What bubble?

Is this blog dead?

2007-11-30T10:32:00.001-08:00

Yeah, pretty much.

It served it's purpose which was to be a repository of information, links, and graphs. I've never wanted to be the universal link provider for all things housing-bust. There are other blogs that do that already.

It does require a lot of time to keep a blog going, but in the end there was not a lot new to say. Everything that I said would happen has happened and is happening. EVERYTHING. My analysis was spot on. If nothing else this blog serves as evidence to that claim. I am still stunned that the professionals in the industry couldn't see this happening.

When I began blogging, you could not find ANY housing bust news in the MSM. The was only the blatant corrupt cheerleading and parroting of the RE whores. But I understand. They are beholden. It was the Shillers and the Schiffs and the bloggers who spoke the plain truth. Their common sense was first derided as pessimism. They were scolded as "Chicken Little" fear mongers & party poopers. Truth is they were merely making common sense analysis on the fundamentals without blinders of optimism. Don't the Realtors look like Stepford wives in cheerleader uniforms now? It's very clear now who was right and that there was massive problems and unethical behavior in the REIC.

The NAR continues to call the bottom nearly every month. They are liars. Professional liars, offering nothing but spin like you'e get from a shady used car dealer. Nothing more. They do not have anyone's best interests in mind but their own, and lining the pockets of the 6%'ers. We housing bloggers continue to be vindicated everyday.

Manhattan Beach Hat tip

2007-04-20T16:24:00.000-07:00

Great graphic dug up at the Manhattan Beach blog. Also celebrating their 1-yr anniversary. Kudos

How's Los Angeles holding up?

2007-04-19T11:47:00.000-07:00

For Sale signs are popping up again. I think a lot of people pulled their homes off the market so they could re-list (all fresh & new) during the traditional "spring bounce" when sales and prices are seasonally higher. My seat of the pants estimate is that we're close to the inventory high from last year and will be setting new highs in the coming months. Also, as long as I'm making predictions, 2007 is the year this city feels the sting.

Looking at housing tracker for L.A. show a 7.2% decline in the median price over the last 12 months. We all know that the median price is a "well-padded" figure due to seller incentives such as free closing costs, upgrades, etc. Adding inflation we're over 10% down from last year and I would guess it's really more like 15% in reality.

Over at The Bubble Buster the forecast for Los Angeles looks pretty bad. L.A. has lagged behing San Diego & Sacramento but the pressure from OC, riverside county, and Santa Clarita is mounting.

But don't worry kool-aide drinkers, the Housing (bubble) Bust is a good thing. While it's true that you're home is loosing value, it's only a number. Remember, a house is a home, not an investment - so quit worrying about it like it's an investment. It's not, silly! There don't you feel better? And there's more good news. The more prices come down, the more people can afford to buy homes. Then we'll all be homeowners - and that's what all the smart people are, right? No more bitter renters. So, home bust = good.

Here come the fire sales

2007-04-19T11:03:00.000-07:00

Well I guess it's official. The shit's hitting the fan. Don't expect it to get any better for as couple years as more toxic loans reset.

And now a message from Ron Paul

2007-03-28T16:13:00.000-07:00

Click

Anyone wanna buy a used Porsche?

2007-03-28T16:04:00.000-07:00

At Phillips Auto in nearby Newport Beach, California, no one from the mortgage industry is shopping for Porsches these days, said Theresa Seradsky, the dealership's general sales manager. Instead, they're putting their Porsches up for sale through the consignment program, she said.

No Buyers

``Two years ago, every other day we had somebody coming in to buy,'' Seradsky said. ``In the last two weeks, we've had nobody.''

Well, the housing bubble is now affecting the luxury auto industry. See, it is all connected! Get 'em while they're cheap!

also of note from the article "Subprime Mortgage Collapse Eviscerates California Headquarters": "Office vacancy rates are poised to double this year", and "Massive Layoffs' Coming". Go Irvine!

Westside, Los Angeles

2007-03-21T12:05:00.000-07:00

I have no particular interest in the Westside of L.A. but I consider it the weathergauge for the region. Here's a couple new blogs I've come across that focus on that area.

westside-bubble
westsideremeltdown

Sales data show some big-time losses b/w '05 & '07 for the specific listings shown. I wouldn't have guessed. I know prices have softened but are not really reflected yet in median price. L.A.'s been fairly resiliant so far, comparitively. By most accounts, it's all over the map but still headed in a downward trend . The biggest factor now (and latest news of course) is the collapse of the Sub-Prime market. Expect that to grease the skids for declines. It should fairly well kill first time buyer demand & lead to gridlock in the "move-up" market segment. The usual "spring kick" may mitigate that somewhat, but no much IMO.

Congress is having hearings tomorrow over this (lending) mess. Expect a pitch by the same socialist idiots to bail out the "poor disadvantaged, duped consumers" (stupid people) at the expense of the taxpayers (responsible people). Same shit sandwich. Talk about adding insult to injury. That would also prevent a much needed full & true correction.

Doomsday Blogging

2007-03-01T10:27:00.000-08:00

I've recently been informed that I visit too many doomsday blogs. But equated a 30% correction to "doomsday" is pretty ridiculous. I'm not talking about nuclear bombs, canibalism in the streets, or even the great depression (Note: my Chaplin pic below notwithstanding - for comedic satire only). Hey, just because I'm holding the coffee and you don't want to smell it doesn't make me crazy or "the bad guy". It jsut makes you an ostrich. Maybe I wouldn't have to be the bearer of bad news if people would just do their own research.

Painful hiss from Subprime Balloon
Subprime Collapse is a 'scary sign'

A subprime mortgage is one granted to borrowers with less-than-perfect credit histories because they've missed payments on credit cards, they are too young to have established a credit record, or a similar issue. As housing boomed in recent years, lenders rushed into making these loans, in some cases letting people borrow hundreds of thousands of dollars without ever having to prove their income or assets. Subprime lenders now represent about one-fifth of the overall $5.5 trillion U.S. mortgage market.

also ...

the number of homes entering the foreclosure process increased by 19% in January, compared with December's numbers. Compared with January 2006, the number of homes in the process is up 25%. In 2006, a total of 1.2 million homes entered the foreclosure process, 42% more than 2005.

Sorry about that .... would you like a cup of coffee?

Stupid is as stupid does

2007-02-28T15:09:00.000-08:00

Simple Math

2007-02-28T14:37:00.000-08:00

plus (+)

plus (+)

plus (+)

plus (+)

equals (=)

Ah Ha!

2007-01-05T09:50:00.000-08:00

Confession!

Well, not exactly, but let me interpret, or clarify if you will, what she is saying. The Economy is doing great, Jobs are great, interest rates are still near all-time lows. If all conditions remain ideal, HOUSING IS STILL GOING TO DEPRECIATE 2%.

First of all, you shouldn't believe the optimism of a paid cheerleader, but more importantly, what's going to happen to housing if (and once) our perfect sailing weather turns to something other than "clear skies ahead"?

article linked here
---------------------------------------------

We finish our eyeballing with Leslie Appleton-Young, vice president and chief economist for the California Association of Realtors trade group. She's a University of Pennsylvania grad, like your blogger, and she's certainly got an interesting vista of the state and local market.

Us: What's your outlook for the O.C. housing market for 2007?
Leslie: Sales statewide will be down about 24 percent in 2006 and another 7 percent in 2007. Orange County will see slightly larger declines because the run-up in sales activity was initially stronger than the state as a whole and the median home price in Orange County at $699,200 is well about the statewide median of $555,290. Affordability issues also will work to constrain sales activity in 2007. We are projecting a 2 percent decline in the statewide median price (this) year as the market continues to normalize. Orange County prices may be slightly softer because the inventory of unsold homes for sale is higher in Orange County than in many other parts of the state.

Us: How would you describe the risks for a huge price drop?
Leslie: Unlikely across the board as long as the economy continues to grow, job gains are positive, interest rates stay low and incomes increase. A huge price drop requires a much larger increase in the inventory of homes for sale than we have seen to date. If we head into a recession, all bets are off for the housing market. If growth continues at the moderate pace we saw in 2006, the correction in housing will be contained.

Us: How do you think O.C. will differ from the nation or state market?
Leslie: Because of the greater-than-average inventory of unsold homes on the market, sellers in Orange County will need to be especially motivated and realistic if they are really interested in selling in today’s market. There is a lot of competition, so only those homes that are priced to sell and are in excellent condition will sell quickly.

Us: What events might change your outlook, pro or con?
Leslie: A recession or spike in mortgage rates is the most obvious negative scenario for housing.

Us: What might be the housing surprise we'll be talking about a year from now?
Leslie: Not sure, except that there will be one!

What gives?

2006-12-06T12:50:00.000-08:00

Not sure what the high was, but at least 6.6 for 30 yr fixed jumbo.
Bankrate says 5.94% today.

Why have mortgage rates been dropping?

So, so predictable

2006-12-01T10:42:00.000-08:00

Regarding my last post, it's still amazingly funny how predictable these guys are with their official REIC spin. This link should give you a good laugh. Or just a "warm feeling" if you like the sensation of smoke being blown up your ass.

Not only do they say "It's a great time to buy" buy they're still parroting the "priced out forever" myth.

"If you continue to wait, you may never be able to afford to get into the housing market."

The biggest threat according to them is rising rents. Since you can currently rent for less than half the cost of a mortgage, you'd need 10 yrs of constant rent increases before this "risk" materializes.

"In short, the smartest and safest time to buy is now."

Oh no you dii'int!

I wonder if there has EVER been a time for these guys when it wasn't the right time to buy?

Amazing.

P.S. They should be sued in a class action lawsuit for fraud for saying "All of the economic fundamentals show that this is a good time to buy a home and that there is upward pressure on rental apartments. The real risk isn’t in buying a home, it’s continuing to rent." Tell that to the suckers that are $100K in the hole because they bought in Sacremento in the summer of 2005. The risk of being lied to be the NAHB (Nat'l Assoc. of Home Builders) spokes-holes is nearly 100% certain. Take that to the bank.

Everything is rosy for housing!

2006-11-29T14:17:00.000-08:00

- Interest rates still historically very low.
- Unemployment is exceptionally low
- The economy is still growing, albeit slowly
- The stock market is jamming - setting new highs
- Home sales have returned to normal, "pre-boom" numbers (not historically weak)

A realtor can throw any of these factiods at you and they're ALL TRUE, along with the obligitory "more great choices than ever for buyers". Everything is rosy, no?

But something doesn't feel right. Hmmmm? ... The way I would assess this is that EVEN with EVERYTHING that influences the big housing picture (jobs, mortgage rates, and economy) in good shape, PRICES ARE STILL GOING DOWN.

If housing is "strongly correcting" now, what happens when one of the support legs falls out, which it most certainly will eventually? Recession? Unemployment? Higher rates? Bueller? Any of the above and I imagine this ship will sink like the titanic.

One man's floor is another man's ceiling as they say, or vice-versa. And so it goes with all the spin. All depends how you look at it I suppose!

The Coming Collapse in Housing

2006-11-21T10:28:00.000-08:00

It's hard to find anything really new about housing and/or the housing bubble. I've been at this since February and it's all old hat. During those first months, and through the spring, we were still in a discovery phase. The bubble articles in the MSM were really nowhere to be found but started popping up here and there. By the summer, the MSM had finally caught on but were cautious about any predictions. It wasn't until fall that the MSM seemed to be in agreement with the blogger that there was, in fact, a bubble, and that the party was over. For the early bubble spotters, we're hunkered down now, waiting it out with little expectation of any *new* news. For the newbs, I'm sorry that I can't provide the "discovery" information that will help you to do your own analysis in a more helpfull way. My advice to you is to read the archived posts where you'll find a wealth of information.

The blog architecture does not lend itself well to the goal of presenting and perserving data and analysis like a typical website does. Blogs are more of a diary architecture, and as such, require constant work to deliver content that seems temporary, quickly displaced, and easily missed. I'd prefer a website w/ a forum that would allow the best threads to be preserved and updated and threads to be easily resuscitated. Too much work for now though. I could fix some permanent links as a hybrid solution and maybe that's the best compromise. I'll think it over. The last thing I want to do is to post a bunch of non-sense for the sake of some kind of need or obligation to create new content. HP is a great example of that. It devolved from a humorous, biting, and relevant tabloidesque blog into a Jerry Springer inspired sleaze circus. That blog has jumped the shark and lost all the good contributors (commentors w/ real insight).

An important thing to consider is the goal. If you want to be a top-tier blog you have to define that. I don't have the time or desire to do that. This was really all for me, friends, and family. It's been a good learning experience and fun as well. I haven't decided what to do next, continue or change what I'm doing. I've yet to define my goal but I do know that I'd like to continue to build my network of blog buddies as they are both interesting and intelligent.

Oh yeah, I almost forgot, the title of this thread The Coming Collapse in Housing is a new article that I've linked too for anyone interested in another comprehensive analysis of the housing bubble. A good read for the new bubble watchers but nothing really new for the veterans but you may find a few interesting nuggets.

What now?

2006-11-08T15:21:00.000-08:00

The primary reason a home doesn’t sell is it is overpriced.

Now that it's generally accepted that the bubble is bursting, I just don't know if there are any new post-worthy revelations out there. I guess the only thing left is to monitor the denial-tracker for the hard-core bubble-deniers and, so it seems, craigslist sellers.

Denial in the face of decline

2006-10-30T09:53:00.000-08:00

Went to a couple of open houses in South Bay this weekend. I didn't sense a lot desperation, but the realtors were certainly not in stand-off mode that they were a year or two ago. They were much more engaging. I even got a "now is a good time to buy." Yeah ... right. Talk about rolling the dice. Anyone buying now, unless you're getting 20-30 under asking price is going into negative equity IMO. If you're going to live there forever, no problem, but if you think you might want to move in 5-10, you should rent an equivalent place for half price, because you'll be lucky to get what you paid for it. If you have to sell any sooner, you'll be in deep, deep debt for a long time.

Home prices drop dramatically - Nationally, the median price of a new home plunged in September by the largest amount in more than 35 years, down nearly 10 percent from September 2005.

Housing Decline Slows the Economy - The bursting housing bubble slowed economic growth in the third quarter to 1.6 percent, its slowest rate of expansion since the first quarter of 2003, according to a preliminary estimate by the Commerce Department. Economists were expecting growth of around 2.1 percent, down from 2.6 percent in the second quarter. There's no doubt that another huge drop-off in residential real-estate investment was again a prime culprit in the economy's sharp slowdown.

meanwhile

GAO chief warns economic disaster looms

"Housing is in a full-blown recession" - Merrill Lynch economist David Rosenberg. Link
The principal culprit: housing construction, which plunged at a 17.4-per-cent annual rate, the worst performance since the recession of 1991.

Worse, new-home buyers can now expect that the value of their investment will fall. In the U.S., the national average price of existing single-family homes dropped by 2.5 per cent over the past year, the worst showing since this data began to be compiled in 1969.

Maybe not EVERYONE should own a home

2006-10-17T10:28:00.000-07:00

Edit note: The title of this post is not meant to convey a classist or elitist attitude. Worthiness is not the context of the statement but rather, financial prudence. Many may "deserve" to buy a house but that doesn't make them capable of keeping it.

This chart shows home ownership as a percentage of the national population. While the goal of increasing ownership may have good intentions, it may not be realistic. Is it a good thing to promote buying overpriced assets? That may sound like a slanted take, but the reality is that 5% represents people buying things they can't afford. Is that something we should look at and consider to be a good thing? It would be one thing if they (houses) were within reach of buyers by traditional lending standards, not bought with "creative" or "toxic" loans, and (fundamentally) valued at or close to a historically normal level.

So I believe this 5% increase, which also represents a 5% increase in historical levels of Demand, is due to the following:

1. Speculation - the expectation of appreciation, that borrowed money would make them more money. People buying befoer they could afford so that they could start getting rich quicker, or before they were "priced out forever."

2. Dangerously "creative" loans. Yes, they monthly payments look low. Especially when you're only paying the interest on the loan, or an even lesser teaser rate. These loans actually work and can be advantageous in an appreciating market, but if the market turns, those borrowers can find themselves in deep kimshi.

3. Fraud - realtors and lenders "helping" people buy home that they really can't afford, either through deception, or taking advantage of "unsophisticated buyers", not advising them and not practicing "full disclosure". There is also outright fraud, with lenders "fixing" the numbers of "no-doc" loans and appraisers overvaluing homes.

Does it make sense that home-ownership can go from 64% to 69% (almost an 8% increase) while wages are stagnant and home prices going thru the roof? No wonder foreclosures are soaring.

A rose by any other name ....

2006-10-06T09:49:00.000-07:00

..is a rose, but in the case of how this bubble ends, it is apparently anything but.

Study sees '07 `crash' in some housing (free registration required)

David Lereah, slimeball used-car salesman extraordinaire / spin doctor / professional liar of the NAR, thinks you can polish a turd by giving it another name. Or that housing won't crash if you don't use the word "crash". Please people ... soft landing. It creates the magical feeling of pillows and slow-motion euphoria. But I guess that's why dealers no longer sell "used cars", only "pre-owned". That's why 800 sq. ft. is "cozy", not "tiny". I didn't grow up on a farm but I know what bullshit smells like. Listen Dave, your lying is partially to blame for all this you phony, bought & paid for, lying thru your teeth, scumbag puppet (too harsh?) And no amount of lipstick is going to make this pig any less of a pig. You can call it a "correction", "bust", "crash", whatever, but calling it a "soft landing" brings to mind memories of Baghdad Bob and a chuckle. "Baghdad Dave" .... hmmm ... fits. Actually I think we should all call it a "crash" just to be fair: to counter-balance the lies, fraud, and collusion so prevalent in the REIC. BTW, I also refuse to call a "used" car "pre-owned". It makes me feel like a stupid sap.

excerpts:

Applying the word "crash" to sagging real estate markets in some parts of the country, a new study predicts that in the coming year, the nation's median home price will decline for the first time since the Depression.

Real estate prices in more than 100 of the nation's 379 metropolitan areas have a "significant probability of decline" by this time next year, according to Moody's economy.com

The prognosis was more dire for 20 other cities in the report's so-called "crash" area, where it predicted that prices would decline by double digits from their peaks before leveling off next year and into 2008.

The most serious price slides are seen in southwest Florida, numerous California metro areas and in the Phoenix, Las Vegas, Washington and Detroit areas, according to Zandi.

David Lereah, chief economist for the National Association of Realtors, disagrees with the severity of the price downturn in the report. "I don't think I would use the word `crash,'" he said. "When you use a word like that, it's almost a self-fulfilling prophecy in the housing market. These are people's homes. Their retirement is depending on it."

Zandi defended the use of the word and his choice of 10 percent price declines as a benchmark. "It's a round number, but it's also a rule of thumb that would be applied to the transaction costs in selling your home," he said. "If you have less than 10 percent equity and your prices fall by 10 percent, you're toast."

But Zandi sees a somewhat bright side. "Even though this is a very serious correction, that these [market conditions] are things we haven't seen before, I am still arguing that the economy is going to hold together, that there's enough strength to overcome housing's weakness."

"That's nonsense," Kasriel said. "The housing market is an accident waiting to happen. We're already seeing a slowdown in employment growth, and a lot of it is housing-related. We're also seeing a slowdown in consumer spending, and that's housing-related."

"It's beyond me how something that has dominated the U.S. economy in the past four years and is clearly in a recession now won't have spillover effects on the rest of the economy."

Bueller? ..... Bueller?

2006-10-03T19:33:00.000-07:00

You gotta love Ben Stein. He is truly a renaissance man who I have a great deal of respect for. This is nothing earth shattering, but I wanted to post it anyway.

From Ben Stein.

"In March of 1990, after two years of looking for a house during a hysterical real estate boom, I bought a modest home in Malibu for exactly $600,000. The real estate crash to end all real estate crashes began the next month. Within three years, I couldn't have given that house away. If I'd been able to sell it, I might have gotten $350,000 for it.

The price languished in the same miserable range for a few years, then revived, and then took off for the moon. By early 2005, I might have been able to sell it for $1.8 million.

Then, in the early months of 2006, the real estate boom collapsed. I could put the house up for sale, but there are few buyers out there. I certainly couldn't get anywhere near what I could have gotten for it in early 2005.

There's a bit of a moral here. When real estate crashes happen, they rarely involve that elusive creature called "the soft landing." Yes, friends, when real estate starts to fall after a meteoric rise, it tends to fall hard."

FB's Anonymous anyone?

2006-10-03T12:25:00.000-07:00

Notices of Default are up 250% in San Diego and about 45,000 properties in some stage of foreclosure in California. These may not simply be people who bought in the last year. A lot of people took a HELOC and sucked out every bit of "paper gain" that the bubble gave them. These loans have to be paid back of course, or the "lendee" will lose their home.

Here's a couple charts for ya. These are form the article "Lenders gone wild".

This is significant in a couple ways - and I'm not talking about the shocking #'s of stupid loans, I'm talking about the impact of any foreclosure. First, anyone who loses there home adds to Supply AND the inertia of falling prices. Second, since the owner's credit is ruined, they will not be part of Demand for quite a while. Third, and most importantly, it shows that price decreases will not be limited to places where there was excessive building. Demand is detached from Supply.

I could say a bunch of stuff about people seeing their homes as investments and taking out $$$ like it's an ATM to finance shameless lifestyle purchases, but you already know that. It's probably more insightful to recognize that a lot of people pulled $$$ out of their homes to buy "investment" properties, in effect, leveraging their equity to make more $$$. It's important to realize that leveraging works both ways - it can work for you AND/OR against you.

The death of Demand

2006-09-28T16:24:00.000-07:00

So I've been having discusions w/ co-workers and they are more in the "soft-landing" camp than am I. Actually, it took quite a bit of convincing to get them that far and honestly I don't think it was me that swayed them. I've been going on about the bubble ending for 6 months and they've only come around in the last month since all the MSM coverage finally began.

Their idea behind a "no-bust" or "soft-landing" scenario is basically that sales are down now but there are a lot of buyers on the sidelines and once prices go down a bit, say 10%, demand will jump back up.

I think that's an intuitive response, given your basic econ 101 supply and demand, but dead wrong in this case. Here's why: consider demand. The demand we've seen over the past few years was vastly inflated. And it's been inflated in almost every conceivable way:

1. Speculative demand accounted for 38% of sales in 2004 and 2005. This is, of course, due to the incredible rate of appreciation, and the massive amount of money that could be made in a short time through leveraging (borrowing more to make more). Of course there was high demand for a 20% appreciating asset! That's why there were bidding wars and "please pick me" letters and why houses would sell in one weekend above the asking price. In fact to say speculation was only 38% would be foolish because even people buying as a "primary residence" knew that the market was so hot, they would be making more money (in their sleep) off of their house (read: investment) than with their 9-5! "You couldn't lose"! This level of speculation, where the appreciation itself is fueling the appreciation, was seen last during the .com boom/bust. We won't see it again in housing for a long, long time. And worthwhile to note that all of this speculative demand has now shifted to the supply side.

2. Cheap money. All-time low interest rates made monthly payments low enough that buying a house came into reach for a lot of people even as home prices shot up, while a more historically "normal" interest rate wouldn't have allowed that. A good portion of these buyers would have represented "future demand" had they not been used up. After 17 sucessive interest rate hikes, do you think the FED is going to slash rates to 1% again?

3. Toxic loans - ARM's / interest-only / neg-am loans raised the "ceiling of affordability" for buyers. These loans can work to a buyers advantage in an appreciating market, but in a depreciating market things get ugly quickly. As stated earlier, a lot of people speculated that prices would continue to rise, accepting the risk of these loans. Other "less sophisticated" buyers were tricked into thinking they could afford these loans by predatory lenders and realtors. This is scraping Demand's "bottom of the barrel". In either case, the ceiling of affordability simply can't be raised any higher without loosening lending standards, coming up with new "creative loans", or lowering interest rates. And that's not too likely at this point is it?

4. Lenders allowed lending standards to become so lax that anyone with a pulse could get a half million dollar loan - whether they could afford it or not. Stated-income / "no-doc" loans, or "liar-loans" allowed people who could not afford homes to buy them anyway. How does a 21 yr old kid get $2.2 million in loans? By EVERYONE looking the other way. The amount of fraud and collusion is unbelievable. The Senate had inquiries last week over this and in the VERY FIRST bit of good news, "State targeting abusive lenders", Massachusetts is going after predatory lenders.

5. Homeownership is now at an all-time high already thanks to #2-4 above - 3% above the historical average - at least for now until the foreclosures really begin to kick in, at which point lives (and credit) will be ruined, life savings lost, comps forced down, and foreclosed properties added to Supply. BTW, foreclosures are already up 250% in San Diego and the ARM reset's have hardly started! And guess who pays for the bad paper when the loan goes into default? All of us! If you have investments there's a very good chance you have MSB's (mortgage backed securities) and that your MBS's will de-value when the loans start defaulting en masse.

6. Affordability. Last time I heard, in San Diego, affordability was at 2%. This means only 2% of the population can afford to buy a median priced home. Housing is like a pyramid in that it starts w/ first time buyers. If someone wants to move up to a larger home (family is growing), they need to sell their 1st home. People will typically go from "starter homes" to bigger & more expensive homes throughout their lives, as opposed to downsizing. So if first-time buyers are "locked out" because of affordability, we're now in a gridlock situation. In essence, it's impossible to be "priced out forever" because the market NEEDS first-time buyers to sustain itself, and will adjust accordingly. "Priced out forever" is a realtor scare tactic.

7. Psychology - Just as appreciation fuels appreciation, the same is true for depreciation. "Buy before you're priced out forever" - that was the psychology (and Realtor cliche). That's now changed to "buy a depreciating home now and be screwed good when the price drops another 10%."

The "ceiling of affordabilty" has been pushed up and up through a credit expansion driven by incredibly low interest rates, "creative lending", collusion and fraud. This, coupled with speculation created a huge amount of demand - artificial, inflated demand. This demand help to sustain the bubble, fueling it to unprecendented levels. But there's nowhere left to go. While median home values jumped 32 percent from 2000 to 2005 nationwide (and more like 200-300% in bubble areas), incomes dropped 2.8 percent during the same period.

If the hangover from credit expansion and debt bomb result in reduced consumer spending and layoffs, a recession would further reduce demand.

Affordability is now at an all-time low. Even if prices come down a bit, affordabilty may not improve if rates go higher. Who else is left to buy that hasn't? Recent graduates and illegal immigrants? Not at these prices. There are some bubble-watchers, myself included, and a certain amount of people who may be at a point in their lives when they're just ready to buy. Let's acknowlege that there will always be some demand but not overestimate overall Demand without scrutiny. My two co-workers think of Demand as a single-sized, consistent force that's either up or down. I think that's a very naive viewpoint. It's anything but. And there's just not that much real Demand left.

Writing on the wall: this is just the beginning

2006-09-27T12:22:00.000-07:00

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!)

Stalling economy?

2006-09-23T18:09:00.000-07:00

Philly Fed points to stalling economy

Factory activity in mid-Atlantic region fell for first time in more than three years.

September 21 2006: 4:32 PM EDT

The Philadelphia Federal Reserve Bank said Thursday its business activity index tumbled to negative 0.4 this month from 18.5 in August, far beneath forecasts of about 14.8. It was the first reading below zero since April 2003, indicating a decline in regional manufacturing.

"We're seeing signs in the Philadelphia survey that the economy is cooling off," said Gary Thayer, chief economist at AG Edwards & Sons.

The entire survey was troubling, with new orders also slipping into negative territory. The six-month business outlook turned gloomy as well, showing its first negative reading since just before the last recession, which ended in 2001.

"The region's manufacturing executives were significantly less optimistic about future activity, with most indicators dipping to their lowest readings in six years," the survey said.

The survey added to evidence that the economy is entering a rough patch led by a sharp slowdown in the housing sector, which is expected to take a toll on consumer spending.

"These are very weak numbers," said Chris Low, chief economist at FTN Financial.

Many economists had been counting on business investment to pick up where consumers left off. The Philadelphia Fed data suggested, however, this handoff has so far failed to take place.

Excerpts above from money.cnn.com

I believe that the job losses and reduction in consumer spending (which results in more job losses) from the combined impending housing bust and debt bomb will add a great deal of recessionary pressure to our economy. 70% of the GDP is consumer spending, so as ARMs & HELOC's reset and people realize that their house is not an ATM - the loans actually have to be repaid - the amount of escalades and frappacino's sold will expectedly decrease.

I'm not an economist but I'm firmly in the recession camp. How many red flags do you need? Look up "Inverted yield curve" and see what that gets you.

We have a National sickness with credit (read: debt) individually and as a nation. There should be no argument about that. We lead lives of shallow consumerism because ... I guess ... image is more important than substance and maintaining a hip lifestyle is more important than financial security. I like "things" as much as the next guy, but I don't buy things I can't afford and certainly not to keep up with the Jones'.

Keeping up with the Jones': Buying stuff you don't need with money you don't have to impress people you don't know.

Who will the housing crash effect? Everyone. Real estate agents will be first.

2006-09-23T16:35:00.000-07:00

From Mish's great blog, Mish's Global Economic Trend Analysis

No Hard Landing
I have it on great authority that there will not be a hard landing in real estate.
Who told me that? It was none other than Mike Morgan at MorganFlorida. Please listen in to what Morgan has to say.

Mike Morgan:

Will there be a hard landing? No!
Will there be a crash landing? Absolutely!
Who will the housing crash effect? Everyone. Real estate agents will be first.

full article

How many jobs did the housing boom create and sustain. And what happens when the boom cycle turns into a bust cycle?