Nasty horrible inventory. People forget that gluts are the flip side of artificially loose lending standards and artificially high prices.
Part of the danger of having our loving congressmen who are 10x smarter than the rest of us trying to keep prices too high and lending standards too low.
Anonymouse, no one cares what the NAR reports on prices. The Case-Shiller index will be released Tuesday.
energyecon, existing home sales are reported at close of escrow, so cancellations don't matter (they happen before the close). We are close to 12 months now - and we will probably get there this summer.
The NAR site is all screwed up, so I haven't been able to put the graphs together yet.
The USA Housing exit strategy seems to be to sell all of the debt to the Federal Government. The continuing implosion in prices will make that debt more worthless. Therefore, the dollar shoul
dc continue to fall and oil should continue to rise in price. Carry this through to any logical conclusion and we are up the proverbial creek. Look forward to the new charts.
I can't believe it. CR posted at 7:07 presumably eastern time. It is now 9:21 central time, and halo scan doesn't show me any comments.
This started happening a few days ago and I thought it was a quirk. Now I wonder if it's a REAL problem.
Inventory ticked up 10.5% March to April this year, vs. a typical ~7% uptick with the Spring selling season...so we have about a 50% larger than usual seasonal increase in inventory with declining prices and sales...that can't be a 'comfortable' feeling if you are unfortunate enough to have to sell your home in this market.
--
SFH Months of Supply hit a new multi-year high of 10.7, up from 9.6 for March. This means that inventory, also at multi-year high of 3.9M, is rising faster than the seasonal adjustment.
Do you think that at least half of the 3.9M are vacant? 10% a year bleeding in carrying costs in addition to 15% a year price decline. I think that these people carrying vacant homes are going to make the price declines continue around 15% Annual Rate for quite a while.
Officials at JP Morgan Chase have launched a major round of layoffs in the firm's vaunted investment banking department, axing dozens of executives in an attempt to downsize the unit amid a massive slowdown in business, CNBC has learned.
[snip]
"10% a year bleeding in carrying costs in addition to 15% a year price decline."
Jas, it will all come back in the long run. The difference between Cisco stock and buying houses is that the houses are real assets. You have something in hand.
I have concluded that CR and Tanta post are stamped with times in the Pacific time zone, and comments are time-stamped in the eastern zone. Confusing, but there is a formula. There are usually 3 hours between blog post and the first comment.
Fannie Mae and Freddie Mac , the largest providers of financing for U.S. home loans, on Friday signaled the fastest growth in their investments since 2004.
FWIW, Haloscan is working just fine for me, which is normal. Must be the Mac/Firefox combo or something.
It's interesting that during the last month of confident assertions by the "there's no recession and besides it's already over" crowd, the layoffs, housing issues, and CC/HELOC problems have all continued apace, if not gotten worse. The shit will hit the fan in full force by August, as the spike in gas prices puts a real dent in normal vacation and summertime spending.
This is similar to the experience in Northern CA and Southern CA, except lagging. No CA had huge # months inventory as late as January '08, but is dropping like a rock as REOs drop into the low $200s and high $100s and sales at highest numbers in 16 months, hearing about similar experiences throughout the central valley ("ground zero" Stockton/Merced) and So CA. Catch up!
Don't forget about shadow inventory. A lot of homes that have been listed on and off over the last few years in my area of SoCal are just waiting for a 'recovery'. In 2004 we had less than a months supply of homes on the market. People who had not thought about selling were pulled into the market because it was so easy to sell. Now we have the opposite effect. Who really wants to put up with endless open houses and showings with a small chance of getting your price?
Do foreclosures held as REO show up in the NAR inventory numbers?
I think NAR inventory is just the sum of everything on the various MLS. So REO counts if it is listed, but bank inventory not yet listed for sale, broker exclusive listings and FSBO doesn't count.
CR, I know you're gonna say, "I'm up early 'cause of the financials, excited about my business, etc. etc." but I suspect you're watching those Fox Business Channel folks broadcast from the bar every day at 1 pm CA time - tempting!
Viewing with alarm, did you see that the 'USA Housing exit strategy' has been applied to the college loan market this week as well? Maybe the Fed will start a Pay Day lending service as well.
Yes, thanks, that makes sense. I guess that would mean that even if thanings started improving tomorrow, there's probably another months of inventory from foreclosures that haven't made it all the way through the process to REO yet.
sippn,
I was in 280/5/80 corridor yesterday.
Tracy to stockton is starting to remind of hemet/moreno valley/perris area, tons of cre, lease signs and empty buildings w/o them.
Met clients in Elk Grove and Roseville and drove thru housing tracks afterwards, full of repo's. The credit I'm seeing via auto paper is like CR & everyone on here is saying or worse.
I think the Central Valley (construction fueled employmnt growth here much higher) has another step down..Same for East bay..
I can't imagine driving from stockton to hayward is a very nice daily commute..Same for Riverside to oc or la...
Jas, it will all come back in the long run. The difference between Cisco stock and buying houses is that the houses are real assets. You have something in hand.
Yeah, well, regarding owning houses, in this context they're either owned by 1)"real" people who may e.g. have to move to take a new job and so cannot wait around for the "long run", or 2) by a bank that needs to unencumber its balance sheet and so also cannot really afford to wait it out in the "long run", hoping prices go back up.
I'd consider buying a house. One thing though, is that peak oil has me a little worried. I don't want a big house I have to cool in a TX summer if energy prices keep going. Might just stay in my apartment.
Speculator, you just posted the exact same comment touting your business over at BigPicture. Making a comment is fine, but hawking your wares on multiple sites at the same time is another thing.
--
With Hopebuilders not being able to compete with the foreclosure sales in many areas the supply of New Homes will also add to the problem.
One thing people might miss is that some of the Existing Homes inventory is empty new homes that were bought by the speculators. Therefore, the actual New Homes inventory is much higher than what CR has been reporting. Just in different hands.
"Looking at the volume and scope of the claims, there is an all-out assault under way against the firms involved in subprime loans," Navigant Managing Director Jeff Nielsen said.
Pizante and lawyers for plaintiffs said that if lenders lose such lawsuits, they may be obliged to return billions of dollars in interest and fees to borrowers. In some cases, homeowners could also have their loans declared unsecured debt by a bankruptcy court judge, allowing them to walk away.
If 11.2 months is the NAR supply just imagine what it is really. Probably 6 to 9 months on top of that. Anybody loading up on homebuilder stocks right now is going to be awfully disaapointed and a lot poorer.
This spring sales season is what will break the back of prices... and of a few major homebuilders. Those who were hanging on out of hope will finally need to deal with reality.
"The average person would look at the deal as it was presented and think 'this is great.'" Berns said. "But by the time they realize what they have, they can't get out."
"The disclosures for some Option ARMs state that 'interest rates may go up,'" Kiesel said. "But in 100 percent of cases they went up in the second month. That's misleading."
Defense lawyers say that argument is unlikely to succeed.
"That is standard language on mortgage loan disclosures," said Jeffrey Naimon, a partner at Buckley Kollar LLP in Washington, D.C. "Interest rates go up and down all the time, so this is not the world's strongest argument."
Moodys Corps credit rating unit Moodys Investors Service switched analysts from covering deals of particular investment banks after the banks requested changes, the Wall Street Journal said on Friday, citing people familiar with the matter.
An analyst in a group that rated collateralized debt obligations was moved off an investment banks deals after bankers requested an analyst who raised fewer questions about their deals, the newspaper said.
Trading on the New York Stock Exchange fell 26 percent this quarter to the lowest since 2001 as alternative venues captured market share and the total volume of U.S. equities climbed.
The shares changing hands each day on the 216-year-old exchange fell to an average 1.27 billion in the second quarter from 1.57 billion a year ago, according to NYSE data compiled by Bloomberg. Total trading rose 19 percent from a year ago to an average of 6.84 billion shares a day, as companies such as Bats Trading Inc. and Direct Edge ECN LLC won more of the business, Bloomberg data show.
ac,
What is up with that no class comment? Links are posted everyday to new news items. If you think it is a problem, please provide a list of stories no one can comment on before CR posts. I'm sure people will follow it.
I've been using Redfin to look at housing prices in my "still strong" market on the California coast. If you run a search for REOs, you don't get many, and all Countrywide.
But if you drill down into the listings, you find many more. I found the first 3/2 for under $500K I've seen in, oh, seven years, at $479K bank-owned. It peaked at $799K in 2005.
So much for the strong market. A lot of owners and sellers are hanging tight, but the fundamentals are eroding beneath them.
Bob,
The fundamentals in housing left in about 2003. Then, the crazies moved in, had a 5 year binge, and now they are all dead from overdoses. The fundamentals are still no where to be seen. Hopefully, they'll come back to the neighborhood in about two years.
The problem with the mess we find ourselves in with Peak Stupidity is that the Alternative Stupidity looking for a way to replace them is hardly inspiring.
My brother bought a condo in 1982 at the market peak in the Houston area. Prices collapsed shortly afterwards due to the oil crash. It took 15 years for prices to rise back to his purchase price. Sure prices will eventually rise. Will owners wait that long?
S0mebody, Home cooling costs might be a lot less than you think. Energy efficient AC systems, proper insulation, good windows and/or solar screens, mature trees, and personal habits go a long ways towards keeping the summertime electric bill reasonable. My friend's new 4000 sqft home consumes only about 20% more electricity than my 1982 2300 sqft home. The $500/month electric bill horror stories come from people who keep their lights and TVs on all day and have not replaced their 15-20 year old system. Also keep in mind that most Texas apartments are relative energy hogs, at least in Texas.
Bob, I see that here too. Homes peaked in 2006 in the 700's and highest price paid was 850k for what is an average home at best. Now two are listed below 500K. But they both need minimum 50k, more like 100k, as they are very run down. So not only do they need a buyer with 100k down payment but they need another ~75k in the bank to fix the thing up. All this for less than 2,000 square feet in what used to be a very nice neighborhood that is deteriorating with age (crappy rentals and some poor multiple family rental situautions).
Elvis writes:
I've noticed the diesel costs in my bread, beef, and beer.
At my local market here in North Seattle, I noticed that the two bread loaves that had been discounted were completely gone, while the regularly priced ones were fully stocked.
Just an echo of earlier comments -- I also look at Redfin from time to time for the mid-Peninsula area (for those of you not in Northern Californa, it's the area bewteen SF and Silicon Valley -- Burlingame, Belmont, San Mateo). What I've seen is that asking prices are generally equal to or lower than price paid in 2005, 2006 and 2007. There are still a few who bought 12 months ago and want 10% more and a substantial number who are asking between 50-100% above a price paid in 2001, 2002, etc. But prices are down and appear to be continuing in a down trend.
Prices are still breathtaking; 50 year old 900 sq ft 2/1 in marginal neighborhoods for $550k (but down from $750). These can drop another 50%.
"Jas, it will all come back in the long run. The difference between Cisco stock and buying houses is that the houses are real assets. You have something in hand." - Sebastian
What is 'long'? In most of CA, rent arbitrage is still makes it a huge loser to buy. HUGE.
I live (rent) in Discovery Bay CA. Rent $1850...asking price for houses like mine...$600,000.
With a 5 year holding period, what would housing prices have to do for me to at least break even vs renting? I looked at EVERYTHING. Tax Break, Prop Taxes, Maint, HOA, Insurance, Opp cost on Down Payment, Equity Gain or Loss, etc, etc. If you actually do this sort of analysis from a semi MonteCarlo perspective...the results will shock...and make it clear that if you do the math, buying is a HORRIBLE MOVE.
So let's assume I buy using 30 year fixed, 20% down, 7% rate. I assume I buy at $600K. I have all the prop tax and insurance expenses right. I assumed rents rise 3% each time I sign a new lease:
First Scenario = OPTIMISTIC ON PRICES:
Year 1 Apprectiation\t-7.0%
Year 2 Apprectiation\t-2.0%
Year 3 Apprectiation\t0.0%
Year 4 Apprectiation\t2.0%
Year 5 Apprectiation\t4.0%
Rent Cost over 5 Years = $116,400
'Purchase' Costs over 5 Years = $245,564.
Purchase costs also takes into account a 5% sales commission upon sale. So I LOSE $140K over 5 years...and that is assuming what anyone with a brain knows is a BEST case scenario. The East Bay is a bloodbath. Discovery Bay prices have not fallen yet...because everyone is in denial.
Here is a more likely scenario:
Second Scenario = Probable
Year 1 Apprectiation\t-10.0%
Year 2 Apprectiation\t-5%
Year 3 Apprectiation\t0.0%
Year 4 Apprectiation\t0.0%
Year 5 Apprectiation\t2.0%
Rent Cost over 5 Years = $116,400
'Purchase' Costs over 5 Years = $297,935.
Now lets assume I wait 3 years. In this case rents will be higher, prices will have fallen too. Now the buy price is $513K. Appreciation profile might look like this:
Second Scenario = WAIT 3 YEARS
Year 1 Apprectiation\t0%
Year 2 Apprectiation\t2%
Year 3 Apprectiation\t2%
Year 4 Apprectiation\t3%
Year 5 Apprectiation\t4%
Rent Cost over 5 Years = $123,000
'Purchase' Costs over 5 Years = $142,700.
Comments like "it's a place to live...if you can, you should buy' are for people who can't do math...and like to lose money. Lots of it.
It is a terrible time to buy in the East Bay area of CA. Period. With the price drops I assumed (Scenario 2)...it will still be cheaper to rent in 3 years. That means prices are going to fall MORE than I assumed. It will actuall cost about $40K-$50K more per year to buy than rent for me.
I actually walked through this analysis with a friend and his wife who were set on buying. I made THEM pick the assumed price drops and rises over a 7 year holding period. They agreed on every cost input, etc. The results shocked them. They changed their plans on the spot. Even the wife admitted that joining the 'owners' club was not worth a $200K loss vs. being a 'lowly renter'. This is why this whole debacle happened. People can't do math and they are lazy.
"I also look at Redfin from time to time for the mid-Peninsula area "
My brother's in Menlo Park, so I look around that area every once in a while. Seems like in every burg there, the house/income ratio is at least 10X. There's a massive amount of denial there. IMHO, even a small slowdown in tech will hammer it this summer.
The houses at $550k are in what traditionally would have been a lower blue collar neighborhood. Transport them to a different location and you'd be talking 80k.
Incomes are higher in the bay area, but your 10X is spot on -- in towns that families make 80k (median) to 125k, houses are still 800k to 1.2mm. In places where income is 200-250k, houses are $1.5-2.5mm.
I don't think that these will ever get back to 3X income, but the number of families that can afford a $1mm house, let alone a $2mm or $3mm house is microscopic.
You need to counsel my friend. He paid $600K in fall '06 for a 1600sqft condo in near-north Chicago. He just sold it for breakeven - only because he told the realtor that the $610 bid would only be enough if the commish was $10k - he wanted to get out for breakeven.
Now he's buying a 2-flat for $780K. Like his last place he's going to get an interest only - so his mortgage is going to be around $3K. He figures he'll rent the lower unit apartment for $1250/month, so he he tells me his owner equivalent rent is $1750 and that rents are overpriced and I'm a fool for renting.
Hmmm... he seems to be assuming a) he'll keep it rented all the time b) no maintenance costs on the whole building c) property taxes which will run him $1000/month in my estimation.
Chicago is soft but not falling as fast as other markets but I think that's about to change. Last year there were more condos built downtown then ever before - about 5800 - and they sold about 5300 of them.
This year there are 6300 condos due to come to market in downtown Chicago and as of the end of March 120 had sold. 120!!!!
My guess is this time next year, Chicago will be in a steep decline.
W makes a good point about the Federal Government assuming the student loan debt on top of being the housing lender of last resort. This will just accelerate the loss of confidence in other countries concerning holding the dollar as a long term reserve. This is the highway to hell!
"Not as weak as expected." So says Marketwatch.
First?
What about prices?
It's a great time to buy or sell a home.
How soon do we crack a year of inventory - or are we there yet with cancellations?
Inventory:
I have been watching a specific small area in california. I check the new listing every week.
In the past 3 weeks there is not a single new listing in that area.
Does anyone have a similar expiriance ?
do some MLS try to prevent new listings ?
Nasty horrible inventory. People forget that gluts are the flip side of artificially loose lending standards and artificially high prices.
Part of the danger of having our loving congressmen who are 10x smarter than the rest of us trying to keep prices too high and lending standards too low.
Anonymouse, no one cares what the NAR reports on prices. The Case-Shiller index will be released Tuesday.
energyecon, existing home sales are reported at close of escrow, so cancellations don't matter (they happen before the close). We are close to 12 months now - and we will probably get there this summer.
The NAR site is all screwed up, so I haven't been able to put the graphs together yet.
Best to all
BTW it's shameful that CR has to race with the posters to get the home sales data up because people have no patience.
You guys have no class.
The USA Housing exit strategy seems to be to sell all of the debt to the Federal Government. The continuing implosion in prices will make that debt more worthless. Therefore, the dollar shoul
dc continue to fall and oil should continue to rise in price. Carry this through to any logical conclusion and we are up the proverbial creek. Look forward to the new charts.
I can't believe it. CR posted at 7:07 presumably eastern time. It is now 9:21 central time, and halo scan doesn't show me any comments.
This started happening a few days ago and I thought it was a quirk. Now I wonder if it's a REAL problem.
The bigger the boom, the bigger the bust, I suppose.
Thanks CR - for your patience - and in advance for the graphs!
Everyone have a great Memorial day weekend..
Same housing inventory story just a different month here...
when a 100K figure income qualifies you for a house in the bay area, then we'll be at the bottom..
Repeat after me, Ethan:
Hail, Scan. Halo be thy name . . .
The hedgies and mm's must have left early today..
Great for shorts..
The NAR site is all screwed up
Is there a running message saying: Deos not computer . . . Does not compute . . .
Thanks for getting up at the crack of dawn for us, CR.
Inventory ticked up 10.5% March to April this year, vs. a typical ~7% uptick with the Spring selling season...so we have about a 50% larger than usual seasonal increase in inventory with declining prices and sales...that can't be a 'comfortable' feeling if you are unfortunate enough to have to sell your home in this market.
Apologies for having no class. Can't wait for Tuesday.
--
SFH Months of Supply hit a new multi-year high of 10.7, up from 9.6 for March. This means that inventory, also at multi-year high of 3.9M, is rising faster than the seasonal adjustment.
Do you think that at least half of the 3.9M are vacant? 10% a year bleeding in carrying costs in addition to 15% a year price decline. I think that these people carrying vacant homes are going to make the price declines continue around 15% Annual Rate for quite a while.
Jas
Uffda! (regarding months of supply graph)
OT newsbit:
JP Morgan Chase Launches Major Round of Layoffs
Officials at JP Morgan Chase have launched a major round of layoffs in the firm's vaunted investment banking department, axing dozens of executives in an attempt to downsize the unit amid a massive slowdown in business, CNBC has learned.
[snip]
"10% a year bleeding in carrying costs in addition to 15% a year price decline."
Jas, it will all come back in the long run. The difference between Cisco stock and buying houses is that the houses are real assets. You have something in hand.
S.
Whose foot is stuck on the throttle, as we go down the hill?
I have concluded that CR and Tanta post are stamped with times in the Pacific time zone, and comments are time-stamped in the eastern zone. Confusing, but there is a formula. There are usually 3 hours between blog post and the first comment.
Fannie Mae and Freddie Mac , the largest providers of financing for U.S. home loans, on Friday signaled the fastest growth in their investments since 2004.
UPDATE 2-Fannie Mae and Freddie Mac fatten portfolios
| Reuters
When Fanny and her fat little brother Freddie blow up from eating to much Wang hog it will be the explosion heard around the world.
Do foreclosures held as REO show up in the NAR inventory numbers?
I know some neighbors who are waiting for the market to show some life before listing. There is a huge shawdow inventory.
FWIW, Haloscan is working just fine for me, which is normal. Must be the Mac/Firefox combo or something.
It's interesting that during the last month of confident assertions by the "there's no recession and besides it's already over" crowd, the layoffs, housing issues, and CC/HELOC problems have all continued apace, if not gotten worse. The shit will hit the fan in full force by August, as the spike in gas prices puts a real dent in normal vacation and summertime spending.
Homes may have some intrinsic value, of course.
But, as this blog has made abundantly clear, values historically trend at around 3x average income. We're nowhere near that right now.
Also, given the figures we've seen ad nauseum, is there anyone who can make a persuasive argument that Alt-A and Pay Option ARMs are "contained?"
Given these circumstances, what argument can be made for buying a home before, say, 2012?
troglodyte, I've changed all the time to Eastern. I live in California (Tanta's on the east coast), but I feel like I'm on eastern time anyway!
Best to all.
This is similar to the experience in Northern CA and Southern CA, except lagging. No CA had huge # months inventory as late as January '08, but is dropping like a rock as REOs drop into the low $200s and high $100s and sales at highest numbers in 16 months, hearing about similar experiences throughout the central valley ("ground zero" Stockton/Merced) and So CA. Catch up!
JP Morgan Chase Launches Major Round of Layoffs
Must be a holiday weekend Friday. Wonder if there'll be any bank failures after the close of business.
Don't forget about shadow inventory. A lot of homes that have been listed on and off over the last few years in my area of SoCal are just waiting for a 'recovery'. In 2004 we had less than a months supply of homes on the market. People who had not thought about selling were pulled into the market because it was so easy to sell. Now we have the opposite effect. Who really wants to put up with endless open houses and showings with a small chance of getting your price?
Do foreclosures held as REO show up in the NAR inventory numbers?
I think NAR inventory is just the sum of everything on the various MLS. So REO counts if it is listed, but bank inventory not yet listed for sale, broker exclusive listings and FSBO doesn't count.
This is getting very ugly, and its only going to get worse. Buckle up kiddies.
CR, I know you're gonna say, "I'm up early 'cause of the financials, excited about my business, etc. etc." but I suspect you're watching those Fox Business Channel folks broadcast from the bar every day at 1 pm CA time - tempting!
Glancing at the numbers on housingtracker, it seems that inventory many of the bubble markets (FL, CA, AZ) is actually falling.
Viewing with alarm, did you see that the 'USA Housing exit strategy' has been applied to the college loan market this week as well? Maybe the Fed will start a Pay Day lending service as well.
The weekly local county newspaper has 4 foreclosures in the legals this week. Normally it has one, or two.
Party on dudes !
Ralph,
Yes, thanks, that makes sense. I guess that would mean that even if thanings started improving tomorrow, there's probably another months of inventory from foreclosures that haven't made it all the way through the process to REO yet.
Wonder if there'll be any bank failures after the close of business.
Theres a question. Anything is possible (and they would have 3 days to deal with the details).
This doesn't look good for the housing crisis. The US is facing a perfect storm of the housing crisis, credit crunch and soaring inflation. I write about inflation today:
the speculator real estate first at theinvestingspeculator.com
Sebastian,
The difference between Cisco and housing is most people don't buy Cisco with 20X leverage.
Anyone want to venture what year the median house price peak is reached again? 2020? After over a decade of huge inflation?
Do we have pent up sellers as opposed to buyers?
This data looks awfully bumpy.
Must be the bottom!
sippn,
I was in 280/5/80 corridor yesterday.
Tracy to stockton is starting to remind of hemet/moreno valley/perris area, tons of cre, lease signs and empty buildings w/o them.
Met clients in Elk Grove and Roseville and drove thru housing tracks afterwards, full of repo's. The credit I'm seeing via auto paper is like CR & everyone on here is saying or worse.
I think the Central Valley (construction fueled employmnt growth here much higher) has another step down..Same for East bay..
I can't imagine driving from stockton to hayward is a very nice daily commute..Same for Riverside to oc or la...
Jas, it will all come back in the long run. The difference between Cisco stock and buying houses is that the houses are real assets. You have something in hand.
Yeah, well, regarding owning houses, in this context they're either owned by 1)"real" people who may e.g. have to move to take a new job and so cannot wait around for the "long run", or 2) by a bank that needs to unencumber its balance sheet and so also cannot really afford to wait it out in the "long run", hoping prices go back up.
This Sebastian guy cannot be real.
I'd consider buying a house. One thing though, is that peak oil has me a little worried. I don't want a big house I have to cool in a TX summer if energy prices keep going. Might just stay in my apartment.
I'm printing up t-shirts that say "I survived the 2008 short squeeze!"
I'll be selling for $15 a pop. No payment in kind!
"One thing though, is that peak oil has me a little worried."
You had better be more worried about the 536 dip sticks in DC and peak stupidity.
Speculator, you just posted the exact same comment touting your business over at BigPicture. Making a comment is fine, but hawking your wares on multiple sites at the same time is another thing.
I am seeing both a lot of REO's that are not on the MLS,and a resurgence of "pocket" listings by brokers.
--
"This Sebastian guy cannot be real."
eh,
This is as real as it gets! And Sebastian at his best.
Jas
Anon-
"You had better be more worried about the 536 dip sticks in DC and peak stupidity"
All time classic
--
With Hopebuilders not being able to compete with the foreclosure sales in many areas the supply of New Homes will also add to the problem.
One thing people might miss is that some of the Existing Homes inventory is empty new homes that were bought by the speculators. Therefore, the actual New Homes inventory is much higher than what CR has been reporting. Just in different hands.
Jas
OT:
"Looking at the volume and scope of the claims, there is an all-out assault under way against the firms involved in subprime loans," Navigant Managing Director Jeff Nielsen said.
Pizante and lawyers for plaintiffs said that if lenders lose such lawsuits, they may be obliged to return billions of dollars in interest and fees to borrowers. In some cases, homeowners could also have their loans declared unsecured debt by a bankruptcy court judge, allowing them to walk away.
FEATURE-Lawsuits accelerate amid U.S. housing crisis
| Reuters
Tanta/CR-
wondering if the properties that have not had N.O.D's filed (and there are a lot of them) show up in the NAR numbers???
I think the inventory is vastly understated in the same vein our CPI/PPI inflation "data" is.....calling it data is being nice.
Ciao
MS
sonic-I think the shirt would sell..
If 11.2 months is the NAR supply just imagine what it is really. Probably 6 to 9 months on top of that. Anybody loading up on homebuilder stocks right now is going to be awfully disaapointed and a lot poorer.
This spring sales season is what will break the back of prices... and of a few major homebuilders. Those who were hanging on out of hope will finally need to deal with reality.
BTW action in LEH suggests all is not well in that neck'o'the woods. Almost as if the lemmings have lined up in L2
Ciao
MS
Tanta,
Does this have legs?
"The average person would look at the deal as it was presented and think 'this is great.'" Berns said. "But by the time they realize what they have, they can't get out."
"The disclosures for some Option ARMs state that 'interest rates may go up,'" Kiesel said. "But in 100 percent of cases they went up in the second month. That's misleading."
Defense lawyers say that argument is unlikely to succeed.
"That is standard language on mortgage loan disclosures," said Jeffrey Naimon, a partner at Buckley Kollar LLP in Washington, D.C. "Interest rates go up and down all the time, so this is not the world's strongest argument."
Page Not Found | Reuters.com
Moodys Corps credit rating unit Moodys Investors Service switched analysts from covering deals of particular investment banks after the banks requested changes, the Wall Street Journal said on Friday, citing people familiar with the matter.
An analyst in a group that rated collateralized debt obligations was moved off an investment banks deals after bankers requested an analyst who raised fewer questions about their deals, the newspaper said.
REG - Financial Week
No that's not a crap sandwich it's peanut butter.
(OT) eh said: "This Sebastian guy cannot be real."
You're right, he's not, I haven't posted anything today. Jas Jain is having a conversation with himself.
But I'm the troll, and should leave.
Sebastia
"You had better be more worried about the 536 dip sticks in DC and peak stupidity.
Anonymous"
That one belongs in the book of great quotations.
a low volume bear market rally
Trading on the New York Stock Exchange fell 26 percent this quarter to the lowest since 2001 as alternative venues captured market share and the total volume of U.S. equities climbed.
The shares changing hands each day on the 216-year-old exchange fell to an average 1.27 billion in the second quarter from 1.57 billion a year ago, according to NYSE data compiled by Bloomberg. Total trading rose 19 percent from a year ago to an average of 6.84 billion shares a day, as companies such as Bats Trading Inc. and Direct Edge ECN LLC won more of the business, Bloomberg data show.
Oh, we are nowhere near Peak Stupidity. I have inside information that there are substantial reserves coming online as we speak.
ac,
What is up with that no class comment? Links are posted everyday to new news items. If you think it is a problem, please provide a list of stories no one can comment on before CR posts. I'm sure people will follow it.
Yikes; that's a big jump in inventory. It looks like going up seasonally is normal but not by that much.
I've been using Redfin to look at housing prices in my "still strong" market on the California coast. If you run a search for REOs, you don't get many, and all Countrywide.
But if you drill down into the listings, you find many more. I found the first 3/2 for under $500K I've seen in, oh, seven years, at $479K bank-owned. It peaked at $799K in 2005.
So much for the strong market. A lot of owners and sellers are hanging tight, but the fundamentals are eroding beneath them.
Bob,
The fundamentals in housing left in about 2003. Then, the crazies moved in, had a 5 year binge, and now they are all dead from overdoses. The fundamentals are still no where to be seen. Hopefully, they'll come back to the neighborhood in about two years.
The problem with the mess we find ourselves in with Peak Stupidity is that the Alternative Stupidity looking for a way to replace them is hardly inspiring.
My brother bought a condo in 1982 at the market peak in the Houston area. Prices collapsed shortly afterwards due to the oil crash. It took 15 years for prices to rise back to his purchase price. Sure prices will eventually rise. Will owners wait that long?
S0mebody, Home cooling costs might be a lot less than you think. Energy efficient AC systems, proper insulation, good windows and/or solar screens, mature trees, and personal habits go a long ways towards keeping the summertime electric bill reasonable. My friend's new 4000 sqft home consumes only about 20% more electricity than my 1982 2300 sqft home. The $500/month electric bill horror stories come from people who keep their lights and TVs on all day and have not replaced their 15-20 year old system. Also keep in mind that most Texas apartments are relative energy hogs, at least in Texas.
Best,
Totally OT:
Holy crap - diesel is running $4.65/gal national average - I knew it was running up but had not seen that number for a couple of weeks...
I've noticed the diesel costs in my bread, beef, and beer.
"You had better be more worried about the 536 dip sticks in DC and peak stupidity"
So who's the one person who is not a dip stick?
Bob, I see that here too. Homes peaked in 2006 in the 700's and highest price paid was 850k for what is an average home at best. Now two are listed below 500K. But they both need minimum 50k, more like 100k, as they are very run down. So not only do they need a buyer with 100k down payment but they need another ~75k in the bank to fix the thing up. All this for less than 2,000 square feet in what used to be a very nice neighborhood that is deteriorating with age (crappy rentals and some poor multiple family rental situautions).
"So who's the one person who is not a dip stick?"
Ron Paul
Bob, are you near SLO?
Love Panchos mexican food on marsh..
Elvis writes:
I've noticed the diesel costs in my bread, beef, and beer.
At my local market here in North Seattle, I noticed that the two bread loaves that had been discounted were completely gone, while the regularly priced ones were fully stocked.
CD says:
"Bob, are you near SLO?
Love Panchos mexican food on marsh.."
No, Santa Cruz. The other end of the central coast, and home to generally crappy Mexican restaurants.
Bob,
Just an echo of earlier comments -- I also look at Redfin from time to time for the mid-Peninsula area (for those of you not in Northern Californa, it's the area bewteen SF and Silicon Valley -- Burlingame, Belmont, San Mateo). What I've seen is that asking prices are generally equal to or lower than price paid in 2005, 2006 and 2007. There are still a few who bought 12 months ago and want 10% more and a substantial number who are asking between 50-100% above a price paid in 2001, 2002, etc. But prices are down and appear to be continuing in a down trend.
Prices are still breathtaking; 50 year old 900 sq ft 2/1 in marginal neighborhoods for $550k (but down from $750). These can drop another 50%.
Bob,
But you have pasatiempo gc, great waves(though sharky)and beaches, nice weather and big basin nearby...
enjoy Memorial wknd..supposed to be cool
"Jas, it will all come back in the long run. The difference between Cisco stock and buying houses is that the houses are real assets. You have something in hand." - Sebastian
What is 'long'? In most of CA, rent arbitrage is still makes it a huge loser to buy. HUGE.
I live (rent) in Discovery Bay CA. Rent $1850...asking price for houses like mine...$600,000.
With a 5 year holding period, what would housing prices have to do for me to at least break even vs renting? I looked at EVERYTHING. Tax Break, Prop Taxes, Maint, HOA, Insurance, Opp cost on Down Payment, Equity Gain or Loss, etc, etc. If you actually do this sort of analysis from a semi MonteCarlo perspective...the results will shock...and make it clear that if you do the math, buying is a HORRIBLE MOVE.
So let's assume I buy using 30 year fixed, 20% down, 7% rate. I assume I buy at $600K. I have all the prop tax and insurance expenses right. I assumed rents rise 3% each time I sign a new lease:
First Scenario = OPTIMISTIC ON PRICES:
Year 1 Apprectiation\t-7.0%
Year 2 Apprectiation\t-2.0%
Year 3 Apprectiation\t0.0%
Year 4 Apprectiation\t2.0%
Year 5 Apprectiation\t4.0%
Rent Cost over 5 Years = $116,400
'Purchase' Costs over 5 Years = $245,564.
Purchase costs also takes into account a 5% sales commission upon sale. So I LOSE $140K over 5 years...and that is assuming what anyone with a brain knows is a BEST case scenario. The East Bay is a bloodbath. Discovery Bay prices have not fallen yet...because everyone is in denial.
Here is a more likely scenario:
Second Scenario = Probable
Year 1 Apprectiation\t-10.0%
Year 2 Apprectiation\t-5%
Year 3 Apprectiation\t0.0%
Year 4 Apprectiation\t0.0%
Year 5 Apprectiation\t2.0%
Rent Cost over 5 Years = $116,400
'Purchase' Costs over 5 Years = $297,935.
Now lets assume I wait 3 years. In this case rents will be higher, prices will have fallen too. Now the buy price is $513K. Appreciation profile might look like this:
Second Scenario = WAIT 3 YEARS
Year 1 Apprectiation\t0%
Year 2 Apprectiation\t2%
Year 3 Apprectiation\t2%
Year 4 Apprectiation\t3%
Year 5 Apprectiation\t4%
Rent Cost over 5 Years = $123,000
'Purchase' Costs over 5 Years = $142,700.
Comments like "it's a place to live...if you can, you should buy' are for people who can't do math...and like to lose money. Lots of it.
It is a terrible time to buy in the East Bay area of CA. Period. With the price drops I assumed (Scenario 2)...it will still be cheaper to rent in 3 years. That means prices are going to fall MORE than I assumed. It will actuall cost about $40K-$50K more per year to buy than rent for me.
Ooops...the 'wait' scenario should have been #2. I pasted and forgot to change.
I actually walked through this analysis with a friend and his wife who were set on buying. I made THEM pick the assumed price drops and rises over a 7 year holding period. They agreed on every cost input, etc. The results shocked them. They changed their plans on the spot. Even the wife admitted that joining the 'owners' club was not worth a $200K loss vs. being a 'lowly renter'. This is why this whole debacle happened. People can't do math and they are lazy.
"This is why this whole debacle happened. People can't do math and they are lazy."
Quit making fun of our president.
"I also look at Redfin from time to time for the mid-Peninsula area "
My brother's in Menlo Park, so I look around that area every once in a while. Seems like in every burg there, the house/income ratio is at least 10X. There's a massive amount of denial there. IMHO, even a small slowdown in tech will hammer it this summer.
BrantW,
And you haven't accounted for the opportunity cost of owning the house in those years. Money is better invested elsewhere.
Lionel,
The houses at $550k are in what traditionally would have been a lower blue collar neighborhood. Transport them to a different location and you'd be talking 80k.
Incomes are higher in the bay area, but your 10X is spot on -- in towns that families make 80k (median) to 125k, houses are still 800k to 1.2mm. In places where income is 200-250k, houses are $1.5-2.5mm.
I don't think that these will ever get back to 3X income, but the number of families that can afford a $1mm house, let alone a $2mm or $3mm house is microscopic.
Brant-
You need to counsel my friend. He paid $600K in fall '06 for a 1600sqft condo in near-north Chicago. He just sold it for breakeven - only because he told the realtor that the $610 bid would only be enough if the commish was $10k - he wanted to get out for breakeven.
Now he's buying a 2-flat for $780K. Like his last place he's going to get an interest only - so his mortgage is going to be around $3K. He figures he'll rent the lower unit apartment for $1250/month, so he he tells me his owner equivalent rent is $1750 and that rents are overpriced and I'm a fool for renting.
Hmmm... he seems to be assuming a) he'll keep it rented all the time b) no maintenance costs on the whole building c) property taxes which will run him $1000/month in my estimation.
Chicago is soft but not falling as fast as other markets but I think that's about to change. Last year there were more condos built downtown then ever before - about 5800 - and they sold about 5300 of them.
This year there are 6300 condos due to come to market in downtown Chicago and as of the end of March 120 had sold. 120!!!!
My guess is this time next year, Chicago will be in a steep decline.
-- Average ~ 64.5% from 1966 to 1997
-- Peak ~ 65.8% in 1980
-- Increasing with peak at 69% in 2006
-- Trending down, but hit 68% in 2007
Housing inventory can only go in one direction...
W makes a good point about the Federal Government assuming the student loan debt on top of being the housing lender of last resort. This will just accelerate the loss of confidence in other countries concerning holding the dollar as a long term reserve. This is the highway to hell!
anon,
I did take that into account. Remember...the only trueinvestment you have is your Down Payment. I included the Opp cost on the 20% down.