So, When do we get our first publicly traded large national builder BK. HOV & BZH are now on death watch. I left the builder trade 6 months ago when the meat left the bone. Too bad because a lot of meat got put back on those frail bones and I missed the last 60% down move...
But what about the denominator? Don't we kinda expect household size to increase--and thus household number to decrease--as the recession really takes hold? that suggests that those excess housing unit estimates may be too low.
Noble, During recessions there are usually fewer moves, although I think plenty of people are moving this time - just not for the best reason (foreclosure). The recession will not last forever. It looks like Thornberg has it going through most of '09.
Feckless Ness, I've been out all morning! It really is a great day.
James B, yes, people move in together during recessions - but that is a fairly short term problem. The number of households will keep increasing - the rate of increase will just slow temporarily.
Population in the U.S. is still growing pretty well ... up 2.86 million over the last 12 months. That is very different from the sharp slowdowns in population growth in Japan in the '90s or the U.S. during the Depression.
The large builders are getting killed around here by the small locals who are flexible. Current signs in North Port,Fl.
3/2/2,including lot...86k
3/2/2,including lot,screened porch,95k
3/2/2,as above with a large pool,108k
The large builders can't touch these costs due to land costs. Almost all of these reductions are due to the drop in lot prices. You can just figure at the peak the prices above were 210k-250k for the same...
They are selling due to the fact some people would rather buy a new home versus someone elses problems...
Household size will markedly increase as the Feds fail to deliver on Social Security and Medicare. Same for when the states fail to deliver on unemployment insurance, and 20-30-40 year olds move back in with Mom and Dad.
This depression, which began in Oct. '07, will last for five years. Only then will we begin the upleg, from a markedly lower base.
My family and I are ready, psychologically and financially.
Aren't immigrants moving back home because of lack of work in construction? Kids waiting longer to move out of their parents house, or moving back in? Fewer seasonal immigrant workers?
There is a lot of demand destruction during a depression.
I'd say I am just waiting for the people who are living in my new house to be evicted. Just a little more off the top and I will be buying. Say next winter. Rates should be up by then too so that should push prices down some more.
Got me one of them DD forms a while back that guarantees my loan, so no worries there.
"Household size will markedly increase as the Feds fail to deliver on Social Security and Medicare. Same for when the states fail to deliver on unemployment insurance, and 20-30-40 year olds move back in with Mom and Dad."
I am NOT going to share a room with Grandma!
Your scaring me here, cause I think it could really be that bad. I hope the pensions hold out.
We might be able to work off the inventory in 10 years if the depression continues at it's current pace. The problem is that in even 3-5 years a large percentage of this housing will be nearly worthless due to damage.
Renting out the housing will slow down the damage, but turning around that kind of rental property will further fuel CPI deflation.
Basically things are screwed either way, just hope that you are really for the downturn.
I have been ruthlessly cutting back my monthly expenses for years now. 1 car, no cable tv, pay-go cellular, and many more smaller tricks. My goal is to live off of one income and bank the other. Right now I'm in a holding pattern just waiting to see which direction to move with my cash.
Sam Dimond writes:
I live in eastern NC. You tell someone around here the next great depression is coming, they just laugh and say the last one hasn't left yet!
Right on Sam! I have a farm in lower Currituck County and know what you mean.
Bullish on RE sales: FY 2007 ended with gross 127M units, 110 total occupied units, or "households". Of these, owner-occupied were 86.2% or 75M. That increase of AHS 2005 levels (released 2006, since revised down nearly 400K) is < 1% during peak years of bubble "buying."
Is it reasonable to expect that young adults (say, +1.8% annually) entering the labor and credit markets will have the means to compete with former home "owners" for mortgages or rents?
Over the next POTUS term or decade. Given current immigration policy.
The only closing I've done recently was for a young couple who bought a REO condo for $91,000, and they could clearly afford it; the payment was very low.
I think that prices will come down to the affordibility point over the next year. It's actually getting close now. I just hope I will still be there to handle the closings. Feeling a bit depressed over the last week.
Not that I will starve, will just become an evil mooching retired boomer. At least I will get a little bit of the SS payments I made over the years back, if that happens.
And we have rooms for the kids if necessary. Don't think so, but who knows?
I think the chart about "PE/GDP" confirms what I have read elsewhere - we will lose about 20% of the nominal price of assets. I expect my house in 2011, as well as my 401k to both be worth about 20% less than they are now. Not pleasant for my upcoming retirement - it could be worse, I cold die before I retire - but its not the end of the world.
O, and I'm sticking with DOW hits 6,000.
In the absence of displays of material wealth, I look at standards of maintenance and general farm quality, and in the Amish parts of sthn MD it doesn't look that great.
Anyhow, I have a friend with a crackberry that's he's chained to who laughs at my $20 prepay cellphone from Rite Aid.
Overbuilt? No. Immigrants (legal and illegal) leaving the country, YES! It's simple...the states experiencing the brunt of the crash are also fully of legal and illegal immigrants. DO THE FU*KING MATH!
The idiot economists keep wishing for a "recovery" of the housing market. What recovery will there be? The same recovery that happened to the NASDAQ? Yeah, right...a "recovery" means that house prices will double in 1-2 years in many places, and that ain't happening. It's all going down the crapper...just slowly. I'm happy to be out of expensive, illegal alien ridden California and back in cheaper NY (relatively). Mortgage (finally foreclosed now) went from $2300 down to a nice $600 rent now, same pay. Unfortunately for me and many others who lived in CA, we "sold" our homes through foreclosure rather than ride the big "recovery", which will take at least 20 years at the prescribed 3% inflation rate. You saw it here first...the new way to "sell" is to "foreclose". Now isn't that a scary idea?
I am happy with the legal Cubans here; they are very productive.
Sorry you couldn't compete against them, DK.
But yes, many illegals and legals who also couldn't compete also going back home.
Actually there always were immigrants who couldn't make it here or didn't like it here and went back home.
Cubans are from everywhere; even here. Had a client who was a direct descendent of a civil was southerner named Wood, who went to Cuba. There are white black spanish and chinese Cubans.
And when did your parents come over?
Or, are you a native American?
And yet, the county assessor's office sent someone around the neighborhood a few weeks ago (business card slid between storm door & front door), & it seems that my house, as old & small as it is, has increased $20,000 in fair market value from 2007.
I had it painted last year, but somehow, I don't think it's made that big a difference. Larger house,on double lot (as is my house, but the lots are small here), down the street has been for sale for over two years. Another about the same size & vintage as mine, also on double lot, probably not as well maintained, was foreclosed on & last time I looked was listed for $130,000. I live 1 1/2 blocks from the beach on the OR coast--but no view. Might be of a lighthouse if I had a second story.
There are probably 6-7 other homes for sale in the neighborhood, some for over a year. Even two of the more expensive/newer homes (w/ocean views) have hit the market. One of the ocean views, on sale because of divorce, has been for sale for over a year. There's an even larger % of homes for sale in a few other neighborhoods.
Still more building going on. The idiot city has decided it's ok for people to build lower down on beach bluffs. Like this isn't an erosional coastline & storm wave heights haven't been increasing over the past 20 years & most of the bluffs are unconsolidated sandstone & mudstone. Real stable.
But there's no excess housing here, according to the city. Voters have been asked to approve a general obligation bond levy (paid from property taxes) to build a new water treatment plant because we have to provide clean water for development of the 183 acres the city annexed this summer. Oh, they say it's for general infrastructure reasons--but it's not like any of that money will go to replace the aged distribution system in my neighborhood. I asked.
People complain about the land use "restrictions" in Oregon. Ha! They should move outside of PDX--they'll find local gov'ts who are happy to help developers or builders sleaze their way around what land use rules remain, & readily allow violations of city zoning ordinances unless nearby residents make so much noise they can't be ignored or litigate.
The city council's done its best to stifle dissent through passage of various rules regarding standing (to comment, to appeal) thus demonstrating their emotional kinship with the Roberts court.
I knew it would only be a matter of time before people started coming around to my way of seeing things. CR, we started agreeing to disagree on this in like Sept '06 or thereabouts so I guess waiting two years for independent mention of my estimate of 4 million excess dwelling units is worth the wait.
Excess housing...we have several friends with more than one home. In fact we have a friend with 2 homes, 1 timeshare, 5 cars and a pop up trailer. I think they have enough crap. Now they are negotiating with their lender for a mortgage relief. Should be interesting to see this one play out.
Lawyerliz, nice reply to DK! I'm one of the immigrants who ruined California. Maybe I shouldn't have been so competitive, but I comfortably semi-retired in the Bay Area five years ago at age 58. Just served two years on the county Civil Grand Jury too. Put my daughter through four years at UC without borrowing. Yep, I ruined California...
Be sure to see the John Authers clip on FT on the almost perfect correlation between yen/euro and the S&P. I finally understand the carry trade.
I make $150,000 a year and in June after selling my 3 properties, moved in with a friend (no funny stuff). Why should I buy (or rent at high prices if I don't need to? One thing different this time around is that people have much bigger places, so you dont' have to share a room with grandma.
"Dr. Thornberg believes this ratio should decline from about 1.17 to 1.14 or so"
How is that suppose to happen?
We don't build any more homes and start bulldozing some of them?
As we enter this recession (depression) and people lose their jobs, they are more likely to double up and triple up to save on housing costs.
Not to mention if immigration goes into reverse gear and people start moving back to their native countries. They wont be taking their homes with them.
May be those from Mexico may take their autos with them.
I think the higher estimate is the better one, for reasons others have elaborated above. I've also been in agreement with Rob for some time on consolidation of households, something I'm seeing in my own extended network--family moving in with family, friends moving in with friends. A weakening economy will only contribute to that trend.
Yes, the U.S. is growing, but some of that growth is internal from the "Mini Baby Boom", which will mean larger households, but not (yet) more households. I am, anecdotally, seeing a lot more adult children staying at home, and even more elderly staying with their adult children, long-term care facility costs being what they are.
And if the anecdotal evidence of large numbers of immigrants heading back to their home countries turns out to be a real trend, that will be even more demand destruction, and concentrated in the worst-hit areas of the Southwest and Florida. Overall, I suspect the gap between housing supply and demand will only grow over the next few years.
And yet the builders keep building, and the banks keep lending to them . . . one shoe that has yet to drop is the bankruptcy of the homebuilding sector, which is very worrisome. Banks as a whole are worse off than the homebuilders, which means that something is very wrong.
There is quite a bit of flexability in those household numbers, as single folks tend to double up more (share) when prices are high, but will live on their own when it's affordable.
The rental disconnect is complex. Again I tried to explain this a few years ago. The bank do not want to b landlords and thus REOs represent fewer units available for rental. Then there's the cost basis gap. People who bought in the last several years need very high rents to continue to afford those properties. That's why you see fantasy asking rent prices on Craigslist, etc. There's another demographic of older boomers who don't want to be landlords (yet?) with low cost basis extra houses that also keep supply of would be affordable rentals of market. For instance Palm Springs, 40% of the dwelling units are unoccupied. This is a temporary disconnect that right now has supply constrained rent prices high. As soon as REOs start commanding lower prices to attract investors the supply jam will break and prices will fall.
Don't forget, a lot of those REO are going to be ruins. The condo I closed last week was cheap, but the young buyers said it needs a whole new inside.
I'm hearing that trashed REOs are all too common.
This is all too common. Just envision empty houses hit by a hurricane!! Owners are willing to fight with insurance companies to rebuild, but I doubt banks will do much of that.
Rob Dawg,
Craigslist FSBO houses is some comic relief as well. I never looked at rentals. FYI, there are lots of for sale signs in Wellesley these days. If that's not the top of food chain, what is?
"I'm hearing that trashed REOs are all too common."
Yes, angry home owners taking it out on the bank.
But a lot of them are just leaving the keys on the kitchen counters and leaving.
Whatever condition you buy the house in, factor it in the price.
Once the stock market has had its second leg down, unemployment reaches about 8-9%, and the overall realisation is that we are in a very severe recession. Banks will be willing to accept 20-30 cents on the dollar, to get the foreclosures off their books.
I am thinking a year from now, Lee County Florida.
lama writes:
Rob Dawg,
Craigslist FSBO houses is some comic relief as well. I never looked at rentals. FYI, there are lots of for sale signs in Wellesley these days. If that's not the top of food chain, what is?
Hey Lama,
You were one of those here back in '06 too. Yeah, I loved "slumming" in places like Wellesley. That progressive "Cambridge School" still operating? I don't know what people are thinking trying to make their 2005 vintage mortgage with an equivalent rent price. At the very top of the market, Malibu, Pacific Palisades are holding on to surreal prices but I don't count them.
Anecdotal only here... lots of people have more than one house. My extended family is not rich but my parents have three houses in the US and two in Ireland. I have two in the US, my sister has two nearby. All for various reasons, all either paid off or with minimal debt. Mind you, I'm renting the upstairs of one house to two hippie kids (does that count as two households?).
Hey Lefty's Liquors.... here's a story you might enjoy. My local paper publishes the police reports and today there was a shoplifting report. The suspect had two bottles of spiced rum, one sandwich, and a tube of lubricant. Sounds like he was planning quite the evening. Your place isn't really named Lucky's is it? We have one of those here.
Norma,
How'd you know? Houses here are not moving because people here assume every buyer is a recent California retiree looking for their retirement home. Locals can't afford 'em.
sorry CR, this is OT but I thought I had to refute that lousy article titled: John McCain was never tortured in my jail, says Tran Trong Duyet'..
Compare that to a previous story on McCain in WaPo on Oct 4th... Tran Lua claimed he had a meat cleaver in his hand, in this story he had a kitchen knife! Understand, these men can't literally fart without permission from Hanoi otherwise they'd be in violation of Article 17 for slandering or libeling the Party, its leaders, blah, blah, blah and would be tossed in jail.
In 'Nam, saving face whether for the state, or Party or the individual is paramount. The 'truth' is just a bargaining chip.
Look, I'm no expert on many of the arcane things you discuss here but when it comes to SE Asia I have put my time in. It gets tiring to hear obviously educated people attack the USA, or perhaps McCain, on the most flimsiest of evidence - interviews with former jailers!
if you believe that check out my small tongue in cheek video mash-up on the subject:
what is not considered is investor owned properties as excess inventory.
A large part of the bubble has been investor speculation in RE either via shortterm flipping or longer term buy/rent then flip, either way this tends to create excess housing units with the extreme showing up as it is now with tighter credit/slow economy forcing this excess investor property unto the market either as foreclosures/short sales or just more inventory forsale.
We currently have a bubble in foreclousure RE with investors buying a large % of the available property particuliarly below 400K. Fannie and Freddie are both putting limits on investor owned property both in actual numbers plus higher fee's, downpayments etc.
Rob Dawg writes:
I knew it would only be a matter of time before people started coming around to my way of seeing things. CR, we started agreeing to disagree on this in like Sept '06 or thereabouts so I guess waiting two years for independent mention of my estimate of 4 million excess dwelling units is worth the wait.
Agree Rob, excess housing inventory is a problem that the MSM, congress etc do not want to discuss given the political connection to the entire housing industry and the American dream story but I am coming around to the idea that it is the root of the problem really just to damn many houses really which is the basis for housing deflation going forward.
Ron, the real problem is mal-allocation not just quantity. All the extra houses are in places there shouldn't even be houses never mind places we want to induce people to live. Think Inland Empire. The societal externalities of locations like that would continue to drag down entire economies.
Whomever above mentioned immigrants leaving & vacating their homes-- that seems to be true, & have read recently that the amount of dollars flowing (meaning, from the immigrant workers who send money back home to Mexico) to Mexican banks (apparently this is tracked) has decreased by 12% from summer '07 to summer '08.
I just see anecdotal stuff here in Norfolk that seems to support this. Pre-bubble years, the local lower-end grocery chain, Food Lion, only stocked a shelf or two of Mexican/Spanish food items. But during the bubble, so many immigrants came here to work construction FLion increased this to about half of one side of a full aisle, dedicated to Spanish foods. This year, that amount of shelf-space allocation has shrunken by about one-quarter.
(admittedly, not a very accurate "data point"-- but then am a shopper, not an economist!)
azurite: on your assessor's office saying your house was up $20K in FMV from last year--
you said "I had it painted last year, but somehow, I don't think it made that big a difference."
hey, you didn't accidentally use that "magic" paint from Home Depot, did you? It only costs $20 bucks a gallon, but it raises the value of your house by at least $10,000 dollars...(---or so says HGTV)
Much of the overbuilding was in a handful of states or portions of states. I live in Upstate New York which completely skipped the housing boom - housing costs haven't exceeded the rate of inflation over the past 20 years. There are a few more houses on the market than usual, but not many more.
Our problem here is that state and local governments tax and spend too much which has kept the local economies outside of NYC depressed.
Other than state and local taxes, living costs are relatively low and growth would definitely result in constructing new housing. There are many other areas like this around the country. These are the locales that will likely help the US out of the current downturn.
The Zoned Zone and Half-a-Dozen of the Other
I almost always agree with Krugman, but I think he missed something in his 2005 piece saying that the "Zoned Zone is prone to housing bubbles", whereas "When the demand for houses rises, Flatland metropolitan areas just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started."
I think overbuilding in places like Atlanta and Houston was as unsustainable as overpricing in San Diego building extra houses in places there shouldn't even be houses never mind places we want to induce people to live, as Rob Dawg said.
Krugman's "Zoned Zone" is one of the reasons he should never have even gotten nominated. Maybe if I changed my blog to "Urban Apologist" and ignored the last 12 Censuses and turned around all the other data and confused cause and effect maybe I could then get a Nobel too. Zoning is a consequence of quality of life issues including equity preservation tied to localities. Simplest argument; if you believe Krugman then you could mandate zoning restrictions and prevent the current house price collapse. Right?
I was born in the United States, my parents were born in the United States, their parents were born in the United States, and their parents were born in the United States. My Grandfather's both served in WWII, which is something that I'm proud to say. I do not support Barack Obama because he's an immigrant, which disqualifies him to be President according to the US Constitution. It's the law for good reason, because it prevents Manchurian Candidates from becoming President. Incidentally, he would never pass FBI, CIA, or secret service clearance with all of his connections to terrorists, both foreign and domestic. Just the fact that his Reverend is anti-Semitic and pro-Nation of Islam would have disqualified him. His judgment at every turn in life has been naive at best, if not downright despicable.
You're tacit argument that the United States is a Nation of immigrants is flawed. Technically, every human on the planet is an immigrant, because we were not always on this planet. Incidentally, 66% of Americans were born here to parents who were born here. If you think I'm "racist" just try immigrating to China, Saudi Arabia, Mexico, Austria, Pakistan...LMAO.
The US is a Nation that will not secure it's borders, and must allow 1 million legal immigrants in per year because it's women refuse to have babies in favor of hedonism...that's the destruction of a Nation. The destruction from within by a force called liberalism.
The immigrant from SF who commented about being retired in SF, and putting her kids through college is an amazing exception to the story. She's under the false believe that anyone can do it. Well, I ask her, if the 3rd world grows by 100 million per year (which it does), should the United States extend welcome to all of them? Where does it stop. What is the limit? Are they all entitled to no-doc home loans? Would you send your kids to schools with theirs? Would you move in next door to them? Would you support a tax on your nest egg so that they can have a better life? Well, since you live in the SF Bay, you're probably a cocktail party liberal like the rest of them there. You can talk a mean talk, as long as it's not in your backyard. I've visited SF many times, and it's definitely not in your backyard. Check out the Salinas Valley sometime.
county Civil Grand Jury?....hummm, you wear this like it's some great service or something. LMAO. Try something that you can really wear on your sleeves...like BOOT CAMP.
"Competitive" in San Francisco means backstabbing, greedy, self-centered, sneaking, lying, you know, all of the best human traits. At least I can say that my Grandfather's fought for your right to be "competitive".
Factor in that many young adults (and not so young adults) will be moving back in with family.
Also, immigration, legal and otherwise, has slowed appreciably, if not reversed. This is one reason why the construction job losses have not been as pronounced as they should have been. The "illegals" likely were not counted as jobs to begin with.
I've spend the last 2 years trying to convince you that there was 3.5 to 4 million too many homes built/oversupply from 2001 and 2007. I 'm still confident this is an accurate number. I believe your estimate is too low, but it is a difficult number to flush out, so we many never get a definite number.
o way .. first?
Damn, not first.
I want my dollar back, http://www.clickmonkeys.com/index.shtml
3m or 1.75m - overbuilt to the hilt.
CR,
In a deleverage situation where both consumers and the financial sector are imploding - doesn't the need to "move" go down?
As companies start to lay off people - the need to incentivize "relocation packages" disappears.
Or do we get a situation at a certain point where people will go wherever they will find a job?
CR, it is a gorgeous day here in So CA. I hope you're working from a chaise lounge on a sunny patio.
So, When do we get our first publicly traded large national builder BK. HOV & BZH are now on death watch. I left the builder trade 6 months ago when the meat left the bone. Too bad because a lot of meat got put back on those frail bones and I missed the last 60% down move...
Someone explain to me why I'm paying $1750/mo rent, when I'm self-unemployed and can live anywhere.
Or do we get a situation at a certain point where people will go wherever they will find a job?
Noble | Homepage | 10.25.08 - 4:01 pm
With 1 in 6 underwater, there will be fewer people that can move without a short sale or bankruptcy.
But what about the denominator? Don't we kinda expect household size to increase--and thus household number to decrease--as the recession really takes hold? that suggests that those excess housing unit estimates may be too low.
Noble, During recessions there are usually fewer moves, although I think plenty of people are moving this time - just not for the best reason (foreclosure). The recession will not last forever. It looks like Thornberg has it going through most of '09.
Feckless Ness, I've been out all morning! It really is a great day.
Best Wishes.
Excess Housing Units means more selection.... IT'S A GREAT TIME TO BUY !
I live in eastern NC. You tell someone around here the next great depression is coming, they just laugh and say the last one hasn't left yet!
Faber on Bloomberg
James B, yes, people move in together during recessions - but that is a fairly short term problem. The number of households will keep increasing - the rate of increase will just slow temporarily.
Population in the U.S. is still growing pretty well ... up 2.86 million over the last 12 months. That is very different from the sharp slowdowns in population growth in Japan in the '90s or the U.S. during the Depression.
Best Wishes.
bearly | 10.25.08 - 4:04 pm | #
The large builders are getting killed around here by the small locals who are flexible. Current signs in North Port,Fl.
3/2/2,including lot...86k
3/2/2,including lot,screened porch,95k
3/2/2,as above with a large pool,108k
The large builders can't touch these costs due to land costs. Almost all of these reductions are due to the drop in lot prices. You can just figure at the peak the prices above were 210k-250k for the same...
They are selling due to the fact some people would rather buy a new home versus someone elses problems...
Chris
Household size will markedly increase as the Feds fail to deliver on Social Security and Medicare. Same for when the states fail to deliver on unemployment insurance, and 20-30-40 year olds move back in with Mom and Dad.
This depression, which began in Oct. '07, will last for five years. Only then will we begin the upleg, from a markedly lower base.
My family and I are ready, psychologically and financially.
Aren't immigrants moving back home because of lack of work in construction? Kids waiting longer to move out of their parents house, or moving back in? Fewer seasonal immigrant workers?
There is a lot of demand destruction during a depression.
@Troy
"$1750/mo rent."
Holy cow, where is that San Diego/Frisco?
I'd say I am just waiting for the people who are living in my new house to be evicted. Just a little more off the top and I will be buying. Say next winter. Rates should be up by then too so that should push prices down some more.
Got me one of them DD forms a while back that guarantees my loan, so no worries there.
"Household size will markedly increase as the Feds fail to deliver on Social Security and Medicare. Same for when the states fail to deliver on unemployment insurance, and 20-30-40 year olds move back in with Mom and Dad."
I am NOT going to share a room with Grandma!
Your scaring me here, cause I think it could really be that bad. I hope the pensions hold out.
We might be able to work off the inventory in 10 years if the depression continues at it's current pace. The problem is that in even 3-5 years a large percentage of this housing will be nearly worthless due to damage.
Renting out the housing will slow down the damage, but turning around that kind of rental property will further fuel CPI deflation.
Basically things are screwed either way, just hope that you are really for the downturn.
I have been ruthlessly cutting back my monthly expenses for years now. 1 car, no cable tv, pay-go cellular, and many more smaller tricks. My goal is to live off of one income and bank the other. Right now I'm in a holding pattern just waiting to see which direction to move with my cash.
Well, looks like I'm adding to the heap. Selling the old place in about two weeks. Wish. . . me. . . luck.
Good luck.
Need a real estate lawyer?
Sam Dimond writes:
I live in eastern NC. You tell someone around here the next great depression is coming, they just laugh and say the last one hasn't left yet!
Right on Sam! I have a farm in lower Currituck County and know what you mean.
We are all Amish now.
CC
I thought the Amish were actually very well off.
Bullish on RE sales: FY 2007 ended with gross 127M units, 110 total occupied units, or "households". Of these, owner-occupied were 86.2% or 75M. That increase of AHS 2005 levels (released 2006, since revised down nearly 400K) is < 1% during peak years of bubble "buying."
Is it reasonable to expect that young adults (say, +1.8% annually) entering the labor and credit markets will have the means to compete with former home "owners" for mortgages or rents?
Over the next POTUS term or decade. Given current immigration policy.
13.8% is a lot of vacant stock.
The only closing I've done recently was for a young couple who bought a REO condo for $91,000, and they could clearly afford it; the payment was very low.
I think that prices will come down to the affordibility point over the next year. It's actually getting close now. I just hope I will still be there to handle the closings. Feeling a bit depressed over the last week.
Not that I will starve, will just become an evil mooching retired boomer. At least I will get a little bit of the SS payments I made over the years back, if that happens.
And we have rooms for the kids if necessary. Don't think so, but who knows?
I think the chart about "PE/GDP" confirms what I have read elsewhere - we will lose about 20% of the nominal price of assets. I expect my house in 2011, as well as my 401k to both be worth about 20% less than they are now. Not pleasant for my upcoming retirement - it could be worse, I cold die before I retire - but its not the end of the world.
O, and I'm sticking with DOW hits 6,000.
In the absence of displays of material wealth, I look at standards of maintenance and general farm quality, and in the Amish parts of sthn MD it doesn't look that great.
Anyhow, I have a friend with a crackberry that's he's chained to who laughs at my $20 prepay cellphone from Rite Aid.
I am generous. I let him laugh.
CC
Overbuilt? No. Immigrants (legal and illegal) leaving the country, YES! It's simple...the states experiencing the brunt of the crash are also fully of legal and illegal immigrants. DO THE FU*KING MATH!
The idiot economists keep wishing for a "recovery" of the housing market. What recovery will there be? The same recovery that happened to the NASDAQ? Yeah, right...a "recovery" means that house prices will double in 1-2 years in many places, and that ain't happening. It's all going down the crapper...just slowly. I'm happy to be out of expensive, illegal alien ridden California and back in cheaper NY (relatively). Mortgage (finally foreclosed now) went from $2300 down to a nice $600 rent now, same pay. Unfortunately for me and many others who lived in CA, we "sold" our homes through foreclosure rather than ride the big "recovery", which will take at least 20 years at the prescribed 3% inflation rate. You saw it here first...the new way to "sell" is to "foreclose". Now isn't that a scary idea?
I am happy with the legal Cubans here; they are very productive.
Sorry you couldn't compete against them, DK.
But yes, many illegals and legals who also couldn't compete also going back home.
Actually there always were immigrants who couldn't make it here or didn't like it here and went back home.
Cubans are from everywhere; even here. Had a client who was a direct descendent of a civil was southerner named Wood, who went to Cuba. There are white black spanish and chinese Cubans.
And when did your parents come over?
Or, are you a native American?
So what would that be timewise in terms of how long it would take to absorb this excess capacity? High and low estimates?
And yet, the county assessor's office sent someone around the neighborhood a few weeks ago (business card slid between storm door & front door), & it seems that my house, as old & small as it is, has increased $20,000 in fair market value from 2007.
I had it painted last year, but somehow, I don't think it's made that big a difference. Larger house,on double lot (as is my house, but the lots are small here), down the street has been for sale for over two years. Another about the same size & vintage as mine, also on double lot, probably not as well maintained, was foreclosed on & last time I looked was listed for $130,000. I live 1 1/2 blocks from the beach on the OR coast--but no view. Might be of a lighthouse if I had a second story.
There are probably 6-7 other homes for sale in the neighborhood, some for over a year. Even two of the more expensive/newer homes (w/ocean views) have hit the market. One of the ocean views, on sale because of divorce, has been for sale for over a year. There's an even larger % of homes for sale in a few other neighborhoods.
Still more building going on. The idiot city has decided it's ok for people to build lower down on beach bluffs. Like this isn't an erosional coastline & storm wave heights haven't been increasing over the past 20 years & most of the bluffs are unconsolidated sandstone & mudstone. Real stable.
But there's no excess housing here, according to the city. Voters have been asked to approve a general obligation bond levy (paid from property taxes) to build a new water treatment plant because we have to provide clean water for development of the 183 acres the city annexed this summer. Oh, they say it's for general infrastructure reasons--but it's not like any of that money will go to replace the aged distribution system in my neighborhood. I asked.
People complain about the land use "restrictions" in Oregon. Ha! They should move outside of PDX--they'll find local gov'ts who are happy to help developers or builders sleaze their way around what land use rules remain, & readily allow violations of city zoning ordinances unless nearby residents make so much noise they can't be ignored or litigate.
The city council's done its best to stifle dissent through passage of various rules regarding standing (to comment, to appeal) thus demonstrating their emotional kinship with the Roberts court.
I knew it would only be a matter of time before people started coming around to my way of seeing things. CR, we started agreeing to disagree on this in like Sept '06 or thereabouts so I guess waiting two years for independent mention of my estimate of 4 million excess dwelling units is worth the wait.
Meltdown lullaby, last stanza:
...And when the Dow breaks
The cartel will fall
And down will come equity
Cartel and all.
CC
Excess housing...we have several friends with more than one home. In fact we have a friend with 2 homes, 1 timeshare, 5 cars and a pop up trailer. I think they have enough crap. Now they are negotiating with their lender for a mortgage relief. Should be interesting to see this one play out.
Lawyerliz, nice reply to DK! I'm one of the immigrants who ruined California. Maybe I shouldn't have been so competitive, but I comfortably semi-retired in the Bay Area five years ago at age 58. Just served two years on the county Civil Grand Jury too. Put my daughter through four years at UC without borrowing. Yep, I ruined California...
Have a good Saturday Nite, all
"Dr. Thornberg believes this ratio should decline from about 1.17 to 1.14 or so"
How is that suppose to happen?
We don't build any more homes and start bulldozing some of them?
As we enter this recession (depression) and people lose their jobs, they are more likely to double up and triple up to save on housing costs.
Not to mention if immigration goes into reverse gear and people start moving back to their native countries. They wont be taking their homes with them.
May be those from Mexico may take their autos with them.
I think the higher estimate is the better one, for reasons others have elaborated above. I've also been in agreement with Rob for some time on consolidation of households, something I'm seeing in my own extended network--family moving in with family, friends moving in with friends. A weakening economy will only contribute to that trend.
Yes, the U.S. is growing, but some of that growth is internal from the "Mini Baby Boom", which will mean larger households, but not (yet) more households. I am, anecdotally, seeing a lot more adult children staying at home, and even more elderly staying with their adult children, long-term care facility costs being what they are.
And if the anecdotal evidence of large numbers of immigrants heading back to their home countries turns out to be a real trend, that will be even more demand destruction, and concentrated in the worst-hit areas of the Southwest and Florida. Overall, I suspect the gap between housing supply and demand will only grow over the next few years.
And yet the builders keep building, and the banks keep lending to them . . . one shoe that has yet to drop is the bankruptcy of the homebuilding sector, which is very worrisome. Banks as a whole are worse off than the homebuilders, which means that something is very wrong.
So I laugh when I read stories by the local media citing demand-driven appreciation in rental costs--what about that supply?
There is quite a bit of flexability in those household numbers, as single folks tend to double up more (share) when prices are high, but will live on their own when it's affordable.
The rental disconnect is complex. Again I tried to explain this a few years ago. The bank do not want to b landlords and thus REOs represent fewer units available for rental. Then there's the cost basis gap. People who bought in the last several years need very high rents to continue to afford those properties. That's why you see fantasy asking rent prices on Craigslist, etc. There's another demographic of older boomers who don't want to be landlords (yet?) with low cost basis extra houses that also keep supply of would be affordable rentals of market. For instance Palm Springs, 40% of the dwelling units are unoccupied. This is a temporary disconnect that right now has supply constrained rent prices high. As soon as REOs start commanding lower prices to attract investors the supply jam will break and prices will fall.
Don't forget, a lot of those REO are going to be ruins. The condo I closed last week was cheap, but the young buyers said it needs a whole new inside.
I'm hearing that trashed REOs are all too common.
This is all too common. Just envision empty houses hit by a hurricane!! Owners are willing to fight with insurance companies to rebuild, but I doubt banks will do much of that.
Rob Dawg,
Craigslist FSBO houses is some comic relief as well. I never looked at rentals. FYI, there are lots of for sale signs in Wellesley these days. If that's not the top of food chain, what is?
"I'm hearing that trashed REOs are all too common."
Yes, angry home owners taking it out on the bank.
But a lot of them are just leaving the keys on the kitchen counters and leaving.
Whatever condition you buy the house in, factor it in the price.
Once the stock market has had its second leg down, unemployment reaches about 8-9%, and the overall realisation is that we are in a very severe recession. Banks will be willing to accept 20-30 cents on the dollar, to get the foreclosures off their books.
I am thinking a year from now, Lee County Florida.
lama writes:
Rob Dawg,
Craigslist FSBO houses is some comic relief as well. I never looked at rentals. FYI, there are lots of for sale signs in Wellesley these days. If that's not the top of food chain, what is?
Hey Lama,
You were one of those here back in '06 too. Yeah, I loved "slumming" in places like Wellesley. That progressive "Cambridge School" still operating? I don't know what people are thinking trying to make their 2005 vintage mortgage with an equivalent rent price. At the very top of the market, Malibu, Pacific Palisades are holding on to surreal prices but I don't count them.
Anecdotal only here... lots of people have more than one house. My extended family is not rich but my parents have three houses in the US and two in Ireland. I have two in the US, my sister has two nearby. All for various reasons, all either paid off or with minimal debt. Mind you, I'm renting the upstairs of one house to two hippie kids (does that count as two households?).
MiTurn - you're in northern Idaho, right? Price your place right - I'm in Boise and people here still think it's 2006.
Hey Lefty's Liquors.... here's a story you might enjoy. My local paper publishes the police reports and today there was a shoplifting report. The suspect had two bottles of spiced rum, one sandwich, and a tube of lubricant. Sounds like he was planning quite the evening. Your place isn't really named Lucky's is it? We have one of those here.
Norma,
How'd you know? Houses here are not moving because people here assume every buyer is a recent California retiree looking for their retirement home. Locals can't afford 'em.
sorry CR, this is OT but I thought I had to refute that lousy article titled: John McCain was never tortured in my jail, says Tran Trong Duyet'..
Compare that to a previous story on McCain in WaPo on Oct 4th... Tran Lua claimed he had a meat cleaver in his hand, in this story he had a kitchen knife! Understand, these men can't literally fart without permission from Hanoi otherwise they'd be in violation of Article 17 for slandering or libeling the Party, its leaders, blah, blah, blah and would be tossed in jail.
In 'Nam, saving face whether for the state, or Party or the individual is paramount. The 'truth' is just a bargaining chip.
Look, I'm no expert on many of the arcane things you discuss here but when it comes to SE Asia I have put my time in. It gets tiring to hear obviously educated people attack the USA, or perhaps McCain, on the most flimsiest of evidence - interviews with former jailers!
if you believe that check out my small tongue in cheek video mash-up on the subject:
YouTube - Footage of McCain's 1967 Capture in Vietnam. Interview with Hoalo Jail TORTURER!
cheers
what is not considered is investor owned properties as excess inventory.
A large part of the bubble has been investor speculation in RE either via shortterm flipping or longer term buy/rent then flip, either way this tends to create excess housing units with the extreme showing up as it is now with tighter credit/slow economy forcing this excess investor property unto the market either as foreclosures/short sales or just more inventory forsale.
We currently have a bubble in foreclousure RE with investors buying a large % of the available property particuliarly below 400K. Fannie and Freddie are both putting limits on investor owned property both in actual numbers plus higher fee's, downpayments etc.
Rob Dawg writes:
I knew it would only be a matter of time before people started coming around to my way of seeing things. CR, we started agreeing to disagree on this in like Sept '06 or thereabouts so I guess waiting two years for independent mention of my estimate of 4 million excess dwelling units is worth the wait.
Agree Rob, excess housing inventory is a problem that the MSM, congress etc do not want to discuss given the political connection to the entire housing industry and the American dream story but I am coming around to the idea that it is the root of the problem really just to damn many houses really which is the basis for housing deflation going forward.
Ron, the real problem is mal-allocation not just quantity. All the extra houses are in places there shouldn't even be houses never mind places we want to induce people to live. Think Inland Empire. The societal externalities of locations like that would continue to drag down entire economies.
Whomever above mentioned immigrants leaving & vacating their homes-- that seems to be true, & have read recently that the amount of dollars flowing (meaning, from the immigrant workers who send money back home to Mexico) to Mexican banks (apparently this is tracked) has decreased by 12% from summer '07 to summer '08.
I just see anecdotal stuff here in Norfolk that seems to support this. Pre-bubble years, the local lower-end grocery chain, Food Lion, only stocked a shelf or two of Mexican/Spanish food items. But during the bubble, so many immigrants came here to work construction FLion increased this to about half of one side of a full aisle, dedicated to Spanish foods. This year, that amount of shelf-space allocation has shrunken by about one-quarter.
(admittedly, not a very accurate "data point"-- but then am a shopper, not an economist!)
azurite: on your assessor's office saying your house was up $20K in FMV from last year--
you said "I had it painted last year, but somehow, I don't think it made that big a difference."
hey, you didn't accidentally use that "magic" paint from Home Depot, did you? It only costs $20 bucks a gallon, but it raises the value of your house by at least $10,000 dollars...(---or so says HGTV)
Much of the overbuilding was in a handful of states or portions of states. I live in Upstate New York which completely skipped the housing boom - housing costs haven't exceeded the rate of inflation over the past 20 years. There are a few more houses on the market than usual, but not many more.
Our problem here is that state and local governments tax and spend too much which has kept the local economies outside of NYC depressed.
Other than state and local taxes, living costs are relatively low and growth would definitely result in constructing new housing. There are many other areas like this around the country. These are the locales that will likely help the US out of the current downturn.
The Zoned Zone and Half-a-Dozen of the Other
I almost always agree with Krugman, but I think he missed something in his 2005 piece saying that the "Zoned Zone is prone to housing bubbles", whereas "When the demand for houses rises, Flatland metropolitan areas just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started."
I think overbuilding in places like Atlanta and Houston was as unsustainable as overpricing in San Diego building extra houses in places there shouldn't even be houses never mind places we want to induce people to live, as Rob Dawg said.
Krugman's "Zoned Zone" is one of the reasons he should never have even gotten nominated. Maybe if I changed my blog to "Urban Apologist" and ignored the last 12 Censuses and turned around all the other data and confused cause and effect maybe I could then get a Nobel too. Zoning is a consequence of quality of life issues including equity preservation tied to localities. Simplest argument; if you believe Krugman then you could mandate zoning restrictions and prevent the current house price collapse. Right?
lawyerliz: You're apparently a loi-ah.
I was born in the United States, my parents were born in the United States, their parents were born in the United States, and their parents were born in the United States. My Grandfather's both served in WWII, which is something that I'm proud to say. I do not support Barack Obama because he's an immigrant, which disqualifies him to be President according to the US Constitution. It's the law for good reason, because it prevents Manchurian Candidates from becoming President. Incidentally, he would never pass FBI, CIA, or secret service clearance with all of his connections to terrorists, both foreign and domestic. Just the fact that his Reverend is anti-Semitic and pro-Nation of Islam would have disqualified him. His judgment at every turn in life has been naive at best, if not downright despicable.
You're tacit argument that the United States is a Nation of immigrants is flawed. Technically, every human on the planet is an immigrant, because we were not always on this planet. Incidentally, 66% of Americans were born here to parents who were born here. If you think I'm "racist" just try immigrating to China, Saudi Arabia, Mexico, Austria, Pakistan...LMAO.
The US is a Nation that will not secure it's borders, and must allow 1 million legal immigrants in per year because it's women refuse to have babies in favor of hedonism...that's the destruction of a Nation. The destruction from within by a force called liberalism.
The immigrant from SF who commented about being retired in SF, and putting her kids through college is an amazing exception to the story. She's under the false believe that anyone can do it. Well, I ask her, if the 3rd world grows by 100 million per year (which it does), should the United States extend welcome to all of them? Where does it stop. What is the limit? Are they all entitled to no-doc home loans? Would you send your kids to schools with theirs? Would you move in next door to them? Would you support a tax on your nest egg so that they can have a better life? Well, since you live in the SF Bay, you're probably a cocktail party liberal like the rest of them there. You can talk a mean talk, as long as it's not in your backyard. I've visited SF many times, and it's definitely not in your backyard. Check out the Salinas Valley sometime.
Boy reading that just makes Jas seem so right...sigh
county Civil Grand Jury?....hummm, you wear this like it's some great service or something. LMAO. Try something that you can really wear on your sleeves...like BOOT CAMP.
"Competitive" in San Francisco means backstabbing, greedy, self-centered, sneaking, lying, you know, all of the best human traits. At least I can say that my Grandfather's fought for your right to be "competitive".
bagholder energyecon: please elaborate
Factor in that many young adults (and not so young adults) will be moving back in with family.
Also, immigration, legal and otherwise, has slowed appreciably, if not reversed. This is one reason why the construction job losses have not been as pronounced as they should have been. The "illegals" likely were not counted as jobs to begin with.
I've spend the last 2 years trying to convince you that there was 3.5 to 4 million too many homes built/oversupply from 2001 and 2007. I 'm still confident this is an accurate number. I believe your estimate is too low, but it is a difficult number to flush out, so we many never get a definite number.