Wednesday, September 27, 2006

Writing on the wall: this is just the beginning

Here's some (abridged) news from the first chapter of the housing bust. There will be many to follow.

P.S. Los Angeles is down 6% (YOY).

From USA Today - Home prices likely to fall more
- Supply of homes for sale at a 13-year high - nation-wide
- The median-priced U.S. single-family detached home fell 1.7% year-over-year (YOY). - Prices haven't fell nationally since April 1995.
- The price drop was also sharp, the second-steepest in 38 years.
- Sales of existing homes fell for the fifth month in a row.
- The confidence level of builders, who are slashing profit forecasts and seeing their stocks pounded on Wall Street, plunged this month to the lowest in 15 years, the National Association of Home Builders says.
- "We have a serious correction taking place in the housing sector," Richard Fisher, the Federal Reserve president in Dallas, said in a speech Monday.
- "The speed of the collapse has been astonishing," (economist) Shepherdson says. "This time last year, single-family home prices were up 16.4%. With inventory still rising, there is no chance of any short-term relief. Prices and volumes have a long way to fall."
- "If we have prices drop for the rest of the year and sales also continue to drop, then we will have a bad situation in housing of balloons popping rather than air coming out," David Lereah of the NAR (Nat'l Assoc. of Realtors) said.
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From the Boston Globe - Mass. home prices fall 6.1% as downturn gathers speed
- The downturn in the Massachusetts housing market gained momentum in August, with the median price of a single-family home falling 6.1 percent the Massachusetts Association of Realtors said yesterday.
- The median condo price fell 3.3 percent in August, to $278,000, and sales fell 18.5 percent.
- While sales volume has been in a freefall for months, price declines began showing greater momentum during the summer and are expected to continue into the fall.
- "Things are not over in terms of the price declines," said David Iaia, a senior principal for Global Insight, a Lexington economics consulting firm.
- "Now you're at the end of the major selling season, and people who've had their house on the market all summer and haven't sold it are getting concerned, so there are probably more price declines coming this fall," he said.
- The real estate market is slowing across the country, although not as dramatically as in Massachusetts.
-Massachusetts experienced the most price appreciation of any state between 2000 and 2003, and the appreciation continued over the next two years and pushed sales and prices to record levels. The downturn is now in full swing, analysts and agents said.
- The August price slide was confirmed in a second report yesterday by the Warren Group, a Boston real estate and publishing firm that compiles market data. Warren Group said the median single-family price declined 8 percent, condo prices fell 5 percent.
- Both the Warren Group and the realtors base their monthly report on actual sales closings in August, but their data sources are different. The realtor association sales and price data are based on house-listings posted in the multiple listing service, an agents' database, while Warren's data is culled from court records on home-sale closings statewide.
- David Wluka, president of the Massachusetts Association of Realtors, blamed soaring appreciation during the boom for making it difficult or impossible for many first-time buyers to afford a single-family house. Without them, homeowners are unable to sell when they want to trade up. (suprise, suprise)
- High prices are "creating a clog in the system," he said. "People trying to buy houses can't buy until they sell houses they own, and unless they price houses they own correctly they're not going to sell." (that's the way a pryamid-scheme works)
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And then there's the news from California
‘We’re In The Initial Stages Of Adjustment’: CAR

The California realtors report on August home sales. “Home sales decreased 30.1 percent in August in California compared with the same period a year ago. ‘We experienced the greatest year-to-year sales decline last month since August 1982, when sales fell 30.4 percent,’ said C.A.R. President Vince Malta. ‘This is another indication that we’re in the initial stages of a long-anticipated adjustment in the market. Some sellers are still clinging to price expectations that are no longer valid in today’s market,’ he said.” (this is amazing, usually you only hear the normal cheerleading and 'positive-spin' from these guys)

“‘Although the median price in the state and in several regions hit an all-time record in August, we expect softer prices toward the end of the year,’ said C.A.R. Chief Economist Leslie Appleton-Young. ‘The median price typically peaks somewhere between June and August before declining toward the end of the year.
There you have it — any price declines we see from now until the end of the year are due to normal seasonal fluctuations. Please ignore those declining YOY price changes, as they are irrelevant.
Some areas of the state already have experienced year-to-year declines for more than two months.’”

The Orange County Register. “House prices in Orange County showed a (2.5 percent) annual decrease for the first time in a decade, the CAR reported today."

“The last annual price drop reported by the state association was in July 1996, at the height of the housing bust that gripped the region in the early 1990s.”

From KGO-TV. “Bay Area homes sales are slowing down. The latest real estate trends show sales down by nearly 25 percent from August of last year. About 9,000 homes and condominiums sold in the Bay Area last month, that’s the lowest number since 1997. It is also a significant drop off from peak sales of 12,500 in 2003.”

“In eight of the nine Bay Area counties, prices haven’t fluctuated more than a point or two in the last year. San Mateo home prices really took a hit last month, dropping nearly seven percent. Dan Newland, Alameda Home Seller: ‘Well it certainly is a different market than it was even three months ago.’”

“The slowdown comes as the inventory is piling up. Of the 1,231 apartments that have been converted in El Cajon, about 500 are on the market, twice as many as a year ago, said Ron Pennock, chairman of the East County Construction Council.”

“Notices of default in the (San Diego) county, notices sent to property owners who’ve missed at least one mortgage payment, have increased 250 percent since last August, according to the County Records Service."
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speaking of which - more info
‘As of Sept. 11, there were 44,683 properties in some stage of foreclosure in California, and again, these exotic mortgages are a major factor,’ she says. ‘In San Diego, more than 50 percent of purchase money mortgages issued in recent years were these so-called creative loans.

The more precariously positioned ARM borrowers are very much on the minds of economists, some of whom fear that masses of consumers will not be able to afford the new higher payments, setting off a recession. According to Christopher Cagan, an analyst with First American Real Estate Solutions, a housing consultancy in Santa Ana, Calif., about 19 percent of the 7.7 million ARM’s taken out in 2004 and 2005 are at risk of defaulting.

(comments from people who remember the last housing bust in CA - found on Pigginton's)
- Now add to the people that purchased last year all the equity junkies that refi-ed every last bit of their appreciation. It’s not just those who purchased last year that are now under water.

- Even the early 1990’s bust saw some properties drop up to 40% (I was there and one of those was mine) and that bust was a mouse fart compared to what is in store this time around.

- Actually, Santa Monica 90405 declined 50% between 1989 and 1995 and all of California declined an average of 21% during the same period. It was terribly painful but not the end of the world. The current bubble makes the 1989 bubble look like a hiccup, both in terms of magnitude and scale. Now, instead of a few cities and regions, it has spread to about 20 states including both coasts and some popular western cities.

- My mom bought her condo in OC in 1990, saw its price plunge 33% and didn’t get back to its purchase price until approximately 1998.

- In the last cycle in soCalif, prices dropped 35% from 1990 to 1996. A nice $325,000 house dropped to aobut 200,000. I saw condos drop 50%. It took 11 years to break even, 1990 to 2001.

- If you adjust for inflation over that period, housing dropped more that 50% in real terms. Even more for some high end areas in OC.

- Condos and some extremely bubbly zip codes dropped 50% after the 1989 bubble collapsed. Someone on these blogs posted a whole bunch of headlines from this implosion and the current headlines look very much like the fall of 1989. The 1990 headlines included bank failures. It unwound very quickly then with most of the deprectiation happening in the first 2.5 years of the implosion.

- Japan RE prices dropped 80% over 10 years.

- Why, after watching prices rise 300% over the last 7 yrs with no fundemental means of support, does it seem impossible that they’ll return to fundemental support levels -ie 50% off?

-

“Home sales decreased 30.1 percent in August in California compared with the same period a year ago. ‘We experienced the greatest year-to-year sales decline last month since August 1982, when sales fell 30.4 percent,’ said C.A.R. President Vince Malta.”

1982 was the year of the second dip in Reagan’s “double-dip” recession. How did it get so bad so fast, especially given the underlying strength of the overall economy?

- Because it really is different this time? (LOL!! Now THAT was funny!)

4 Comments:

At 11:49 PM, Blogger kev374 said...

I think 30% depreciation is "in the bag" so to speak :D I wouldn't rule out upto 50% decline long term in a stagnating market since markets tend to overcorrect before coming back up.

 
At 11:53 PM, Blogger kev374 said...

just wanted to clarify my previous comment was about the local market in Southern California.

Obviously there are some areas like Houston which have not really seen any boom at all so there is not going to be any decline as well! It is interesting to note however that Houston,TX has seen almost a 0% YOY appreciation, talk about a flat market!

 
At 10:24 AM, Blogger InfidelSix said...

I agree with 30%, based on a trend-line analysis. That's my expectation anyway, give-or-take, although over-correction is more likely than undercorrection.

THe thing is, speculation, although 38% of outright sales, is really much higher since it's influence probably permeated newarly all sales. When rates of appreciation are at 20%, people WANT to borrow more - as much as they can - because the more they borrow, the more their investment earns. So I think a lot of people bought a lot more house than they ever would've considered. Far more. In fact, probably as much as they could afford thru an option ARM.

 
At 10:24 AM, Blogger InfidelSix said...

I agree with 30%, based on a trend-line analysis. That's my expectation anyway, give-or-take, although over-correction is more likely than undercorrection.

THe thing is, speculation, although 38% of outright sales, is really much higher since it's influence probably permeated newarly all sales. When rates of appreciation are at 20%, people WANT to borrow more - as much as they can - because the more they borrow, the more their investment earns. So I think a lot of people bought a lot more house than they ever would've considered. Far more. In fact, probably as much as they could afford thru an option ARM.

 

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