has anybody heard the latest Lehman Takeover rumor yet.....
Breaking News: Lehman To Be Acquired by Tooth Fairy
The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being ransported back to that magical place where Lehman still sells for over $70 per share.
In related news, Lehman has agreed to sell all of its level III capital, including CDOs, ABSs, pet rocks, baseball cards, slightly used condoms, and credit default swaps written by MBIA and Ambac. Lehmans level III capital will be acquired for 150% of its face value by Tinkerbell, who will carry it off to Neverland to be fed to a crocodile. Lehman is financing 90% of the acquisition at an interest rate that has not been announced; Tinkerbells up-front payment consists of a handful of pixie dust, three crickets, and a bullfrog. Analyst Dick Bove estimates that the bullfrog could eventually be transformed into three princes and a pumpkin coach. The deal gives Lehman no recourse to any of Tinkerbells assets other than the Level III capital. If Tinkerbell defaults, Lehmans successor entity will stick its hand down the crocodiles throat and attempt to get it to regurgitate. The firms historical value-at-risk analysis shows that sticking your hand down a crocodiles throat is completely safe.
Treasury Secretary Hank Paulson issued a statement: I am delighted that SWFs (Sovereign Wealth Fairies) continue to express confidence in the terrific values represented by American financial institutions. As I have been saying since August of 2007, this shows that the crisis is now over.
Meanwhile, the SEC has announced an investigation of mean, evil, bad short-seller David Einhorn. While out for a beer with a friend, Einhorn reportedly suggested that the Tooth Fairy does not exist and that wishing upon a star is not a wholly reliable price discovery mechanism. Christopher Cox, chairman of the SEC, said, Vicious rumors attacking the Tooth Fairy will not be tolerated. Our entire financial system and indeed the American way of life depend on the Tooth Fairy and wishing upon a star. How else could one value level III capital appropriately? The SEC is reportedly planning to set up re-education camps for short-sellers.
"rate of monthly price declines has slowed a little. Some of this may be seasonal"
didn't you have a long discussion (and rather suggestive historic data from CR) to STRONGLY suggest that quater/quater price declines are indeed seasonal, ie people trying to sell their homes will tend to hold to their prices more during peak season ?
if this is correct we should expect quater - quater drop to increase by the end of the year under pressure of double effect: off-season AND long term downtrend in prices
I think this is mostly seasonal. This pattern was present in the previous bust, too. The prices even temporarily increased, not just decelerated. Moreover, during the boom, the increases slowed in winter months and jumped during the high season. I think we will continue the scheduled cliff-diving competition in winter.
month-to-month price change is strongly seasonal, but it may be a little encouraging -- and i have found virtually nothing encouraging until today -- that the year-over-year change has developed a little tail.
that said, if transaction volume is seriously a third distressed property, in light of sky-high inventory in existing homes its pretty clear that existing undistressed home prices are still far too high. new homes are lighting the way with massive price discounting to reduce new home inventory.
Like the way the negative has been spun here ath this site. Don't you know that since decreases are definitely slowing, so if this continues prices will eventually be going up (smaller and smaller decreases means an increase eventually). That's how the math works on Bizarro world anyway.
also -- re: bottom calling -- this thing is at least 8 quarters from reverting to the zero line. that's the lesson i draw from looking at past busts. it typically has taken 8-12 quarters from the bottom in new home starts and sales to bottom in prices. and we clearly aren't there yet.
gaius,
It will be interesting to see if prices drop more quickly to the bottom as related to starts this time due to (1) lubricated prices falling much quicker than they typically do due loose lending and the avalanche of foreclosures and (2) homebuilders continuing to build despite losing money in an effort to get rid of preposterous land inventories and generate cash flow.
Ever considered that you don't ever want to buy exactly at the bottom, no matter how logic says otherwise?
The expectation of additional declines boosts the buyer's position. In the world of negotiating, expectation matters.
Additionally, you have much better selection of homes if you buy near the left side of a bottom than if you buy at the bottom or near the right side of it -- if there's a particular home you like, you may have to deal with bidding wars. But people/the market is too scared to want to buy when you're on the left side of a bottom, thus less competition.
The trick is of course, you want to be as near the bottom as you can, in case you end up catching a big cliff diving just right after you bought the house. However, I believe that barring the sudden cliff diving, it's better to buy houses slightly early than after bottom is already confirmed.
That's why timing is so difficult. I call this ideal buying time the "buying bottom".
With that thought, I think the "buying bottom" is close. in 6-8 months we'll be there. Actual price bottom may be another 6-8 months after that, but then the good deals would be gone.
I see the only market I care about, Denver, had the best month/month and quarter/quarter percentage performance of any city in the 20 city index. Of course I am biased since I am one of those dumba$$es buying houses at large discounts in Denver over the past three months, so I might be misinterpreting the data.
"Additionally, you have much better selection of homes if you buy near the left side of a bottom than if you buy at the bottom or near the right side of it"
I'm not sure I agree with this. Is there any proof, or just speculation on your part?
On the one hand, inventory TENDS TO peak around the same time as the bottom... And inventory typically does decrease during the recovery. But I believe that inventory may be relatively flat over the course of the bottom. In other words, I don't think inventory typically decreases dramatically during the bottom... it doesn't do that until the rise from the bottom.
as for competition... in general sure there may be a bit more competition on the right side vs left side of the bottom curve, but is it appreciable?
I'm not sure it's worth taking such a big risk and try to time jumping in on the left side of the bottom just so you can have what would likely be a SLIGHT advantage in inventory
I'd rather limit my downside risk (which we've already seen is appreciable) and actually wait for the UPTURN to ensure there is no dead cat bounce. You may limit (slightly) your inventory/options... but you substantially limit your risk.
The trick is of course, you want to be as near the bottom as you can, in case you end up catching a big cliff diving just right after you bought the house. However, I believe that barring the sudden cliff diving, it's better to buy houses slightly early than after bottom is already confirmed.
While your argument has some persuasive value, if you substitute "tech stocks" for "houses" in the above, you have essentially rephrased the typical Wall Street analyst's take on the market, circa, let's say, February 2001. ("Stock prices always turn up before earnings do ... so if you wait for earnings to turn back up to jump on board, you'll already be too late!")
How'd the knife-catchers who followed that advice do?
"Prices are still falling, but the rate of monthly price declines has slowed a little. Some of this may be seasonal, and prices will probably continue to decline for some time."
that's not a conclusion one might draw from NY Times article,
xexe
yet again the bottom is near :0
Financing the housing market going forward, leaving the leveraged financing world behind as the players either go BK or run off their book, makes me wonder just how RE prices will recover at some point in time. Just were will the money come from to turn over the trillions of dollars of supposed existing RE values? If the new loans and refi are to be based on capital requirements vs leverage that means a whole lot of equity needs to be raised.
Is J6P house buyer today in the same boat as the truck buyer who always wanted that loaded Ford 350 V8 but coun't afford the payments but now is getting the deal he always wanted? Betting that fuel prices will return to cheap and truck prices will again make new high's.
Price and Sales are not operating on the same curve. If price is AT the bottom, sales would already be rising off a bottom. That directly means you have more competition from other buyers.
If you acknowledge that houses are not generic like stocks, then competition will not be homogeneous, the good ones /more ideally located ones will have more of them.
Inventory could level off or stay the same, but that would be inventory of the whole market. In a recovering market, do you think the good ones are bought first, last, or "equally distributed"?
Not all houses are equal, that's why selection matters. This is very unlike buying a stock or timing a stock market in this respect.
In stock buying, you're dealing with a generic commodity (stock) and market emotions. That's why chart-reading is invented, because the masses' emotions go through things like a cup-and-handle, head-and-shoulder type of transition.
In houses, individuals reign. You can use market statistics to see general statements, but each real estate transaction is indeed unique and local. This part the realtors got it right.
In those cases, less competition is better. Buying with both sides knowing that prices will still decline is better (negotiation wise). Cherry picking from the inventory matters.
I'd also argue that the competition argument works both ways. In places like here in LA, sellers' expectations still haven't adjusted to reality. Many are cancelling listings rather than dropping prices significantly. The only stuff on the market is overpriced crap so there should be competition for the few properties that are realistically priced (like my place, hopefully)
I realize that wasn't the point you were trying to make - I just couldn't resist drawing the obvious parallel.
But there's still a flaw in your reasoning, as encapsulated in this statement: In a recovering market, do you think the good ones are bought first, last, or "equally distributed"?. Namely: the better-looking / -located houses are already priced higher than the average comparable, and have been all the way up - and all the way down. The gap between them may widen or shrink over time, but this isn't an Olympic diving event where all competitors start from zero.
Your argument implies that once prices hit bottom, people will all rush in to buy the underpriced gems in a given price range - and those who wait will be left with, well, whatever's left.
But supply and demand isn't repealed just because the pace of sales has slowed. If a nicer home is worth 10% more than its less-nice neighbor, sales prices are likely to reflect that, whether they're at $660K and $600K or $440K and $400K. So is it worth trying to get in on the "left side of the curve" by snapping up the "nicer" house ("hey, it used to sell for $660K!"), even when there's a very real possibility that those numbers could fall to $330K and $300K in a couple years' time?
How do these graphs look if adjusted for inflation? If I understand the effect, the rate of decline would be even steeper. I'd be particularly interested in seeing adjustment using CPI and using, say, Shadow Stats inflation rates.
Real estate is always local. And I'd be foolish to call a bottom, but breaking down the numbers by region, there are a few regions that are now becoming pretty affordable. And I don't mean Detroit or Cleveland, where homes are cheap. Of course, there are many regions that still have pretty far to fall.
I believe that
1) the tightening of mortgage lending
2) the persistence of our continued general economic decline/sluggishness situation
3)the hugely overbuilt status of some markets
4) the continuing problem of foreclosure
5) and the desire for buyers to wait it out
will result in a continuing decline in real home prices through at least next year.
Consequently, there are going to be real bargains in selected locales beginning next year.
In Space Coast Brevard our sales went up but the price yoy for existing homes went down more than 40%. the brokers were saying this was a good thing because sales went up. Well I guess if they got a commission on one of those extra sale (totalling 5 houses) that would be a good thing for them.
I see the only market I care about, Denver, had the best month/month and quarter/quarter percentage performance of any city in the 20 city index. Of course I am biased since I am one of those dumba$$es buying houses at large discounts in Denver over the past three months, so I might be misinterpreting the data.
In my neighborhood (Bonnie Brae/Wash Park), prices are WAY up QTQ. Slightly up YTY (they seemed to bottom out in the late fall and have rebounded plus some).
The recent slowing in the pace of fall of home prices (Case Shiller composite) is an illusion.
The data is not seasonally adjusted. On average, monthly price gains in the Q2 are 0.64% higher than Q1. This number is calculated pre bust. Since the bust started, the Q2 monthly changes are still 0.54% higher than Q1. So prices falls should be less severe in Q2 than in Q1 and that is what is showing up in the numbers. IMPROVEMENT IN THE HOUSING MARKET IT IS NOT.
Guys, if you would like the monthly seasonal factors that I have calculated, it makes for a pretty chart:
Month 1987-2005 Last 2 yrs
Jan-Dec monthly seasonals
-0.34%,-0.26%,0.01%,0.28%,0.47%,0.58%,0.33%,0.14%,-0.13%,-0.25%,-0.41%,-0.42%
Jan-Dec monthly changes since bust started:
-0.84%,-0.93%,-0.85%,-0.42%,-0.29%,-0.31%,0.26%,0.04%,0.05%,-0.16%,-0.57%,-0.80%
In my neighborhood (Bonnie Brae/Wash Park), prices are WAY up QTQ. Slightly up YTY (they seemed to bottom out in the late fall and have rebounded plus some).
Joe | 08.26.08 - 11:52 am | #
If you have owned there a while, congratulations. I rarely even look in that area for my remodel investments, too much competetion from builders paying $300,000 for old houses on 6,000 sq ft. lots then tearing them down to build $700,000 houses.
If you have owned there a while, congratulations. I rarely even look in that area for my remodel investments, too much competetion from builders paying $300,000 for old houses on 6,000 sq ft. lots then tearing them down to build $700,000 houses.
We bought late last summer (forced move from another city). We're probably right about even, maybe up a couple percent. Though we bought one of those $300,000 houses (but on a 10,000 sq ft lot) and decided to live in it.
Your argument implies that once prices hit bottom, people will all rush in to buy the underpriced gems in a given price range - and those who wait will be left with, well, whatever's left.
Actually, my theory is implying even a little more.
Prices of all houses will drop over time.
Until they reach a level that someone believes they're worth it to them.
Those properties that match #2 will be bought and removed from the market.
Other properties will continue to sit and drop over time.
Until at a later time that #2 happens for these remaining property as well.
All I'm saying is, as market approach the inflection point (i.e. the bottom of prices), What happens is that more and more good/valuable properties meet criteria #2 and get taken out of the market. This causes sales to go up, but prices will continue to decline on these remaining, less valuable properties.
The remaining ones' prices will decline to reflect that. Since we're talking about the inflection point, then at some point, the qty of houses taken out is greater than qty of houses added back into the market.
This can cause the last "leg" of the decline to be led mainly by less valuable properties.
On the other hand, there's already been an ongoing sales of more appropriately priced and "better" properties. (to kick start the recovery in the first place)
Your statement that better properties will command a premium is correct, and the effect can been seen as they're sold earlier and at a higher price near the inflection point.
I was trying to caution that your average statistics from market reports will miss this!!!
By the time all the reported stats show prices have bottomed or turned around, there will already be bidding wars on the better properties.
In other words, the recovery curve of properties are not all equal. Those with more inherent value will have a different bottom than those with less. Notice I don't use the word "expensive", I mean inherent value, expensive areas could have less inherent value after this whole fiasco burns through!
In that case, market statistical bottom, may be meaningless to someone who's trying to buy higher quality residences or actually to catch the best time to buy.
In other words, by the time the market average shows prices have bottoms, we're looking at a rally in some pockets of the housing in order for the average to be pulled up.
Averaging or median is a real dull knife to attempt to use to time an individual's home purchase.
Not piling on, but I think the "bottom" will be reasonably easy to identify:
1) Media stops trying to call the bottom (never seems like there's an end in sight)
2) Friends/acquaintences/family start making statements like, "I'll never buy a house again" or "Buying seemed great, but I'm going to rent if I can ever sell this place".
3) Purchase price does not exceed 125x monthly rent (or, put another way, monthly PITI is less than or equal to 125% of rent).
4) Monthly PITI = 28% to 34% of gross monthly income for participants in a particular market (so if the typical family makes 10k/month -- PITI ~~ $3200 or a mortgage of about $500k)
BONUS -- National news magazine (e.g. Time, Newsweek) has cover "Renting -- the smart way to go" (the exact opposite of the Summer 2005 Time Magazine cover).
Your points on selection, quality, etc are all correct but are also just the noise in the the signal to noise ratio. The signal is crystal clear: prices continuing down for the next 2-3 years.
1: Won't happen. They'll keep calling the bottom, until they're right. It's their job to talk about the NEWS, whether right or not. They'll keep talking about it until they have something else to talk about, like they're right or if another bubble in another industry or something crops up.
2: I'm hearing that already. Plenty of regrets to share from all of the bubble area buyers. Using #2 as an indicator, this would indicate a "buy" signal.
3: 125% is an rule of thumb created when USA was a wealthy nation. Plenty of Asian countries have purchase prices much higher than 125 over their whole existence. If USA is to join the ranks of non-wealthy nations, then this is the first index to go.
4: Ditto about the 34% rule of thumb. If you join the ranks of the rest of the world, then you're talking paying 50% (or more) for your housing and having much less disposable income. Disposable income is a fundamental difference between whether a country is rich or not.
I think we both agree on the price decline for the next 2-3 years.
Where we differ is that I believe the big declines will be mostly over in 1 year or so, the remaining declines will be dragged out but smaller. Prices will end up being higher than historical terms, but that's part of the transition to a nation to having less disposable income collectively because we didn't save and invest and educate for a good half century or so.
First. . .cliff diving.
Imagine how much steeper those curves would be without stickiness.
My guess is the deceleration of price drops is due to bottom feeders trying to get a bargain on distressed sales and foreclosures.
Thank you for the link to the seperate 20 city data. But said link does not include June 2008 data.
June 2008 data -
http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_History_082653.xls
Ah, the cliffs of Acapulco.....
Moin from Germany,
has anybody heard the latest Lehman Takeover rumor yet.....
Breaking News: Lehman To Be Acquired by Tooth Fairy
The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being ransported back to that magical place where Lehman still sells for over $70 per share.
In related news, Lehman has agreed to sell all of its level III capital, including CDOs, ABSs, pet rocks, baseball cards, slightly used condoms, and credit default swaps written by MBIA and Ambac. Lehmans level III capital will be acquired for 150% of its face value by Tinkerbell, who will carry it off to Neverland to be fed to a crocodile. Lehman is financing 90% of the acquisition at an interest rate that has not been announced; Tinkerbells up-front payment consists of a handful of pixie dust, three crickets, and a bullfrog. Analyst Dick Bove estimates that the bullfrog could eventually be transformed into three princes and a pumpkin coach. The deal gives Lehman no recourse to any of Tinkerbells assets other than the Level III capital. If Tinkerbell defaults, Lehmans successor entity will stick its hand down the crocodiles throat and attempt to get it to regurgitate. The firms historical value-at-risk analysis shows that sticking your hand down a crocodiles throat is completely safe.
Treasury Secretary Hank Paulson issued a statement: I am delighted that SWFs (Sovereign Wealth Fairies) continue to express confidence in the terrific values represented by American financial institutions. As I have been saying since August of 2007, this shows that the crisis is now over.
Meanwhile, the SEC has announced an investigation of mean, evil, bad short-seller David Einhorn. While out for a beer with a friend, Einhorn reportedly suggested that the Tooth Fairy does not exist and that wishing upon a star is not a wholly reliable price discovery mechanism. Christopher Cox, chairman of the SEC, said, Vicious rumors attacking the Tooth Fairy will not be tolerated. Our entire financial system and indeed the American way of life depend on the Tooth Fairy and wishing upon a star. How else could one value level III capital appropriately? The SEC is reportedly planning to set up re-education camps for short-sellers.
Cool the acceleration in the decline slowed!
I am long straws right now because so many people are grasping for them, I figure they only way they can go is UP UP UP.
"rate of monthly price declines has slowed a little. Some of this may be seasonal"
didn't you have a long discussion (and rather suggestive historic data from CR) to STRONGLY suggest that quater/quater price declines are indeed seasonal, ie people trying to sell their homes will tend to hold to their prices more during peak season ?
if this is correct we should expect quater - quater drop to increase by the end of the year under pressure of double effect: off-season AND long term downtrend in prices
the Y/Y tell the story anyway
I think this is mostly seasonal. This pattern was present in the previous bust, too. The prices even temporarily increased, not just decelerated. Moreover, during the boom, the increases slowed in winter months and jumped during the high season. I think we will continue the scheduled cliff-diving competition in winter.
Wow, you should see the spin Financial Entertainment Television is giving these numbers.
15.4% decline is a positive because -16% was the expectation...
Amazing.
My guess is the deceleration of price drops is due to bottom feeders trying to get a bargain on distressed sales and foreclosures.
There may be some truth to this. If so the declines might re-accelerated as the "bottom feeders" get their fill.
month-to-month price change is strongly seasonal, but it may be a little encouraging -- and i have found virtually nothing encouraging until today -- that the year-over-year change has developed a little tail.
that said, if transaction volume is seriously a third distressed property, in light of sky-high inventory in existing homes its pretty clear that existing undistressed home prices are still far too high. new homes are lighting the way with massive price discounting to reduce new home inventory.
Not good for oil (or the rest of the whole ball of wax!)
"Russia formally recognized the breakaway Georgian territories at the heart of its war with Georgia on Tuesday,"
Anyone know why Fannie and Freddie are up double digits?
Oh, not to worry. See, the little line is changing and the problems are slowing. You boyz are just so.. so Doomsday types!
ZackAttack - makes you wonder why they don't keep expecting a 99% drop all the time...
Then it's always good news !
Like the way the negative has been spun here ath this site. Don't you know that since decreases are definitely slowing, so if this continues prices will eventually be going up (smaller and smaller decreases means an increase eventually). That's how the math works on Bizarro world anyway.
also -- re: bottom calling -- this thing is at least 8 quarters from reverting to the zero line. that's the lesson i draw from looking at past busts. it typically has taken 8-12 quarters from the bottom in new home starts and sales to bottom in prices. and we clearly aren't there yet.
These strong housing numbers are brought to us mostly due to the strong second half recovery that started 2 months ago.
Just looking at the graph you can clearly see that this is a bottom. but not an L or even a U shaped bottom. it seems to somehow be a | shaped bottom.
gaius,
It will be interesting to see if prices drop more quickly to the bottom as related to starts this time due to (1) lubricated prices falling much quicker than they typically do due loose lending and the avalanche of foreclosures and (2) homebuilders continuing to build despite losing money in an effort to get rid of preposterous land inventories and generate cash flow.
Ever considered that you don't ever want to buy exactly at the bottom, no matter how logic says otherwise?
The expectation of additional declines boosts the buyer's position. In the world of negotiating, expectation matters.
Additionally, you have much better selection of homes if you buy near the left side of a bottom than if you buy at the bottom or near the right side of it -- if there's a particular home you like, you may have to deal with bidding wars. But people/the market is too scared to want to buy when you're on the left side of a bottom, thus less competition.
The trick is of course, you want to be as near the bottom as you can, in case you end up catching a big cliff diving just right after you bought the house. However, I believe that barring the sudden cliff diving, it's better to buy houses slightly early than after bottom is already confirmed.
That's why timing is so difficult. I call this ideal buying time the "buying bottom".
With that thought, I think the "buying bottom" is close. in 6-8 months we'll be there. Actual price bottom may be another 6-8 months after that, but then the good deals would be gone.
Thank you for the link to the June 2008 data KC.
I see the only market I care about, Denver, had the best month/month and quarter/quarter percentage performance of any city in the 20 city index. Of course I am biased since I am one of those dumba$$es buying houses at large discounts in Denver over the past three months, so I might be misinterpreting the data.
"Additionally, you have much better selection of homes if you buy near the left side of a bottom than if you buy at the bottom or near the right side of it"
I'm not sure I agree with this. Is there any proof, or just speculation on your part?
On the one hand, inventory TENDS TO peak around the same time as the bottom... And inventory typically does decrease during the recovery. But I believe that inventory may be relatively flat over the course of the bottom. In other words, I don't think inventory typically decreases dramatically during the bottom... it doesn't do that until the rise from the bottom.
as for competition... in general sure there may be a bit more competition on the right side vs left side of the bottom curve, but is it appreciable?
I'm not sure it's worth taking such a big risk and try to time jumping in on the left side of the bottom just so you can have what would likely be a SLIGHT advantage in inventory
I'd rather limit my downside risk (which we've already seen is appreciable) and actually wait for the UPTURN to ensure there is no dead cat bounce. You may limit (slightly) your inventory/options... but you substantially limit your risk.
The trick is of course, you want to be as near the bottom as you can, in case you end up catching a big cliff diving just right after you bought the house. However, I believe that barring the sudden cliff diving, it's better to buy houses slightly early than after bottom is already confirmed.
While your argument has some persuasive value, if you substitute "tech stocks" for "houses" in the above, you have essentially rephrased the typical Wall Street analyst's take on the market, circa, let's say, February 2001. ("Stock prices always turn up before earnings do ... so if you wait for earnings to turn back up to jump on board, you'll already be too late!")
How'd the knife-catchers who followed that advice do?
"Prices are still falling, but the rate of monthly price declines has slowed a little. Some of this may be seasonal, and prices will probably continue to decline for some time."
xexe
yet again the bottom is near :0
Financing the housing market going forward, leaving the leveraged financing world behind as the players either go BK or run off their book, makes me wonder just how RE prices will recover at some point in time. Just were will the money come from to turn over the trillions of dollars of supposed existing RE values? If the new loans and refi are to be based on capital requirements vs leverage that means a whole lot of equity needs to be raised.
Is J6P house buyer today in the same boat as the truck buyer who always wanted that loaded Ford 350 V8 but coun't afford the payments but now is getting the deal he always wanted? Betting that fuel prices will return to cheap and truck prices will again make new high's.
Yearning:
Price and Sales are not operating on the same curve. If price is AT the bottom, sales would already be rising off a bottom. That directly means you have more competition from other buyers.
If you acknowledge that houses are not generic like stocks, then competition will not be homogeneous, the good ones /more ideally located ones will have more of them.
Inventory could level off or stay the same, but that would be inventory of the whole market. In a recovering market, do you think the good ones are bought first, last, or "equally distributed"?
Not all houses are equal, that's why selection matters. This is very unlike buying a stock or timing a stock market in this respect.
Mook:
I'm not saying the same thing as buying a stock.
In stock buying, you're dealing with a generic commodity (stock) and market emotions. That's why chart-reading is invented, because the masses' emotions go through things like a cup-and-handle, head-and-shoulder type of transition.
In houses, individuals reign. You can use market statistics to see general statements, but each real estate transaction is indeed unique and local. This part the realtors got it right.
In those cases, less competition is better. Buying with both sides knowing that prices will still decline is better (negotiation wise). Cherry picking from the inventory matters.
That's all I was trying to point out.
hc -
I'd also argue that the competition argument works both ways. In places like here in LA, sellers' expectations still haven't adjusted to reality. Many are cancelling listings rather than dropping prices significantly. The only stuff on the market is overpriced crap so there should be competition for the few properties that are realistically priced (like my place, hopefully)
hc:
I realize that wasn't the point you were trying to make - I just couldn't resist drawing the obvious parallel.
But there's still a flaw in your reasoning, as encapsulated in this statement: In a recovering market, do you think the good ones are bought first, last, or "equally distributed"?. Namely: the better-looking / -located houses are already priced higher than the average comparable, and have been all the way up - and all the way down. The gap between them may widen or shrink over time, but this isn't an Olympic diving event where all competitors start from zero.
Your argument implies that once prices hit bottom, people will all rush in to buy the underpriced gems in a given price range - and those who wait will be left with, well, whatever's left.
But supply and demand isn't repealed just because the pace of sales has slowed. If a nicer home is worth 10% more than its less-nice neighbor, sales prices are likely to reflect that, whether they're at $660K and $600K or $440K and $400K. So is it worth trying to get in on the "left side of the curve" by snapping up the "nicer" house ("hey, it used to sell for $660K!"), even when there's a very real possibility that those numbers could fall to $330K and $300K in a couple years' time?
How do these graphs look if adjusted for inflation? If I understand the effect, the rate of decline would be even steeper. I'd be particularly interested in seeing adjustment using CPI and using, say, Shadow Stats inflation rates.
Real estate is always local. And I'd be foolish to call a bottom, but breaking down the numbers by region, there are a few regions that are now becoming pretty affordable. And I don't mean Detroit or Cleveland, where homes are cheap. Of course, there are many regions that still have pretty far to fall.
I believe that
1) the tightening of mortgage lending
2) the persistence of our continued general economic decline/sluggishness situation
3)the hugely overbuilt status of some markets
4) the continuing problem of foreclosure
5) and the desire for buyers to wait it out
will result in a continuing decline in real home prices through at least next year.
Consequently, there are going to be real bargains in selected locales beginning next year.
In Space Coast Brevard our sales went up but the price yoy for existing homes went down more than 40%. the brokers were saying this was a good thing because sales went up. Well I guess if they got a commission on one of those extra sale (totalling 5 houses) that would be a good thing for them.
I see the only market I care about, Denver, had the best month/month and quarter/quarter percentage performance of any city in the 20 city index. Of course I am biased since I am one of those dumba$$es buying houses at large discounts in Denver over the past three months, so I might be misinterpreting the data.
In my neighborhood (Bonnie Brae/Wash Park), prices are WAY up QTQ. Slightly up YTY (they seemed to bottom out in the late fall and have rebounded plus some).
Real estate is always local.
When someone posts this on this blog, I don't know whether to admire the cheek or kick the cheeks.
"That's why chart-reading is invented, because the masses' emotions go through things like a cup-and-handle, head-and-shoulder type of transition."
well, behavior finance has its limits; Those (limits) are especially visible during high volatility periods.
The recent slowing in the pace of fall of home prices (Case Shiller composite) is an illusion.
The data is not seasonally adjusted. On average, monthly price gains in the Q2 are 0.64% higher than Q1. This number is calculated pre bust. Since the bust started, the Q2 monthly changes are still 0.54% higher than Q1. So prices falls should be less severe in Q2 than in Q1 and that is what is showing up in the numbers. IMPROVEMENT IN THE HOUSING MARKET IT IS NOT.
Guys, if you would like the monthly seasonal factors that I have calculated, it makes for a pretty chart:
Month 1987-2005 Last 2 yrs
Jan-Dec monthly seasonals
-0.34%,-0.26%,0.01%,0.28%,0.47%,0.58%,0.33%,0.14%,-0.13%,-0.25%,-0.41%,-0.42%
Jan-Dec monthly changes since bust started:
-0.84%,-0.93%,-0.85%,-0.42%,-0.29%,-0.31%,0.26%,0.04%,0.05%,-0.16%,-0.57%,-0.80%
In my neighborhood (Bonnie Brae/Wash Park), prices are WAY up QTQ. Slightly up YTY (they seemed to bottom out in the late fall and have rebounded plus some).
Joe | 08.26.08 - 11:52 am | #
If you have owned there a while, congratulations. I rarely even look in that area for my remodel investments, too much competetion from builders paying $300,000 for old houses on 6,000 sq ft. lots then tearing them down to build $700,000 houses.
If you have owned there a while, congratulations. I rarely even look in that area for my remodel investments, too much competetion from builders paying $300,000 for old houses on 6,000 sq ft. lots then tearing them down to build $700,000 houses.
We bought late last summer (forced move from another city). We're probably right about even, maybe up a couple percent. Though we bought one of those $300,000 houses (but on a 10,000 sq ft lot) and decided to live in it.
Mook:
Your argument implies that once prices hit bottom, people will all rush in to buy the underpriced gems in a given price range - and those who wait will be left with, well, whatever's left.
Actually, my theory is implying even a little more.
All I'm saying is, as market approach the inflection point (i.e. the bottom of prices), What happens is that more and more good/valuable properties meet criteria #2 and get taken out of the market. This causes sales to go up, but prices will continue to decline on these remaining, less valuable properties.
The remaining ones' prices will decline to reflect that. Since we're talking about the inflection point, then at some point, the qty of houses taken out is greater than qty of houses added back into the market.
This can cause the last "leg" of the decline to be led mainly by less valuable properties.
On the other hand, there's already been an ongoing sales of more appropriately priced and "better" properties. (to kick start the recovery in the first place)
Your statement that better properties will command a premium is correct, and the effect can been seen as they're sold earlier and at a higher price near the inflection point.
I was trying to caution that your average statistics from market reports will miss this!!!
By the time all the reported stats show prices have bottomed or turned around, there will already be bidding wars on the better properties.
In other words, the recovery curve of properties are not all equal. Those with more inherent value will have a different bottom than those with less. Notice I don't use the word "expensive", I mean inherent value, expensive areas could have less inherent value after this whole fiasco burns through!
In that case, market statistical bottom, may be meaningless to someone who's trying to buy higher quality residences or actually to catch the best time to buy.
In other words, by the time the market average shows prices have bottoms, we're looking at a rally in some pockets of the housing in order for the average to be pulled up.
Averaging or median is a real dull knife to attempt to use to time an individual's home purchase.
HC,
Not piling on, but I think the "bottom" will be reasonably easy to identify:
1) Media stops trying to call the bottom (never seems like there's an end in sight)
2) Friends/acquaintences/family start making statements like, "I'll never buy a house again" or "Buying seemed great, but I'm going to rent if I can ever sell this place".
3) Purchase price does not exceed 125x monthly rent (or, put another way, monthly PITI is less than or equal to 125% of rent).
4) Monthly PITI = 28% to 34% of gross monthly income for participants in a particular market (so if the typical family makes 10k/month -- PITI ~~ $3200 or a mortgage of about $500k)
BONUS -- National news magazine (e.g. Time, Newsweek) has cover "Renting -- the smart way to go" (the exact opposite of the Summer 2005 Time Magazine cover).
Your points on selection, quality, etc are all correct but are also just the noise in the the signal to noise ratio. The signal is crystal clear: prices continuing down for the next 2-3 years.
Ed S.
1: Won't happen. They'll keep calling the bottom, until they're right. It's their job to talk about the NEWS, whether right or not. They'll keep talking about it until they have something else to talk about, like they're right or if another bubble in another industry or something crops up.
2: I'm hearing that already. Plenty of regrets to share from all of the bubble area buyers. Using #2 as an indicator, this would indicate a "buy" signal.
3: 125% is an rule of thumb created when USA was a wealthy nation. Plenty of Asian countries have purchase prices much higher than 125 over their whole existence. If USA is to join the ranks of non-wealthy nations, then this is the first index to go.
4: Ditto about the 34% rule of thumb. If you join the ranks of the rest of the world, then you're talking paying 50% (or more) for your housing and having much less disposable income. Disposable income is a fundamental difference between whether a country is rich or not.
I think we both agree on the price decline for the next 2-3 years.
Where we differ is that I believe the big declines will be mostly over in 1 year or so, the remaining declines will be dragged out but smaller. Prices will end up being higher than historical terms, but that's part of the transition to a nation to having less disposable income collectively because we didn't save and invest and educate for a good half century or so.