I know of 3 people who have been trying to sell their homes, unsuccessfully, for 6 months. Their realtors, in Dec. and Jan., told them to take their houses off the market and relist them in the spring. I was surprised that they got the same advice from 3 different realtors.
It makes me believe that there will be a big spike in inventories in the spring. If those houses don't sell, we will finally see the sellers give up and we'll see a meaningful drop in home prices.
By the way, these 3 people I know need to sell. One in buying a bigger home, 1 is downsizing to an apartment, and 1 is stuck in a spec. investment (he's in trouble).
I am hearing the same thing here in Las Vegas, realtors say wait for the spring to list. I am really curious too if we are going to see a spike in inventory and then the real decline in prices take hold.
It really is quite surprising how well LA is holding up. It just shows how truly local real estate markets are. San Diego RE is falling off a cliff and two hours up the road, Los Angeles is still doing fine, which sucks for me since I'm looking to buy here.
" Although Los Angeles County's median home price rose 6.5% from the previous year to reach a record $522,000 in December, the number of sales fell 12.9%."
Thomas is not alone - it seems a lot of pundits out there are temporally challenged - I guess its inevitable that the modern mindset who are looking for a quick killing would be like that.
This whole thing is going to be slower, deeper and longer than the vast majority realise - maybe we should call it the tantric recession!
Or more like chinese water torture for those in the mire.
Ok, lets keep it nice here. It is and continues to be a behavioral issue. Remeber, the denial phase is just that...denial. We could be stuck here for months before acceptance arrives.
"Jan Hatzius, chief US economist at Goldman Sachs, says home starts need to fall considerably from their present level to clear the inventory backlog, which Goldman estimates could be as high as 900,000 houses, including vacant homes not presently offered for sale." Yahoo! 404 - Page Not Found
I don't see SD, or anywhere else, "falling off a cliff".
That pink line near the top. That's Ventura County. Down 8% yoy as of Nov data. Zillow says my primary residence has been $10k per WEEK every week since October '06. Cliff enough fer ya?
Frankly, this isn't simply the best blog on the subject, but one of the only blogs on any subject worth reading. I have a friend who describes blogs as a great circle jerk. By and large, he's right. CR is the exception that proves the rule. Not only is this the most reasoned and even-handed blog around, it is completely free of the crass self-promotion (and cross promotion) so many suffer from.
Ron the housingbubblebust graphsare useful but two notesof caution. The inflation is BLS CPI otherwise known as liars inflation and second the prices are not "hedonically" adjusted (yes, I know "wrong" word but we are talking about $100k spa retreat bathrooms and $50k home theaters so I choose hedonism as the better word).
I'm on Long Island N.Y. The market here has slowed. The most For Sale signs I've ever seen. The prices though, have not fallen too much; maybe 5%.
I think the real increase in inventory will be from the spec houses that are not looking to be such great investments after all.
It is interesting that the realtors are "making their final stand" and putting so much faith on the spring. Are all there buyers going to magically appear and save the day? A lot of sellers are really counting on it. If the spring becomes an inventory overload and nothing sells, prices will have to come down; at least for the 3 people I know that NEED to sell.
Sales dropped 61.5% while the median tanked a hideous 0.1%
This is consistent with past downturns in areas with low supply. Market forces change dramatically, then prices only begin to change slowly due to seller resistance but ultimately fall for years.
Many other areas are experiencing much faster price declines due to supply gluts and more vacant "investment properties".
But in the end, seller strikes and low supply don't fend off market realities. The price declines and foreclosures still come.
Typical of CR, that we find no evidence of his recognition here on the site. Congratulations, CR, for giving us a daily model of good citizenship and selfless devotion to quality information and analysis. And for giving us Tanta, too.
Also: Let's not forget about lower rents due to the inventory glut
Even if prices go down very slowly (more in real than nominal terms), the inventory glut will enable us to rent relatively cheap. It seems as if the rental price depression has already started in Q4/06. That means you can immediately profit from the RE bubble via nice rental deals and wait all patiently for the "right" prices.
It is noteworthy that rental prices were among the last to emerge from the last Great Depression. I think the low was around 1948!!! If someone can bring up more exact statistics that would be great, but I believe rents were stagnant/falling at least in real terms from 1926 to 1948. 22 long years. This does not bode well for investment properties of 2004. Please note: I do not believe in a looming Great Depression.
"We have argued for some time that the surge in housing demand in recent years (principally from investors over the period from 2004 to early-2006) was unsustainable."
RE is considered an INVESTMENT so basically anybody buying property is an INVESTOR. I guess you can debate the quality of the INVESTOR related to how long they keep the investment BUT my guess is that the majority of people who buy RE, do so with the idea that they will make money on the transaction over some measure of time.
If INVESTORS are not going to drive the RE market just who is going to absord this 600K oversupply and fuel continued growth?
"If you want to know where real estate is going, look at the inventory. It's just another commodity like a stock or gold."
This is precisely what a good friend of mine with 19 years experience in Real Estate development told me. He indicated that Median Prices misrepresent valuations because they do not tell which houses are selling (i.e.: high or low cost). He was doing 5 or 6 projects at any time. About a year ago he told me he was then doing them 1 or 2 at a time and "buying well" (i.e.: good price and neighborhood). He has focused recently on higher value projects. Perhaps this is contributing to the high median prices to which Thomas referred.
If one looks at housing as a commodity, the underlying fundamentals of the US market in many regions show that the market will be depressed. The depression is manifested in low sales volumes.... prices are off, but not by a lot. Until the overhang of inventory clears (transfers ownership), the housing market in most regional markets will not have found a bottom. In commodity markets, when a market has tipped (like crude oil so far this year) commodity holdings need to transfer ownership from weak hands into strong hands. When that happens, the market has cleared and may be able to look toward tightenings and higher sales and prices. With low housing sales volumes coming into spring and the potential that the spring housing sales volumes doesn't make a dent in the inventory overhang, then many regional housing markets will still not have cleared and will be under pressure for the balance of 2007.
That's a part I left out in an attempt at brevity. My friend was selling plenty of renovated houses in Boston throughout the early 90's. More houses for more money in the early 00's. He said that there are ALWAYS buyers. The question is: For what price?
If it's not selling, it's overpriced.
-end of story-
Jas Jain, I came at this problem from a different angle than Berson.
Based on population growth (about 2.7 million per year) and an average household size of 2.4, the U.S. would need just over 1.1 million additional housing units per year. But there are many housing units taken out of stock every year for many reasons. If you look at the age of the U.S. housing stock, it is surprising that more units aren't demolished every year!
I estimated demand of 1.7 million units per year based on some estimates from Brookings. I was trying to be generous - in an earlier analysis I came up with 1.4 million units - but that seems low to me. Berson estimated 1.8 million units.
This is a hard problem, and obviously it also depends on price.
What are the Annual New Completed Units for the past 10-15 years?
What are the Annual Increases in Occupied Housing Units for the past 10-15 years?
What is the Annual Growth in Households?
What is the Annual Increase in Vacant Units, Year Round?
Based on these I come up with the demand of 1.25M for Completed Units and I am being generous too.
BTW, median year of built was 1913, either in 2000 or 2005 (I will have to check as to which one). I think that under normal conditions (not the bubble years) only 150K units are destroyed based on my calculations.
Residential real estate is not just like any other commodity, because homeowners generally inhabit their homes and get a real benefit by doing so. What this means is that the denial phase is longer as housing prices decline, because many homeowners can afford to defer the decision to sell until "better" times materialize.
Home prices are like wages: they are sticky. Wage earners are happy to see them go up, but seldom accept declines voluntarily.
George,
I see your point. Therefore, gold is not like any other commodity. The owner gets the added benefit of wearing beautiful jewelry. She can enjoy it even while the market for gold declines, selling for a profit when the market turns upward.
Common Shares are also like no other commodity. When the tech bubble burst, most people were in disbelief, holding onto shares in denial for years.
Everyone on CR's boards knows RE is an illiquid asset and that price movements are sluggish. We all know we're not discussing pork bellies.
I know of 3 people who have been trying to sell their homes, unsuccessfully, for 6 months. Their realtors, in Dec. and Jan., told them to take their houses off the market and relist them in the spring. I was surprised that they got the same advice from 3 different realtors.
It makes me believe that there will be a big spike in inventories in the spring. If those houses don't sell, we will finally see the sellers give up and we'll see a meaningful drop in home prices.
By the way, these 3 people I know need to sell. One in buying a bigger home, 1 is downsizing to an apartment, and 1 is stuck in a spec. investment (he's in trouble).
RM
CR, off topic, but ..
Congratulations on winning your first REBA award!
I knew you had it "in the bag".
Congratulations on winning your first REBA award!
First place in "Brain Power" category. Certainly well deserved. Third in "Best Overall". Should have been 1st, IMHO.
Congrats on the awards, CR. More than well deserved.
Thanks all!
Home prices in LA end the year at a record high median in December, and up 8.5% for all of '06:
Home sales, prices are down sharply -- latimes.com
RM, where are you located?
I am hearing the same thing here in Las Vegas, realtors say wait for the spring to list. I am really curious too if we are going to see a spike in inventory and then the real decline in prices take hold.
It really is quite surprising how well LA is holding up. It just shows how truly local real estate markets are. San Diego RE is falling off a cliff and two hours up the road, Los Angeles is still doing fine, which sucks for me since I'm looking to buy here.
Here's all of LA thru 10/07, separated by county. I don't see SD, or anywhere else, "falling off a cliff".
http://i12.photobucket.com/albums/a216/Pixbucket/SoCalRe2006-11PriceSmall.png
another bit from the article
" Although Los Angeles County's median home price rose 6.5% from the previous year to reach a record $522,000 in December, the number of sales fell 12.9%."
Franklin,
Considering how rare YOY price declines are in real estate, that chart does look dreadful for San Diego.
here's a graph of LA's median (and 25 and 75 %tiles): HousingWatch is Coming Soon!
-
Hey Franklin.
Have prices fallen off a cliff yet? Nope. Volume has though. Where volume goes, prices soon follow. Hear me now but believe me later.
And big congrats to CR for the REBA win! CR is definitely a model for civility and hard-headed analysis in the bubblesphere.
How about this cliff?
Southern California FHFA Home Price Appreciation Tracker
"Where volume goes, prices soon follow"
Absurd. Volume has dropped over 60% in SoCal followed by an eventual 0.6% drop in median.
Thomas, please go learn about markets and how prices react to volume.
LOL!
http://www.uboc.com/vgn/images/portal/cit_20825/5/31/700626266CA605.pdf
You are right.
Sorry, I was wrong.
Sales dropped 61.5% while the median tanked a hideous 0.1%
Hi Thomas,
seems you are temporally challenged. Follow means to occur after. You are telling me what has happened contemporaneously. Yawn.
Thomas is not alone - it seems a lot of pundits out there are temporally challenged - I guess its inevitable that the modern mindset who are looking for a quick killing would be like that.
This whole thing is going to be slower, deeper and longer than the vast majority realise - maybe we should call it the tantric recession!
Or more like chinese water torture for those in the mire.
I think I get it now.
Thomas are you a mortgage broker or real estate agent?
It is hard to be objective when your livelyhood is dependant upon a certain outcome.
Ok, lets keep it nice here. It is and continues to be a behavioral issue. Remeber, the denial phase is just that...denial. We could be stuck here for months before acceptance arrives.
--
How do you come up with 1.7M demand?
Based on growth in number of households and in Occupied Units, I come up with 1.1-1.2M.
Why are Vacant Units growing at 600-750K a year?
Thanks.
Jas Jai
"Jan Hatzius, chief US economist at Goldman Sachs, says home starts need to fall considerably from their present level to clear the inventory backlog, which Goldman estimates could be as high as 900,000 houses, including vacant homes not presently offered for sale."
Yahoo! 404 - Page Not Found
I don't see SD, or anywhere else, "falling off a cliff".
That pink line near the top. That's Ventura County. Down 8% yoy as of Nov data. Zillow says my primary residence has been $10k per WEEK every week since October '06. Cliff enough fer ya?
--
Does anyone know where do they get their numbers from, "out of thin air?"
Jas
CR, congratulations.
Frankly, this isn't simply the best blog on the subject, but one of the only blogs on any subject worth reading. I have a friend who describes blogs as a great circle jerk. By and large, he's right. CR is the exception that proves the rule. Not only is this the most reasoned and even-handed blog around, it is completely free of the crass self-promotion (and cross promotion) so many suffer from.
Here's to CR!
Ron the housingbubblebust graphsare useful but two notesof caution. The inflation is BLS CPI otherwise known as liars inflation and second the prices are not "hedonically" adjusted (yes, I know "wrong" word but we are talking about $100k spa retreat bathrooms and $50k home theaters so I choose hedonism as the better word).
HotKarlRove,
I'm on Long Island N.Y. The market here has slowed. The most For Sale signs I've ever seen. The prices though, have not fallen too much; maybe 5%.
I think the real increase in inventory will be from the spec houses that are not looking to be such great investments after all.
It is interesting that the realtors are "making their final stand" and putting so much faith on the spring. Are all there buyers going to magically appear and save the day? A lot of sellers are really counting on it. If the spring becomes an inventory overload and nothing sells, prices will have to come down; at least for the 3 people I know that NEED to sell.
RM
this just out today:
Centex, KB Home Will Write Off $800 Million for Land
Centex to Report Disappointing Results on Write Downs (Update6) - Bloomberg.com
Sorry, I was wrong.
Sales dropped 61.5% while the median tanked a hideous 0.1%
This is consistent with past downturns in areas with low supply. Market forces change dramatically, then prices only begin to change slowly due to seller resistance but ultimately fall for years.
Many other areas are experiencing much faster price declines due to supply gluts and more vacant "investment properties".
But in the end, seller strikes and low supply don't fend off market realities. The price declines and foreclosures still come.
Primer on Asset Backed Securities:
Winter (Economic and Market) Watch » Primer on Asset Backed Securities (ABS)
Typical of CR, that we find no evidence of his recognition here on the site. Congratulations, CR, for giving us a daily model of good citizenship and selfless devotion to quality information and analysis. And for giving us Tanta, too.
Also: Let's not forget about lower rents due to the inventory glut
Even if prices go down very slowly (more in real than nominal terms), the inventory glut will enable us to rent relatively cheap. It seems as if the rental price depression has already started in Q4/06. That means you can immediately profit from the RE bubble via nice rental deals and wait all patiently for the "right" prices.
It is noteworthy that rental prices were among the last to emerge from the last Great Depression. I think the low was around 1948!!! If someone can bring up more exact statistics that would be great, but I believe rents were stagnant/falling at least in real terms from 1926 to 1948. 22 long years. This does not bode well for investment properties of 2004. Please note: I do not believe in a looming Great Depression.
Joe
"We have argued for some time that the surge in housing demand in recent years (principally from investors over the period from 2004 to early-2006) was unsustainable."
RE is considered an INVESTMENT so basically anybody buying property is an INVESTOR. I guess you can debate the quality of the INVESTOR related to how long they keep the investment BUT my guess is that the majority of people who buy RE, do so with the idea that they will make money on the transaction over some measure of time.
If INVESTORS are not going to drive the RE market just who is going to absord this 600K oversupply and fuel continued growth?
"If you want to know where real estate is going, look at the inventory. It's just another commodity like a stock or gold."
This is precisely what a good friend of mine with 19 years experience in Real Estate development told me. He indicated that Median Prices misrepresent valuations because they do not tell which houses are selling (i.e.: high or low cost). He was doing 5 or 6 projects at any time. About a year ago he told me he was then doing them 1 or 2 at a time and "buying well" (i.e.: good price and neighborhood). He has focused recently on higher value projects. Perhaps this is contributing to the high median prices to which Thomas referred.
If one looks at housing as a commodity, the underlying fundamentals of the US market in many regions show that the market will be depressed. The depression is manifested in low sales volumes.... prices are off, but not by a lot. Until the overhang of inventory clears (transfers ownership), the housing market in most regional markets will not have found a bottom. In commodity markets, when a market has tipped (like crude oil so far this year) commodity holdings need to transfer ownership from weak hands into strong hands. When that happens, the market has cleared and may be able to look toward tightenings and higher sales and prices. With low housing sales volumes coming into spring and the potential that the spring housing sales volumes doesn't make a dent in the inventory overhang, then many regional housing markets will still not have cleared and will be under pressure for the balance of 2007.
That's a part I left out in an attempt at brevity. My friend was selling plenty of renovated houses in Boston throughout the early 90's. More houses for more money in the early 00's. He said that there are ALWAYS buyers. The question is: For what price?
If it's not selling, it's overpriced.
-end of story-
Jas Jain, I came at this problem from a different angle than Berson.
Based on population growth (about 2.7 million per year) and an average household size of 2.4, the U.S. would need just over 1.1 million additional housing units per year. But there are many housing units taken out of stock every year for many reasons. If you look at the age of the U.S. housing stock, it is surprising that more units aren't demolished every year!
I estimated demand of 1.7 million units per year based on some estimates from Brookings. I was trying to be generous - in an earlier analysis I came up with 1.4 million units - but that seems low to me. Berson estimated 1.8 million units.
This is a hard problem, and obviously it also depends on price.
Best Wishes.
--
Thanks for the reply.
Here is my methodology:
Based on these I come up with the demand of 1.25M for Completed Units and I am being generous too.
BTW, median year of built was 1913, either in 2000 or 2005 (I will have to check as to which one). I think that under normal conditions (not the bubble years) only 150K units are destroyed based on my calculations.
Best regards,
Jas Jai
--
"Please note: I do not believe in a looming Great Depression."
Please note: I AM forecasting the Greater Depression to begin within this decade.
I also believe that that will lead to the collapse of the US econo-political system as we have known it!
Jas Jai
Lama,
Residential real estate is not just like any other commodity, because homeowners generally inhabit their homes and get a real benefit by doing so. What this means is that the denial phase is longer as housing prices decline, because many homeowners can afford to defer the decision to sell until "better" times materialize.
Home prices are like wages: they are sticky. Wage earners are happy to see them go up, but seldom accept declines voluntarily.
Best regards,
George
George,
I see your point. Therefore, gold is not like any other commodity. The owner gets the added benefit of wearing beautiful jewelry. She can enjoy it even while the market for gold declines, selling for a profit when the market turns upward.
Common Shares are also like no other commodity. When the tech bubble burst, most people were in disbelief, holding onto shares in denial for years.
Everyone on CR's boards knows RE is an illiquid asset and that price movements are sluggish. We all know we're not discussing pork bellies.