more years (actually we still use some of it!). Here, guest, sit on this nice folding chair while we watch the game on our fabulous 13 inch TV!
Really, people just out of school who haven't saved anything yet are really much better off renting. It was only for a few bizarre bubble years that anyone thought otherwise.
"Welcome to the new normal, same as the old normal."
Yep, you need to qualify (FOR REAL!). You know, have money saved, have a good paying job, and have a track record of not being a dead beat. For heaven's sake.......IT'S BUYING A HOUSE!!!!!! Not a flat screen TV!
Buyers: Buy it ONLY if you can afford it!!!
Lenders: Lend out the money only if you know you can get it back!!!!
I don't understand how prices are falling so fast.
I'm in the falling demand side camp. The supply from REOs hasn't hit the market yet, but people don't want to take big steps now (look at consumer confidence and big ticket items in general). Add the credit crunch that shuts out many of those who don't mind taking a high risks - and have so in the past, which is why they are shut out.
The problem with these so called experts is that their sound advice comes after it is too late for the majority.
The CEPR with Dean Baker has warned about the housing bubble in 2003. I think Baker even sold his house because of it and saw the prices rising further. Always look who pays an expert.
Being "olde skool" Iat first i wondered how all these people I knew could afford their lifestyles. Eventually I stopped wondering. I may never have joined in but I am still guilty of failing to understand the greater consequences.
Rob Dawg, that is my experience exactly, only I never did the ATM thing unless we sold and bought again. I went from one fixed 30 yr to another, never realizing how other people were buying these huge homes, always thinking everyone in the world must be just making more money than me. I didn't figure out the whole ARM experience until I saw this blog 1+ yrs. ago. Then the light went on.
Outsider,
Just so you don't think ill of me. I Heloc'd for a new roof, landscaping and office shed. The roof besides replacing the original 1961 cedar shake garnered a substantial insurance deduction. The office shed saved untold child therapist bills as each got their own room while I could still save thousands by not maintaining a city office. The rest of the Heloc will go to solar PV that will cut the electric bill by 80%+. Still CLTV is less than 33%. These are enduring "investment" types of debt that was my understanding equity loans were intended to address.
Prices falling at an accelerating rate. Deliquencies rising. Defaults rising. Sales falling. KB homes guy (as you noted) expects another 20% fall in home prices. Looks like a self-feeding process for now.
Ouch!
That nice man Mr. Bernankie will be around tomorrow throwing out candy. He'll put a stop to this.
I think that this data will scare away some tentative buyers. Even more, the more savvy investor is going to wait further along the sidelines. What inning is this?
Go Miami! This graph doesn't even scare me anymore (that much).
If that graph were a rollercoaster, everyone onboard would be screaming "yeeeeeeeeeeee!!!!!!" right now.
Okay, I admit it. I am screaming yeeeeeeeeeeee!!!!!!" internally.
And some folks are going weeeeeeee. . .
I'd like to go "yeeeeeeeeeee" but I can't type and keep my arms in the air at the same time.
You gotta love the speed of the decline. And it's accelerating. By the time Barney Frank and congress get behind a bailout plan (after the elections) it'll likely be to late too make a difference.
Hang in there renters. Perhaps prudence will actually be allowed to prevail.
Let's hope so Angry Saver, because just in case the next edition of the New Heritage American Dictionary is going to update the definition of "renter" to mean "schmuck".
Or I should say "but just in case" were grammar a matter of concern for me.
How many flippers hedged themselves with the Case Shiller index? Likely ZERO!
They can all thank David Lereah & the NAR.
the bulls have bought a mirage.
The housing debacle leads to ugly economy for awhile. Start hording the squirrels and rabbits.
In any case Miami has the best rollercoasters, as that graph so aptly shows.
Remember when hoose prices were sticke?
if i were a bull knowing that the Fed at most will cut only 0.25 tomorrow and then probably hold, i'd be heading for the exits today.
What happened to all the foreign buyers in Miami?
Looks like they are taking a page out of the Angry Saver Handbook - Why buy now, prices are falling AND so is the dollar.
The tripe you hear from the MSM is truly hazardous to your WEALTH.
homedad, grip the edge of your desk while looking at the graph, like you would the bar on car as you go over the top just before you hit that cork screw thingy
Then go back to typing after you've thrown up.
of course, if you bought before 2001 you can just enjoy the ride and laugh at the ones who throw up while you keep your breakfast safely contained.
--
Case-Shiller Index Annual Rate Change For the Past 6 Months:\t
\t
_______AREA\t6-Month Annual Rate
\t
Las Vegas\t-33.2%
Phoenix - AZ\t-31.6%
Los Angeles\t-30.7%
San Francisco\t-29.7%
San Diego\t-29.5%
Miami\t-26.6%
Detroit - MI\t-23.5%
Tampa - FL\t-21.5%
Minneapolis - MN\t-21.5%
Composite-10\t-21.1%
Composite-20\t-20.5%
Washington\t-19.1%
Cleveland - OH\t-18.5%
Denver\t-16.7%
Atlanta - GA\t-14.9%
Chicago\t-14.4%
Dallas - TX\t-13.1%
Seattle - WA\t-12.4%
Boston\t-11.9%
Portland - OR\t-10.2%
New York\t-8.2%
Charlotte - NC\t-6.7%
\t
The top 5 states are the usual suspects. The whole of CA (not all zip codes and cities, but broad metro areas) is sinking at 30% annual rate, which translates to 75% of the GDP.\t
Home prices in L.A. and Miami area are still double of what they were at the end of 2000 when employment was booming. Nationwide they are up 50% since the end of 2000.\t
Jas
Jas,
Excellent point on employment. I'd also mention that the cost of living is rising at a 4% + rate. Interest rates are also rising. Same with downpayments.
The backside of the parabola is a bitch.
NEW YORK (AP) -- MasterCard's profit more than doubled in the first quarter, the card processor said Tuesday
Shares rose $19, or 7.8 percent, to $261.50 in morning trading Tuesday. The stock is up more than 21 percent since the beginning of the year.
CEO and President Robert Selander said during a conference call with analysts that he continues to see U.S. consumers shift away from luxury purchases, such as home furnishings, toward necessities like food and gasoline, which are rising in cost.
Shouldn't the investors be thinking that if Americans are putting necessities on their plastic, it means that they will soon be defaulting on that plastic?
Once upon a time you dressed so fine
You threw the bums a dime in your prime, didn't you?
People'd call, say, "Beware doll, you're bound to fall"
You thought they were all kiddin' you
You used to laugh about
Everybody that was hangin' out
Now you don't talk so loud
Now you don't seem so proud
About having to be scrounging for your next meal.
How does it feel
How does it feel
To be without a home
Like a complete unknown
Like a rolling stone?
I thought real estate only went up.
Shouldn't the investors be thinking that if Americans are putting necessities on their plastic, it means that they will soon be defaulting on that plastic?
If that were "instead of" then I'd be worried. From the article, I can't read that into his statement. Still, it's interesting that credit card sales are up.
"Shouldn't the investors be thinking that if Americans are putting necessities on their plastic, it means that they will soon be defaulting on that plastic?"
Mastercard is not a lender - the bank/other entity that issued the card is the lender. Mastercard gets its revenue from the fees it charges the merchant on each transaction. Defaults don't hurt MC. Volume, any volume, helps it.
How does it feel
How does it feel
To be without a home
Like a complete unknown
Like a rolling stone?
It's all right Ma, I'm only bleeding!
CR,
Slight quibble -- only 19 of the 20 cities showed a year-over-year decline.
I believe Charlotte is still showing a 1.5% gain year-over-year.
That said, even the mighty Charlotte MSA appears to have peaked at 135.88 in August 2007. Now down to 131.22.
5 Foot 3 Pablo Picasso writes:
CR,
Slight quibble -- only 19 of the 20 cities showed a year-over-year decline.
I believe Charlotte is still showing a 1.5% gain year-over-year.
That said, even the mighty Charlotte MSA appears to have peaked at 135.88 in August 2007. Now down to 131.22.
Good point, F&%$ this 19 out of 20 thing. Charlotte get the F*** in line and start dropping at 10-30 annual rates just like the rest of the country.
FYI the only reason charlotte hasn't tanked is the same reason that Wachovia and BofA are still doing their pick a payment loans. Everyone here is in denial saying, but we're different we have Wachovia and BofA.
Yeah right, I'm buying when prices have dropped 90%
I don't understand how prices are falling so fast. It's genuinely surprising. Almost unbelievable... literally.
Excuse me I also meant to add that everyone here in charlotte doesn't think real estate and housing were huge speculative bubbles, that is why the banks are still doing pick a payment. Either that or FNM,FRE, or FHA are in denial and will still purchase this garbage
Mercutio writes:
I don't understand how prices are falling so fast. It's genuinely surprising. Almost unbelievable... literally.
Mercutio | 04.29.08 - 10:35 am | #
Mercutio..........hooocoodanode?
Regarding Wachovia,
They are the dumbest big bank I have ever seen. It goes way beyond the Golden West mortgage fiasco too. I have personally watched them keep extending credit to dead companies. I can only surmise that they are just putting off the day of reckoning.
With all the rollercoaster metaphors, we might as well see it for ourselves.
YouTube - Real Estate Prices
I don't understand how prices are falling so fast. It's genuinely surprising. Almost unbelievable... literally.
I don't think it's all that surprising.
We know sales numbers are way down from the peak and inventories are way up. It stands to reason that the homes that are selling are those where the seller is desperate to get out, and FC's and the like where the bank just wants to get what they can. Thus your sales are coming predominantly, and increasingly, from the left side of the pricing bell curve.
No data to back this up, but I'd bet that median sales prices are probably in the 20th-25th percentile of comparable listing prices at this point - there are just too many homes still out there where the sellers refuse to face reality, though I suspect that'll start to change soon.
I don't understand how prices are falling so fast.
We have an almost complete shut-off of the buyer supply, thanks to a lock-down in credit and poor confidence in the direction of the market. Anybody selling right now is either desperate or trying to get out quickly before things erode further.
I'm in the latter camp. Took a 3% haircut off asking, which was already 10% off the peak. Now I'm going to wait a year or so...
Did you say "what inning is this?" Sorry, I couldn't hear you over the National Anthem.
Angry Saver writes:
Regarding Wachovia,
They are the dumbest big bank I have ever seen. It goes way beyond the Golden West mortgage fiasco too. I have personally watched them keep extending credit to dead companies. I can only surmise that they are just putting off the day of reckoning.
Angry Saver | 04.29.08 - 10:38 am | #
your so right Angry Saver. A friend who was an underwriter in Wachovia's heloc group has told me repeatedly about how they were not allow to block any questionable heloc's below 100K no matter what. I think a lot of people figured that out. Last Dec as the markets were blowing up they still were not allowed to block heloc's under 100K. BofA is only slightly behind Wachovia in stupidity.
I think they are busy looking at each other from their skyscrappers in Charlotte saying to themselves, well they aren't changing anything so we can't change anything
of course, if you bought before 2001 you can just enjoy the ride...
For now. This is one of those new coasters that go subterranean.
I still looking to buy a bigger house for our bigger family. Asking prices in suburban Phila for listings on the market 60 days are down about 10- 25k.
425-> 400
420-> 410.
Actual examples.
Still, not 20%, more like 2 to 5% from the peak. but they are moving down...
This blog confounds me b/c there is a ton of data being reported but it never covers where I live, specifically. Only in aggregate and-- it is impossible to extract, to a zip code-- what is happening here.
cjc
cjc,
I know Phila & S. Jersey well. I'd recommend PA over NJ. Cost of living is much lower - especially taxes. Quality of life is similar. Avoid the city of Philadelphia like the plague. The taxes are ungodly.
--
David Rosenberg; 04/28/08:
New home sales plunged to the lowest level since Oct 1991 -- Sales of newly built homes plunged 8.5% in March to a seasonally adjusted annual rate of 526,000 units, the lowest level since October 1991:
�� A critical difference, however, is that by October 1991, the unsold inventory was running at 6.7 months' supply, not 11.0 months' as is the case today (up from 10.2 months' supply in February and 8.3 a year ago).
�� Not only that, but by October 1991, the recession had been over by more than six months, the job market was starting to stabilize, and we were a good three quarters past the worst part of the credit crunch not quite the situation we have on our hands today.
-x-x-x-x-x-x-x-x-x-x-x-x-
New Home Sales and home prices will bottom no sooner than 15 months after the beginning of the recession. We will definitely go well below 400K for SFH. Home prices will be down at least 50% and New Home Sales down at least 75%.
If only CR knew the real demand for housing, but he is an economist and must estimate rather than look at the measurements (Census survey data). It is amazing that the whole profession was misleading the public with demand estimates of 1.65-1.9M. Herd mentality? Much more so than among the general population. Dismal scientists is a well-earned reputation for the profession. BTW, Buffett, who is never loose on data, says that the household formation is 1M. If we have a severe recession or worse, the number will go negative for the duration of the recession.
Jas
I still looking to buy a bigger house for our bigger family. Asking prices in suburban Phila for listings on the market 60 days are down about 10- 25k.
425-> 400
420-> 410.
Actual examples.
Still, not 20%, more like 2 to 5% from the peak. but they are moving down...
Asking isn't necessarily the selling price (Bob-Dog refers to it as wishing price)... offer some of them 20% off asking and see if they nibble... in this market 20% isn't out of line... if they freak, move on & ask another wisher.
Jas,
Tell me, do your forecasts account for the possibility of higher inflation and/or interest rates?
My best guesses are all way more pessimistic than CR's. Doesn't mean I am right though.
ipodius writes:
of course, if you bought before 2001 you can just enjoy the ride and laugh at the ones who throw up while you keep your breakfast safely contained.
Except they are in front of you and throwing up in your face. Regardless of the imagery, lot's of '96-'01 buyers Heloc'd and ATM'd. I know I did. Being "olde skool" Iat first i wondered how all these people I knew could afford their lifestyles. Eventually I stopped wondering. I may never have joined in but I am still guilty of failing to understand the greater consequences.
Falling? Hey, we aren't even back down to normal yet, let alone below that.
People are still selling and buying homes for more than their long-term sustainable price.
I know Phila & S. Jersey well. I'd recommend PA over NJ. Cost of living is much lower - especially taxes. Quality of life is similar. Avoid the city of Philadelphia like the plague. The taxes are ungodly.
And I second everything AS says. My wife works in NJ but we live in PA anyway - it can literally cost a middle-income family $10,000 more a year in higher income and property taxes to live in Jersey.
There's a site I found that tracks actual sales, not listing prices, for a whole bunch of the (western) PA suburbs here:
www.WhatHomesAreSellingFor.com
Usually a month or two behind but it's great for assessing neighborhood / zip-code level trends, albeit within a very specific geography. Hope it helps.
"I believe Charlotte is still showing a 1.5% gain year-over-year."
But adjusted for inflation (using real dollars), even Charlotte is down 3%.
great National Map tracking FC's and zoom on in to street level and even if what parts of the county are say 1-150 and what parts are 1 -300 exmpl.
HotPads.com - File Not Found
The Center for Economic Policy and Research recently put out a study on the cost of ownership vs. the cost of rent in major metropolitan areas.
http://www.cepr.net/documents/publications/ownrent_2008_04.pdf
It estimates equity gains/losses in the 20 major metros if you were to buy today. It says that you will lose nearly $350,000 in equity over the next four years if you buy in the San Francisco Bay Area today.
I don't understand how prices are falling so fast. It's genuinely surprising. Almost unbelievable... literally.
As one who dislikes riding roller coasters, I was sitting in the car on the way up wondering why everyone else thought it was fun. I guess they like the adrenalin-rush terror of the drop. I hope they're having fun.
Dryfly:
"It's better to have lowballed and lost, than to have never lowballed at all."
Alfred Lord Realtor
Also, it helps to have a Realtor as your buyers' agent, he keep you from being screwed by the seller.
Where I am in Tucson Zillow lowers the values of houses in my neighborhood almost on a daily basis. Down, down, down without respite.
Jas, My wife and I were talking last night about how the prices are still double what they were in late 90's. Just thinking about first time buyers trying to come up with the down payment and how much cost of living has risen since then. It seems to me the problem for the move up market is that people who normally put down 10% on a first home and worked like a dog to pay off the high interest second and after a few years had maybe 10% increase in value and were suddenly sitting on 30% equity in their home to start thinking about moving up to a bigger home as their family grew are not going to appear for another decade. High down payments and flat or declining values for years will mean much less moving up. No economics just logic. Oh, and wait until new parents see what it costs for diapers and daycare. Daycare cost is scarier than the price of rice for what it means for dual income Americans.
After the election, renters will be deemed economic terrorists and will be required to subject themselves to enormous amounts of mortgage debt to prove their fealty to the USA.
People are still selling and buying homes for more than their long-term sustainable price.
As with any crashing market, not until the first batch of would-be knife catchers throw up their hands in disgust and sell at a loss can a true bottoming process begin.
Whether this happens at, above, or below the long-term sustainable price trend line, I think we can all agree it sure hasn't happened yet.
It says that you will lose nearly $350,000 in equity over the next four years if you buy in the San Francisco Bay Area today.
DH@TH | 04.29.08 - 11:28 am | #
The problem with these so called experts is that their sound advice comes after it is too late for the majority.
Also, I doubt that 350K loss includes heloc losses.
Angry,
Add this into your thoughts:
The calculations for equity after four years assume that the house price adjusts over this period to a
trend value that is pegged at 15 times the annual rent of the property. The annual rent is assumed to
be 1.333 times the fair market rent as described in the text. This figure is further adjusted upward by
a factor of 12.55 percent which would be the rent in four years, assuming an average annual rental
inflation rate of 3.0 percent.
I keep thinking that everybody who bought seven or ten years ago or more will probably stay above water no matter what.
And then I remember the HELOCs. It's hard for me to factor that in, because nobody that I know did that. They're either savers or old money. They either didn't spend it, or spent it out of their own pocket. Who are the HELOC people, anyway?
I was a HELOC person for almost 2 years. Looking back, not sure why we were influenced to get a HELOC versus straight ARM, but we had a killer rate with HELOC, which @ one point was 3.5%, so we just pumped as much cash as we could into monthly payments, to pay down the loan -- then we did a refinance on a lower balance and put down a much larger downpayment and then locked into a 30 year fixed...
Regarding Charlotte's unwillingness to join the crowd, I thought this was an interesting quote:
"...Las Vegas was hit the hardest, with home prices falling 22.8%, but Miami, with a drop of 21.7%, was not far behind. The only metro area to see price appreciation was Charlotte, up 1.5%. Interestingly, despite the declines, Miami still has the best price gains in the composite since 2000, up nearly 120%, while Charlotte is one of the worst-performing cities with only a 31% gain...."
(asterisks mine)
One of the worst-performing cities with only a 31% gain since 2000.
Not sure if this is bullish or bearish.
Market Overview - Yahoo! Finance - The basics of investing.
S.
Anonymous,
Those are some questionable assumptions, especially if interest rates rise to 8% or so.
My Story:
I go to a mortgage broker yesterday, at the behest of my wife, who tells me we MUST get a house. The nice man eagerly offers us a FHA loan (aren't those for poor people?) at 6.2%.
I tell him I want 100% financing. "We can't do that. That has caused some problems." So I have to cough up 20k cash next month. Mind you, I just got out of college and I have student loan DEBT, not cash.
In a novel approach, the broker asks me how much I want to pay per month. I answer honestly: "$2000 per month." That's twice what I pay in rent right now, and a huge sacrifice for us. I'm offered a thirty year fixed rate for... drumroll please ... $250,000.
I am honest with him: "I can't buy a condo for $250,000." He replies "sellers are becoming more reasonable. You never know."
I announce that I am leaving. See you next year. This groundhog has seen his shadow, and will continue to hide in his very nice rental for $1000 per month.
On the way out, I notice how deadly quiet the brokerage is. People waiting at their desks for the phone to ring during the 'peak buying season.'
I have great income and credit and I can't buy a house. That means somebody else can't sell theirs. And so it goes for millions of us, trapped in a purgatory of debt and artificial prices.
How long can this go on?
when we are told by those who have a reasonable handle on changing RE prices that a 20 % to 30% reduction is expected as the market returns to the new mean...
recall the rule...
prices frequently overshoot and oscillate above and below a new mean before settling in.
if only one could identify, that first overshoot below the new mean...hello money
Who are the HELOC people, anyway?
Honestly, I don't know too many people under the age of 40 who don't have some sort of 2nd lien on their property.
They got 'em in the first place because it was cheaper and easier than PMI. And they used 'em afterwards because, hey, it was just so darn convenient! And the added debt won't matter because home prices only go up, right?
I'm positively archaic among my age group in my attitude to debt. Your average couple in their early 30s is paying not just a mortgage but two car loans, 3 or 4 credit cards, a couple of revolving loans ... and let's not forget one or two sets of student loans, which the majority of folks I know are still paying off 8, 10, 12 years after graduation. Viewed in that light, a HELOC is just one more ball to juggle.
groundhog
make your wife go read irvinehousingblog.com on a daily basis, and all the back up analysis. That should fix the MUST problem. People are not supposed to be able to buy houses (or condos) directly out of college. That's nuts. Renting, cheaply, is a good good thing. Building up savings is a good thing. Patience grasshopper. I know, it sucks not being able to paint. It sucks having to move every few years, but it could be worse.
A very positive, graphic picture of a crisis abating. Now, if Washington could just get the 'future homeowners of America act approved'. Specifically, geared to rapidly lower housing prices to reach affordability. Including:
This should keep the ball rolling towards affordability. Write your congressperson.
☺☺"If only CR knew the real demand for housing, but he is an economist and must estimate rather than look at the measurements (Census survey data). It is amazing that the whole profession was misleading the public with demand estimates of 1.65-1.9M. Herd mentality? Much more so than among the general population. Dismal scientists is a well-earned reputation for the profession."
Jas
Jas Jain | 04.29.08 - 11:04 am | #
"Perhaps economics was, after all, the dismal science--or, let us say, the dismal area of disagreement, assumption, and conjecture."--Frederick Lewis Allen
"Depression shows man as a senseless cog in a senselessly whirling machine which is beyond human understanding and has ceased to serve any purpose but its own."--Peter F. Drucker
"The abstractions of scientific materialism illuminated one aspect of physical reality that helped seventeenth-century physics to fructify. But when we come to the truths of human experience, these abstractions are utterly inappropriate... They have been a total disaster in the scientific study of mental and social processes."--Daniel Yankelovich
Home prices are lubricated.
**** Repost from Yesterday ***
In the spirit of "all real estate is local"...
Yesterday I looked at Redfin data for a hard-hit RE area CA; Pittsburg. For homes currently on the market I plotted percentage change between previous selling price and the current asking price against the date of the previous sale.
Hoped to find a "change from the peak" but instead found:
- 90% of the homes for sale are either REO or short sales
- 90% of those had been sold during 2004 or later
- A fair number (about one-fourth) of the "previous sale" was the bank paying the balance-due price at auction during the last 6 months.
As a result, didn't get the data I was looking for BUT found that the ASKING price is 33% below the prior sale price, relatively independent of when the prior sale was made.
This indicates that in this type of market there is a very long way to go before there is a "bottom."
OTOH...I also examined in less detail other Bay Area markets, e.g. Saratoga, Palo Alto, Marin and it's night and day. These markets didn't have the "froth" the lower price markets did, and as a result didn't have nearly as large percentage of sales around the peak. Even though home values appreciated, it was not as much and driven by small volume so even when prices drop fewer will be underwater and the community as a whole won't be destroyed, as is happening in the Pittsburg-like areas.
Home prices are lubricated.
I prefer the metaphor of a popsicle: You can call it "sticky" but it's really just melting.
groundhog: "I have great income and credit and I can't buy a house. "
But here's the thing - you've been renting, which costs 1/2 of your desired mortgage, and you have nothing saved. If you have not been saving at least the difference between your rent now and your mortgage (plus maintenance), each and every month, then you should be denied a mortgage, because you can't afford it. If someone did give you a mortgage, they would be hurting you, as you have a proven track record for what you can afford to spend on housing, and it is 1/2 of the mortgage payment you want.
Versus has a very amusing new musical parody out and I have linked to it on my site if anyone is interested. I think it is their best one yet.
That Rose, Fannie Mae (Musical Tribute)
Somewhere out there on Youtube there is video of the Shiller history of home prices mapped to a virtual roller coaster program. The roller coaster commentators might enjoy it.
Rob Dawg:lot's of '96-'01 buyers Heloc'd and ATM'd.
Here's one a few blocks from my home:
Purchased in 1975 for $57K
Foreclosed in 2008 owing $550K
I think this was a rental. Looks like no investment has been made is this place at all. I guess the landlord just pumped out as much money as he could, then either walked away or couldn't make the loan payments from the rent he was getting.
CFC reported that 6.5% of prime firsts are DQ.
We are all prime?
"I just got out of college and I have...DEBT, not cash"
"I tell him I want 100% financing"
"I have great income and credit and I can't buy a house."
One of the funniest posts ever.
Angry Saver:
More important, less taxpayers money will be wasted if appraisals are made after the fall. Maybe 85% of that appraisal IS close to bottom.
I go to a mortgage broker yesterday, at the behest of my wife, who tells me we MUST get a house. The nice man eagerly offers us a FHA loan (aren't those for poor people?) at 6.2%.
I tell him I want 100% financing. "We can't do that. That has caused some problems." So I have to cough up 20k cash next month. Mind you, I just got out of college and I have student loan DEBT, not cash.
Welcome to the new normal, same as the old normal. Gaze back, to 1993, at DH and I and our newborn first daughter crammed into a two bedroom rented condo wondering why two lawyers can't afford a house. Because we just got out of law school and we haven't saved hardly any money yet. We got our 1600 square foot starter home when DD was 2, and that was with some parental help, and paying PMI for several years. Everything about moving cost more than we thought, and we spent everything we had saved. Used our college hand-me-down furniture and dishes for several more years (actually we still use some of it!). Here, guest, sit on this nice folding chair while we watch the game on our fabulous 13 inch TV!
Really, people just out of school who haven't saved anything yet are really much better off renting. It was only for a few bizarre bubble years that anyone thought otherwise.
"Welcome to the new normal, same as the old normal."
Yep, you need to qualify (FOR REAL!). You know, have money saved, have a good paying job, and have a track record of not being a dead beat. For heaven's sake.......IT'S BUYING A HOUSE!!!!!! Not a flat screen TV!
Buyers: Buy it ONLY if you can afford it!!!
Lenders: Lend out the money only if you know you can get it back!!!!
I'm in the falling demand side camp. The supply from REOs hasn't hit the market yet, but people don't want to take big steps now (look at consumer confidence and big ticket items in general). Add the credit crunch that shuts out many of those who don't mind taking a high risks - and have so in the past, which is why they are shut out.
The CEPR with Dean Baker has warned about the housing bubble in 2003. I think Baker even sold his house because of it and saw the prices rising further. Always look who pays an expert.
Being "olde skool" Iat first i wondered how all these people I knew could afford their lifestyles. Eventually I stopped wondering. I may never have joined in but I am still guilty of failing to understand the greater consequences.
Rob Dawg, that is my experience exactly, only I never did the ATM thing unless we sold and bought again. I went from one fixed 30 yr to another, never realizing how other people were buying these huge homes, always thinking everyone in the world must be just making more money than me. I didn't figure out the whole ARM experience until I saw this blog 1+ yrs. ago. Then the light went on.
Seattle is on that list!?!? NO! No no no no no no no no!!!!
Denial>anger>despair>acceptance.....
Outsider,
Just so you don't think ill of me. I Heloc'd for a new roof, landscaping and office shed. The roof besides replacing the original 1961 cedar shake garnered a substantial insurance deduction. The office shed saved untold child therapist bills as each got their own room while I could still save thousands by not maintaining a city office. The rest of the Heloc will go to solar PV that will cut the electric bill by 80%+. Still CLTV is less than 33%. These are enduring "investment" types of debt that was my understanding equity loans were intended to address.
Peter T,
You are correct about Dean Baker. He was bearish when all the pumpers were bullish.
There were others too. But, in general, the so called experts are nothing more than salesmen/cheerleaders.