Saturday, June 10, 2006
The City is the Shelter from the fleeing Baby-boomers
Buyers gain ground as real estate slows
Area sales drop 14% as homes linger on market, but prices are still rising
By Lorraine Mirabella
Sun reporter
Originally published June 10, 2006
The slowdown in Baltimore's housing market continued into May, with sales dropping as homes lingered longer on the market and listings piled up. Sellers often found themselves resorting to price reductions to snag buyers.
Still, statistics released yesterday showed average prices continued to rise, led by double-digit percentage gains in the city and Baltimore and Anne Arundel counties, even as the volume of sales fell.
During May, 3,648 homes were sold in Baltimore and the five surrounding counties, down 14.33 percent from the number sold in May 2005, according to the Metropolitan Regional Information Systems Inc., which tracks monthly home sales statistics. Fewer homes were sold in each of the jurisdictions, with the steepest decline - 20.31 percent - in Anne Arundel County.
"Houses are taking longer to sell," said Sue Balderson, a real estate agent in the Eldersburg office of Coldwell Banker Residential Brokerage. "Rates are edging up, and people are more cautious. With BGE [pending electric rate increase] and gas prices, people are more hesitant to make any big transactions right now unless they have to."
That hesitancy was reflected in the heavy load of homes listed for sale in May - some 14,872 properties, more than double the 6,575 homes on the market a year earlier, according to MRIS.
On average, homes took 53 days to sell, compared with 39 a year earlier.
Still, the average home price gained 11.21 percent over May 2005 to $316,123. Average prices rose more than 14 percent in the city and Baltimore County and more than 12 percent in Anne Arundel County, the MRIS said.
"It's pretty clear that the housing market has begun to respond to a less interest-rate-friendly environment, and that sellers and buyers are still having difficulty finding an equilibrium point," said Anirban Basu, head of the Sage Policy Group, an economic consulting firm in Baltimore. "Sellers are still demanding more than buyers are willing to pay because sellers have yet to fully realize how dramatically the market has begun to shift. Buyers are facing higher interest rates and simply do not have the spending power that they enjoyed this time last year."
Yet it is not surprising that prices continue climbing, he said. With a strong economy and more than 20,000 jobs added to the region in the past year, buyers are still competing for houses that have the most sought-after locations or amenities, he said.
Realtors agreed that the bidding wars that had become a hallmark of the heated market of the past few years have slowed down but haven't completely disappeared.
"If you have areas that are hot, and a lot of folks want in and there's not much turnover, if a house is priced right you'll see multiple offers," Balderson said. "But it's nothing like last year."
More commonly now, sellers are cutting the initial listing price or agreeing to a lower price in negotiations, agents said. Baltimore-area sellers got an average 96 percent of their asking price in May, MRIS statistics show. By comparison, in May 2005, sellers were getting an average 98.61 percent.
For the past several months, sales meetings at W.C. & A.N. Miller Realtors have ended with agents announcing how much prices on listings have been reduced, said Jerry Murphy, a real estate agent with the agency, which has expanded into the Baltimore area from its Montgomery County base.
"Prior to that, you never reduced prices, but now it's a buyer's market," Murphy said. "We're still selling a lot of houses, if they're priced properly."
He said the seller of a home he listed in the city's Guilford neighborhood put the home on the market for $699,000, reduced it to $649,000, then ended up signing a contract for $625,000.
"It depends on how critical it is to sell," he said. "This buyer was very anxious to sell and didn't want to see a bottom come. She was an aggressive seller."
The expectation of lower prices is drawing some buyers into the market.
B.E. Stern, who works in pharmaceutical sales, decided to put her Bolton Hill condo on the market and move up to a larger house to take advantage of price cuts she was seeing. Stern fell in love with a refurbished two-bedroom rowhouse in Butchers Hill, near Patterson Park, with exposed brick, hardwood floors, a skylight and a new kitchen. Even better, it had been reduced from $350,000 to $300,000. And with the help of her agent, she negotiated to an even lower $265,000 and settled on the house last month.
"It's beautiful, on a great street, quiet and completely redone," Stern said. "I got a great deal."
Stern's agent, Trent Waite, who works out of the Fells Point office of Coldwell Banker, said sellers are often basing their asking prices on what their neighbors got a year ago, then finding they need to reduce the price to sell.
"Buyers these days are usually making an offer and if that offer doesn't get accepted, going on to the next house," he said. "There's so much inventory on the market, it doesn't always make sense to pay full asking price."
lorraine.mirabella@baltsun.com
Area sales drop 14% as homes linger on market, but prices are still rising
By Lorraine Mirabella
Sun reporter
Originally published June 10, 2006
The slowdown in Baltimore's housing market continued into May, with sales dropping as homes lingered longer on the market and listings piled up. Sellers often found themselves resorting to price reductions to snag buyers.
Still, statistics released yesterday showed average prices continued to rise, led by double-digit percentage gains in the city and Baltimore and Anne Arundel counties, even as the volume of sales fell.
During May, 3,648 homes were sold in Baltimore and the five surrounding counties, down 14.33 percent from the number sold in May 2005, according to the Metropolitan Regional Information Systems Inc., which tracks monthly home sales statistics. Fewer homes were sold in each of the jurisdictions, with the steepest decline - 20.31 percent - in Anne Arundel County.
"Houses are taking longer to sell," said Sue Balderson, a real estate agent in the Eldersburg office of Coldwell Banker Residential Brokerage. "Rates are edging up, and people are more cautious. With BGE [pending electric rate increase] and gas prices, people are more hesitant to make any big transactions right now unless they have to."
That hesitancy was reflected in the heavy load of homes listed for sale in May - some 14,872 properties, more than double the 6,575 homes on the market a year earlier, according to MRIS.
On average, homes took 53 days to sell, compared with 39 a year earlier.
Still, the average home price gained 11.21 percent over May 2005 to $316,123. Average prices rose more than 14 percent in the city and Baltimore County and more than 12 percent in Anne Arundel County, the MRIS said.
"It's pretty clear that the housing market has begun to respond to a less interest-rate-friendly environment, and that sellers and buyers are still having difficulty finding an equilibrium point," said Anirban Basu, head of the Sage Policy Group, an economic consulting firm in Baltimore. "Sellers are still demanding more than buyers are willing to pay because sellers have yet to fully realize how dramatically the market has begun to shift. Buyers are facing higher interest rates and simply do not have the spending power that they enjoyed this time last year."
Yet it is not surprising that prices continue climbing, he said. With a strong economy and more than 20,000 jobs added to the region in the past year, buyers are still competing for houses that have the most sought-after locations or amenities, he said.
Realtors agreed that the bidding wars that had become a hallmark of the heated market of the past few years have slowed down but haven't completely disappeared.
"If you have areas that are hot, and a lot of folks want in and there's not much turnover, if a house is priced right you'll see multiple offers," Balderson said. "But it's nothing like last year."
More commonly now, sellers are cutting the initial listing price or agreeing to a lower price in negotiations, agents said. Baltimore-area sellers got an average 96 percent of their asking price in May, MRIS statistics show. By comparison, in May 2005, sellers were getting an average 98.61 percent.
For the past several months, sales meetings at W.C. & A.N. Miller Realtors have ended with agents announcing how much prices on listings have been reduced, said Jerry Murphy, a real estate agent with the agency, which has expanded into the Baltimore area from its Montgomery County base.
"Prior to that, you never reduced prices, but now it's a buyer's market," Murphy said. "We're still selling a lot of houses, if they're priced properly."
He said the seller of a home he listed in the city's Guilford neighborhood put the home on the market for $699,000, reduced it to $649,000, then ended up signing a contract for $625,000.
"It depends on how critical it is to sell," he said. "This buyer was very anxious to sell and didn't want to see a bottom come. She was an aggressive seller."
The expectation of lower prices is drawing some buyers into the market.
B.E. Stern, who works in pharmaceutical sales, decided to put her Bolton Hill condo on the market and move up to a larger house to take advantage of price cuts she was seeing. Stern fell in love with a refurbished two-bedroom rowhouse in Butchers Hill, near Patterson Park, with exposed brick, hardwood floors, a skylight and a new kitchen. Even better, it had been reduced from $350,000 to $300,000. And with the help of her agent, she negotiated to an even lower $265,000 and settled on the house last month.
"It's beautiful, on a great street, quiet and completely redone," Stern said. "I got a great deal."
Stern's agent, Trent Waite, who works out of the Fells Point office of Coldwell Banker, said sellers are often basing their asking prices on what their neighbors got a year ago, then finding they need to reduce the price to sell.
"Buyers these days are usually making an offer and if that offer doesn't get accepted, going on to the next house," he said. "There's so much inventory on the market, it doesn't always make sense to pay full asking price."
lorraine.mirabella@baltsun.com
mortgage rates drop
Fixed mortgage rates fall
By Holden Lewis • Bankrate.com
Numbers spoke louder than words this week as long-term mortgage rates fell.
Ben Bernanke, chairman of the Federal Reserve, caused bond yields to rise when he implied that the central bank might raise short-term interest rates again. But in the mortgage world, Bernanke's words were considered just that -- mere words, subject to interpretation.
The thing that moved mortgage rates came a few days before Bernanke's speech, in the May employment report. It needed little interpretation. Job growth was weak, when Wall Street had expected it to be strong. Bond yields tumbled, and long-term mortgage rates followed.
The benchmark 30-year fixed-rate mortgage fell 3 basis points to 6.69 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.35 discount and origination points. One year ago, the mortgage index was 5.61 percent; four weeks ago, it was 6.67 percent.
The 15-year fixed-rate mortgage fell 1 basis point to 6.31 percent. The 5/1 adjustable-rate mortgage rose 3 basis points to 6.32 percent.
The rate-moving trio
Mortgage rates tend to move up and down with Treasury yields, which in turn move up and down in reaction to a lot of economic factors. Lately, Treasury yields have been especially sensitive to three of these: the Consumer Price Index, the monthly employment report and decisions of the Federal Reserve's rate-setting committee. The latter two came into play in the past week.
First came the May employment report, in which the Labor Department said that the economy grew by a net 75,000 jobs last month. That's fine if you're one of those 75,000 people, but investors were dismayed, because they had expected the number to be around 170,000. Wall Street expected the employment report to rumble like a Harley, but it putt-putted like a Vespa.
"Dear Mr. Bernanke: You wanted weakness, you got weakness," wrote economist Joel Naroff, adding that job growth in May was "extremely disappointing." He said it was ominous that the preliminary estimates for job growth in March and April were revised downward.
Given the anemic job growth, it's no surprise that hourly income barely budged upward and the average workweek was six minutes shorter. The employment report painted a portrait of a modestly growing economy in which inflation shouldn't be much of a threat. Investors concluded that the odds were against another Fed rate increase at the end of this month. The yield on the 10-year Treasury note fell 11 basis points, hinting at a corresponding drop in the 30-year fixed mortgage rate.
Inflation concerns reappear
Three days later, Bernanke spoke in Washington at the International Monetary Conference, and he complained about inflation. He said core inflation -- consumer prices minus volatile food and energy costs -- might be "at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of long-run growth." He called recent price trends "unwelcome developments."
Wall Street saw this as a signal that the Fed is likely to raise the federal funds rate again June 29. The yield on the 10-year Treasury rose only a couple of basis points, because the long-term outlook for inflation is benign. But the five-year Treasury jumped, taking back the drop that came in reaction to the employment report.
Bankrate.com's corrections policy -- Posted: June 8, 2006
By Holden Lewis • Bankrate.com
Numbers spoke louder than words this week as long-term mortgage rates fell.
Ben Bernanke, chairman of the Federal Reserve, caused bond yields to rise when he implied that the central bank might raise short-term interest rates again. But in the mortgage world, Bernanke's words were considered just that -- mere words, subject to interpretation.
The thing that moved mortgage rates came a few days before Bernanke's speech, in the May employment report. It needed little interpretation. Job growth was weak, when Wall Street had expected it to be strong. Bond yields tumbled, and long-term mortgage rates followed.
The benchmark 30-year fixed-rate mortgage fell 3 basis points to 6.69 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.35 discount and origination points. One year ago, the mortgage index was 5.61 percent; four weeks ago, it was 6.67 percent.
The 15-year fixed-rate mortgage fell 1 basis point to 6.31 percent. The 5/1 adjustable-rate mortgage rose 3 basis points to 6.32 percent.
The rate-moving trio
Mortgage rates tend to move up and down with Treasury yields, which in turn move up and down in reaction to a lot of economic factors. Lately, Treasury yields have been especially sensitive to three of these: the Consumer Price Index, the monthly employment report and decisions of the Federal Reserve's rate-setting committee. The latter two came into play in the past week.
First came the May employment report, in which the Labor Department said that the economy grew by a net 75,000 jobs last month. That's fine if you're one of those 75,000 people, but investors were dismayed, because they had expected the number to be around 170,000. Wall Street expected the employment report to rumble like a Harley, but it putt-putted like a Vespa.
"Dear Mr. Bernanke: You wanted weakness, you got weakness," wrote economist Joel Naroff, adding that job growth in May was "extremely disappointing." He said it was ominous that the preliminary estimates for job growth in March and April were revised downward.
Given the anemic job growth, it's no surprise that hourly income barely budged upward and the average workweek was six minutes shorter. The employment report painted a portrait of a modestly growing economy in which inflation shouldn't be much of a threat. Investors concluded that the odds were against another Fed rate increase at the end of this month. The yield on the 10-year Treasury note fell 11 basis points, hinting at a corresponding drop in the 30-year fixed mortgage rate.
Inflation concerns reappear
Three days later, Bernanke spoke in Washington at the International Monetary Conference, and he complained about inflation. He said core inflation -- consumer prices minus volatile food and energy costs -- might be "at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of long-run growth." He called recent price trends "unwelcome developments."
Wall Street saw this as a signal that the Fed is likely to raise the federal funds rate again June 29. The yield on the 10-year Treasury rose only a couple of basis points, because the long-term outlook for inflation is benign. But the five-year Treasury jumped, taking back the drop that came in reaction to the employment report.
Bankrate.com's corrections policy -- Posted: June 8, 2006
That Bastard
Housing stocks plunge! Housing is next! (by Mike Larson)
6/9/2006 8:00:00 AM
A year ago, when our real estate specialist Mike Larson told a group of analysts that the housing bubble was about to bust, he practically got laughed out of the room.
Nobody believed him. Or at least they didn’t want to believe him.
They all had evidence, personal or anecdotal, that “proved” him wrong.
They told him about a brother turning a small sum into a fortune ... about a neighbor’s house getting fifteen bids within minutes of being listed ... and about housewives becoming million-dollar-a-year real estate agents.
They were equally quick to come up with “fundamental” reasons why the boom would continue for years to come — low mortgage rates, baby boomers buying second and third homes, land becoming scarce in many parts of the country, and more.
That’s natural. It was hard for them to see. But now, that’s changing rapidly, as Mike will now explain ...
The Signs of a Housing Slowdown
Are as Prevalent as the “For Sale”
Signs on Front Lawns
by Michael Larson
Thanks, Martin. The signs are definitely getting easier to see. If people still don’t recognize them, it’s because they’re choosing not to. Let me cut to the chase ...
Consider Toll Brothers (TOL). If you don’t know Toll, it’s the biggest publicly traded builder of “McMansions” — those ostentatious, oversized homes that popped up all over the U.S.
It was flying high. But now look at how it’s getting utterly slaughtered.
This is a stock that was trading for about $58 and has now plunged by more than HALF in just a few months, crashing through all support levels, and heading still lower.
In short, the market has spoken, and we’re no longer alone: The market itself is now forecasting a real estate bust. Not a “soft landing.” Not a “maybe-bust someday.” It’s forecasting an outright collapse, starting right now.
Still not convinced? Then take a look at the chart of another major homebuilder, KB Home (KBH). You’ll see the exact same kind of action.
What this tells me is that we’re not seeing a company-specific problem, but rather an industry-wide trend.
Need more proof?
Right now, we’re in “confession season” for the big public builders. And boy do they have a lot to talk about:
Pulte Homes says its orders dropped 29% year-over-year in April and May
Toll Brothers reports second-quarter orders plunged 33%
Standard Pacific’s orders are down a whopping 41% year over year
But the title of “MVB,” or “most vulnerable builder,” has to go to WCI Communities. This firm has been throwing up single-family homes and condo buildings all over Florida, greater Washington D.C., and New York City. First-quarter “tower” orders — high-rise condo units — imploded, falling 71%. That’s astounding!
These are the stocks Wall Street kept telling you would “outperform the market” ... the ones they said “would keep posting record profits for years to come” ... the ones whose shares they kept flogging with “buy” recommendation after “buy” recommendation.
Sound familiar? It should — it’s the same kind of garbage we heard about tech stocks in 1999.
And what you’re seeing in these homebuilder stocks is the same kind of action we saw back in the tech wreck in stocks like Cisco ... Intel ... Amazon.com ... Pets.com.
Remember: Cisco went from $10 to $80 and back in the span of just over two years; stocks like Pets.com just vanished into thin air. That’s what we see happening in housing stocks.
That makes sense. Like the tech boom in the 1990s, the housing boom was a falsely inflated, super-juiced, speculative bubble.
And like the tech boom, it was set into motion by a reckless, money-pumping Federal Reserve Board.
The men and women at the Fed have repeatedly demonstrated contempt for the true value of our money and financial security. They keep inflating bubble after bubble. Then when those bubbles burst, they don’t let the darn market work its cleansing magic. Instead, they pour even more liquidity into the market ... giving rise to the next mania.
The Speculators Are Going to Lose
Big Money; Save Yourself
What does all this mean for home prices? That it’s too late to avoid a major bust.
Is the Fed going to sit by and let it happen without lifting a finger? Of course not. But the most they can do is temporarily cushion the blow.
No matter what the Fed does, I just don’t see an easy way out for housing. Instead, I see a multi-year downturn and real economic pain.
Real estate is already starting to fall apart all around us. No, prices aren’t going to collapse almost 90% like Cisco’s shares did. But mark my words: Calling this a “soft landing” will be like calling the dot-bomb bust a “gentle correction” ...
Sales are going to keep falling.
Inventories are going to keep rising.
Defaults and foreclosures are going to skyrocket.
And prices on a wide variety of properties are going to fall in vast swaths of the U.S.
You can follow the signs of the housing bust right down the chain to local markets.
Heck, right here in my zip code (33458), there were recently 574 properties with at least two bedrooms and two bathrooms for sale between $100,000 and $500,000, according to Realtor.com. When I started tracking almost a year ago, only 150 fit that description. That’s a 283% increase. Almost four times as many houses, condos, and town homes are piling up, still unsold.
In one nearby community, called Chasewood, the same listings have been sitting on the market month after month. The lowest priced unit used to be listed at around $210,000. Now, you can score one for just under $175,000. That’s almost a 17% drop in just the past several months!
You think these kinds of price declines are over? No freaking way! That’s because so much of the surging demand for houses in the past couple of years was “false” demand from wild-eyed speculators.
These people have no idea how true real estate investors make money — buying low and selling high, generating positive cash flow from rent once all expenses are deducted, etc.
Instead, the speculators bought houses by the dozen, hoping to unload them to “greater fools.” Many never even expected to have to close — they planned on buying contracts and flipping them before the places were even built.
Now, the market is collapsing under their feet, and they’re getting hosed. They’re being forced to take possession of properties they can’t afford ... can’t rent out at positive cash flow ... and can’t carry.
So they’re trying to sell. But who’s buying? After all, the speculators were a huge chunk of the “buy side” of the market in the first place.
Meet Dena Webster, recently
profiled by our local paper,
The Palm Beach Post ...
Ms. Webster bought 14 houses in my area during the boom. Now, she’s stuck with a whopping $50,000 in monthly mortgage payments.
But only four of those properties have tenants, and those tenants are paying monthly rents that are far lower than Ms. Webster’s payments. Cash is gushing out the door month after month!
And it gets worse: Ms. Webster is a real estate agent herself. Not only is she loaded up with poorly performing real estate investments, she also relies on real estate sales to make a living. Talk about a recipe for disaster! And don’t think for a minute that similar stories aren’t playing out all over this country.
My view: If you’re overexposed to the residential real estate market, you have a choice. You can go down with the ship or you can take steps to protect yourself ...
First, if you’re selling a home right now, don’t muck around on price. Price your property at, even below, recent comparable sales. If you start high, chances are your property will just sit and sit. The listing will get stale — and cutting prices by dribs and drabs will merely leave you chasing the market down.
Second, if you have residential investment property that doesn’t produce positive cash flow, dump it. There’s no telling how long this downturn will last. But I’m expecting at least a few years ... maybe more.
Remember, real estate investments aren’t like stocks. If you buy a stock and hold it, you don’t have to pay carrying costs. However, when you borrow money to buy real estate, you have to pay for it — mortgage, taxes, insurance, upkeep — month in and month out. Even if prices merely flatten out, you could still be losing real money.
Third, if you’re in the market for a place to live, compare the costs of renting vs. owning. Prices are so out of whack in many markets, that renting beats owning hands down. Just go back to that Post story I mentioned earlier. It said:
“According to local real-estate agents, condominiums and single-family homes throughout Palm Beach County and the Treasure Coast are leasing for 30 to 50 percent less than the monthly costs, including property taxes and sky-high insurance premiums, of owning the same property.”
Fourth, take a good look at your other investments. No matter what happens to the broad market, I can tell you that certain sectors look ridiculously vulnerable to me. As I’ve shown you, the housing stocks are already collapsing. But what about the companies that supply all those builders with cement and kitchen cabinets? Or the temp agencies supplying construction labor? Or the lenders making the high-risk mortgages behind the bubble?
Fifth, seriously consider taking out “real estate crash insurance.” You wouldn’t dream of owning a home without insurance to protect you against fire, storms or theft. And yet, the financial damage we see ahead could be greater and more widespread than all the other threats combined. For more details, see my report, just posted to my Web page last night.
Until next time,
Mike
6/9/2006 8:00:00 AM
A year ago, when our real estate specialist Mike Larson told a group of analysts that the housing bubble was about to bust, he practically got laughed out of the room.
Nobody believed him. Or at least they didn’t want to believe him.
They all had evidence, personal or anecdotal, that “proved” him wrong.
They told him about a brother turning a small sum into a fortune ... about a neighbor’s house getting fifteen bids within minutes of being listed ... and about housewives becoming million-dollar-a-year real estate agents.
They were equally quick to come up with “fundamental” reasons why the boom would continue for years to come — low mortgage rates, baby boomers buying second and third homes, land becoming scarce in many parts of the country, and more.
That’s natural. It was hard for them to see. But now, that’s changing rapidly, as Mike will now explain ...
The Signs of a Housing Slowdown
Are as Prevalent as the “For Sale”
Signs on Front Lawns
by Michael Larson
Thanks, Martin. The signs are definitely getting easier to see. If people still don’t recognize them, it’s because they’re choosing not to. Let me cut to the chase ...
Consider Toll Brothers (TOL). If you don’t know Toll, it’s the biggest publicly traded builder of “McMansions” — those ostentatious, oversized homes that popped up all over the U.S.
It was flying high. But now look at how it’s getting utterly slaughtered.
This is a stock that was trading for about $58 and has now plunged by more than HALF in just a few months, crashing through all support levels, and heading still lower.
In short, the market has spoken, and we’re no longer alone: The market itself is now forecasting a real estate bust. Not a “soft landing.” Not a “maybe-bust someday.” It’s forecasting an outright collapse, starting right now.
Still not convinced? Then take a look at the chart of another major homebuilder, KB Home (KBH). You’ll see the exact same kind of action.
What this tells me is that we’re not seeing a company-specific problem, but rather an industry-wide trend.
Need more proof?
Right now, we’re in “confession season” for the big public builders. And boy do they have a lot to talk about:
Pulte Homes says its orders dropped 29% year-over-year in April and May
Toll Brothers reports second-quarter orders plunged 33%
Standard Pacific’s orders are down a whopping 41% year over year
But the title of “MVB,” or “most vulnerable builder,” has to go to WCI Communities. This firm has been throwing up single-family homes and condo buildings all over Florida, greater Washington D.C., and New York City. First-quarter “tower” orders — high-rise condo units — imploded, falling 71%. That’s astounding!
These are the stocks Wall Street kept telling you would “outperform the market” ... the ones they said “would keep posting record profits for years to come” ... the ones whose shares they kept flogging with “buy” recommendation after “buy” recommendation.
Sound familiar? It should — it’s the same kind of garbage we heard about tech stocks in 1999.
And what you’re seeing in these homebuilder stocks is the same kind of action we saw back in the tech wreck in stocks like Cisco ... Intel ... Amazon.com ... Pets.com.
Remember: Cisco went from $10 to $80 and back in the span of just over two years; stocks like Pets.com just vanished into thin air. That’s what we see happening in housing stocks.
That makes sense. Like the tech boom in the 1990s, the housing boom was a falsely inflated, super-juiced, speculative bubble.
And like the tech boom, it was set into motion by a reckless, money-pumping Federal Reserve Board.
The men and women at the Fed have repeatedly demonstrated contempt for the true value of our money and financial security. They keep inflating bubble after bubble. Then when those bubbles burst, they don’t let the darn market work its cleansing magic. Instead, they pour even more liquidity into the market ... giving rise to the next mania.
The Speculators Are Going to Lose
Big Money; Save Yourself
What does all this mean for home prices? That it’s too late to avoid a major bust.
Is the Fed going to sit by and let it happen without lifting a finger? Of course not. But the most they can do is temporarily cushion the blow.
No matter what the Fed does, I just don’t see an easy way out for housing. Instead, I see a multi-year downturn and real economic pain.
Real estate is already starting to fall apart all around us. No, prices aren’t going to collapse almost 90% like Cisco’s shares did. But mark my words: Calling this a “soft landing” will be like calling the dot-bomb bust a “gentle correction” ...
Sales are going to keep falling.
Inventories are going to keep rising.
Defaults and foreclosures are going to skyrocket.
And prices on a wide variety of properties are going to fall in vast swaths of the U.S.
You can follow the signs of the housing bust right down the chain to local markets.
Heck, right here in my zip code (33458), there were recently 574 properties with at least two bedrooms and two bathrooms for sale between $100,000 and $500,000, according to Realtor.com. When I started tracking almost a year ago, only 150 fit that description. That’s a 283% increase. Almost four times as many houses, condos, and town homes are piling up, still unsold.
In one nearby community, called Chasewood, the same listings have been sitting on the market month after month. The lowest priced unit used to be listed at around $210,000. Now, you can score one for just under $175,000. That’s almost a 17% drop in just the past several months!
You think these kinds of price declines are over? No freaking way! That’s because so much of the surging demand for houses in the past couple of years was “false” demand from wild-eyed speculators.
These people have no idea how true real estate investors make money — buying low and selling high, generating positive cash flow from rent once all expenses are deducted, etc.
Instead, the speculators bought houses by the dozen, hoping to unload them to “greater fools.” Many never even expected to have to close — they planned on buying contracts and flipping them before the places were even built.
Now, the market is collapsing under their feet, and they’re getting hosed. They’re being forced to take possession of properties they can’t afford ... can’t rent out at positive cash flow ... and can’t carry.
So they’re trying to sell. But who’s buying? After all, the speculators were a huge chunk of the “buy side” of the market in the first place.
Meet Dena Webster, recently
profiled by our local paper,
The Palm Beach Post ...
Ms. Webster bought 14 houses in my area during the boom. Now, she’s stuck with a whopping $50,000 in monthly mortgage payments.
But only four of those properties have tenants, and those tenants are paying monthly rents that are far lower than Ms. Webster’s payments. Cash is gushing out the door month after month!
And it gets worse: Ms. Webster is a real estate agent herself. Not only is she loaded up with poorly performing real estate investments, she also relies on real estate sales to make a living. Talk about a recipe for disaster! And don’t think for a minute that similar stories aren’t playing out all over this country.
My view: If you’re overexposed to the residential real estate market, you have a choice. You can go down with the ship or you can take steps to protect yourself ...
First, if you’re selling a home right now, don’t muck around on price. Price your property at, even below, recent comparable sales. If you start high, chances are your property will just sit and sit. The listing will get stale — and cutting prices by dribs and drabs will merely leave you chasing the market down.
Second, if you have residential investment property that doesn’t produce positive cash flow, dump it. There’s no telling how long this downturn will last. But I’m expecting at least a few years ... maybe more.
Remember, real estate investments aren’t like stocks. If you buy a stock and hold it, you don’t have to pay carrying costs. However, when you borrow money to buy real estate, you have to pay for it — mortgage, taxes, insurance, upkeep — month in and month out. Even if prices merely flatten out, you could still be losing real money.
Third, if you’re in the market for a place to live, compare the costs of renting vs. owning. Prices are so out of whack in many markets, that renting beats owning hands down. Just go back to that Post story I mentioned earlier. It said:
“According to local real-estate agents, condominiums and single-family homes throughout Palm Beach County and the Treasure Coast are leasing for 30 to 50 percent less than the monthly costs, including property taxes and sky-high insurance premiums, of owning the same property.”
Fourth, take a good look at your other investments. No matter what happens to the broad market, I can tell you that certain sectors look ridiculously vulnerable to me. As I’ve shown you, the housing stocks are already collapsing. But what about the companies that supply all those builders with cement and kitchen cabinets? Or the temp agencies supplying construction labor? Or the lenders making the high-risk mortgages behind the bubble?
Fifth, seriously consider taking out “real estate crash insurance.” You wouldn’t dream of owning a home without insurance to protect you against fire, storms or theft. And yet, the financial damage we see ahead could be greater and more widespread than all the other threats combined. For more details, see my report, just posted to my Web page last night.
Until next time,
Mike
can this be true?
Home Prices Still Seen Rising According To Recent Survey
646 Views - TrackBack(0) Comments(0)
The problem with the majority of real estate surveys and reports is that they are by definition lagging indicators. So while some "experts" are predicting the end of the real estate world and others are assuring us of a soft landing or a gradual deflation of the housing bubble, or employing other euphemisms to comfort the potentially afflicted, there are few current figures to bolster the theories of either group.
The Office of Federal Housing Enterprise Oversight (OFHEO) House Price Index released late last week is a case in point. Although it shows that house-on-house sales prices were up 12.54 nationally over the last year and 2.03 percent during the first quarter of 2006, an annualized rate of 8.12 percent, these figures are lagging from two to five months behind real time events.
The various monthly reports on home sales which come from different sources - The National Association of Realtors, the Census Bureau and Housing and Urban Development, the National Association of Home Builders, and others, all automatically reflect a three week delay in new or existing home sales activities; i.e., April figures are reported near the end of May. Add to that the time it takes from an accepted offer (the current market) to recording the sale, probably an average of six to eight weeks and often even longer for new house figures, and we will have little or no idea where the market is today until sometime in late July.
But, until and unless the crystal ball is perfected, these various studies are the best we have to work with and the devoted student can certainly graph them to try to establish trends. The wise will not, however use the results to sense opportunity or predict disaster.
The OFHEO House Price Index uses data from Fannie Mae and Freddie Mac (the enterprises OFHEO is charged with overseeing) to construct and analyze data on the sales or refinancing of the same house over time. Thus, if a house was mortgaged through a Freddie or Fannie mortgage in 1992, refinanced in 1997, and sold and newly financed in 2006, there will be three data points for that house. Houses which were purchased for cash or through private financing or which have not changed hands or been refinanced through Freddie or Fannie since 1975 are either not included in the survey or may be missing data points corresponding to any non-GSE transactions. The Index currently includes data from 31 million repeat transactions over the last 31 years. Thus, while it is far from a perfect predictor of where we are going, it certainly is a good record of where we have been.
OFHEO reports its data in a number of different formats. For example, the quarterly index for the last two years looks like this:
Quarter Q. Home Price Appreciation (%) Q. Appreciation Annualized (%) Appreciation Same Quarter a Year Earlier (%)
Q1, 2006 2.03 8.12 12.54
Q4, 2005 3.07 12.28 13.33
Q3, 2005 3.23 12.93 12.71
Q2, 2005 3.66 14.65 14.14
Q1, 2005 2.75 11.00 13.15
Q4, 2004 2.50 10.01 11.99
Q3, 2004 4.54 18.17 12.94
Q2, 2004 2.76 11.06 9.86
Q1, 2004 1.70 6.79 8.24
So, the price appreciation in the first quarter of 2006, when activity was supposed to be slowing, was lower than the previous seven quarters but higher than the rate exactly two years earlier when the housing market preparing to really rev up. Conclusion? None that we are willing to draw.
The current OFHEO study ranks the St. George, Utah area at the top on the basis of housing appreciation. Prices there increased 6.88 percent during the first quarter and 38.40 for the year. St. George, increasingly a retirement destination for folks from Utah and Idaho, was followed by Naples-Marco Island and Cape Coral-Ft. Myers, Florida, both of which had annualized appreciation well over 36 percent. In fact, 10 of the top 20 areas were in Florida. You have to drop down to number 14 on the index, Coeur d'Alene, Idaho, to find a location out of a temperate zone - all but one of the previous 13 (Bend, Oregon) was in the Sun Belt as were 17 of the top 20 with Boise City-Nampa Idaho also breaking the pattern. Interestingly, Las Vegas which has been the phenom of house price appreciation now appears nowhere in the top 20.
So are retirement havens now the only thing driving price increases? Only three of the bottom 20 ranked areas were in temperate zones - two in South Carolina and one in North Carolina. The rest were located in Michigan (eight areas), Ohio (three) Indiana and Colorado (two each), Pennsylvania and Iowa.
For the first time since the fourth quarter of 2002 there were negative appreciation rates noted for some states (although it has occurred in metropolitan areas and 14 of the bottom 20 showed negative appreciation for the first quarter.) Small statewide negative appreciation occurred in both Iowa and South Dakota between the fourth quarter of 2005 and the first quarter of 2006.
Based on the report, housing prices have still continued to grower faster over the past year than prices of non-housing goods and services reflected in the Consumer Price Index. House prices rose 12.5 percent while prices of other goods and services rose only 4.2 percent.
646 Views - TrackBack(0) Comments(0)
The problem with the majority of real estate surveys and reports is that they are by definition lagging indicators. So while some "experts" are predicting the end of the real estate world and others are assuring us of a soft landing or a gradual deflation of the housing bubble, or employing other euphemisms to comfort the potentially afflicted, there are few current figures to bolster the theories of either group.
The Office of Federal Housing Enterprise Oversight (OFHEO) House Price Index released late last week is a case in point. Although it shows that house-on-house sales prices were up 12.54 nationally over the last year and 2.03 percent during the first quarter of 2006, an annualized rate of 8.12 percent, these figures are lagging from two to five months behind real time events.
The various monthly reports on home sales which come from different sources - The National Association of Realtors, the Census Bureau and Housing and Urban Development, the National Association of Home Builders, and others, all automatically reflect a three week delay in new or existing home sales activities; i.e., April figures are reported near the end of May. Add to that the time it takes from an accepted offer (the current market) to recording the sale, probably an average of six to eight weeks and often even longer for new house figures, and we will have little or no idea where the market is today until sometime in late July.
But, until and unless the crystal ball is perfected, these various studies are the best we have to work with and the devoted student can certainly graph them to try to establish trends. The wise will not, however use the results to sense opportunity or predict disaster.
The OFHEO House Price Index uses data from Fannie Mae and Freddie Mac (the enterprises OFHEO is charged with overseeing) to construct and analyze data on the sales or refinancing of the same house over time. Thus, if a house was mortgaged through a Freddie or Fannie mortgage in 1992, refinanced in 1997, and sold and newly financed in 2006, there will be three data points for that house. Houses which were purchased for cash or through private financing or which have not changed hands or been refinanced through Freddie or Fannie since 1975 are either not included in the survey or may be missing data points corresponding to any non-GSE transactions. The Index currently includes data from 31 million repeat transactions over the last 31 years. Thus, while it is far from a perfect predictor of where we are going, it certainly is a good record of where we have been.
OFHEO reports its data in a number of different formats. For example, the quarterly index for the last two years looks like this:
Quarter Q. Home Price Appreciation (%) Q. Appreciation Annualized (%) Appreciation Same Quarter a Year Earlier (%)
Q1, 2006 2.03 8.12 12.54
Q4, 2005 3.07 12.28 13.33
Q3, 2005 3.23 12.93 12.71
Q2, 2005 3.66 14.65 14.14
Q1, 2005 2.75 11.00 13.15
Q4, 2004 2.50 10.01 11.99
Q3, 2004 4.54 18.17 12.94
Q2, 2004 2.76 11.06 9.86
Q1, 2004 1.70 6.79 8.24
So, the price appreciation in the first quarter of 2006, when activity was supposed to be slowing, was lower than the previous seven quarters but higher than the rate exactly two years earlier when the housing market preparing to really rev up. Conclusion? None that we are willing to draw.
The current OFHEO study ranks the St. George, Utah area at the top on the basis of housing appreciation. Prices there increased 6.88 percent during the first quarter and 38.40 for the year. St. George, increasingly a retirement destination for folks from Utah and Idaho, was followed by Naples-Marco Island and Cape Coral-Ft. Myers, Florida, both of which had annualized appreciation well over 36 percent. In fact, 10 of the top 20 areas were in Florida. You have to drop down to number 14 on the index, Coeur d'Alene, Idaho, to find a location out of a temperate zone - all but one of the previous 13 (Bend, Oregon) was in the Sun Belt as were 17 of the top 20 with Boise City-Nampa Idaho also breaking the pattern. Interestingly, Las Vegas which has been the phenom of house price appreciation now appears nowhere in the top 20.
So are retirement havens now the only thing driving price increases? Only three of the bottom 20 ranked areas were in temperate zones - two in South Carolina and one in North Carolina. The rest were located in Michigan (eight areas), Ohio (three) Indiana and Colorado (two each), Pennsylvania and Iowa.
For the first time since the fourth quarter of 2002 there were negative appreciation rates noted for some states (although it has occurred in metropolitan areas and 14 of the bottom 20 showed negative appreciation for the first quarter.) Small statewide negative appreciation occurred in both Iowa and South Dakota between the fourth quarter of 2005 and the first quarter of 2006.
Based on the report, housing prices have still continued to grower faster over the past year than prices of non-housing goods and services reflected in the Consumer Price Index. House prices rose 12.5 percent while prices of other goods and services rose only 4.2 percent.
7% increase in the UK
Forecast improves for UK house prices
By Laurie Osborne, Editor
Published 7th Jun 2006, (a Wednesday) at 12:00PM
See also... house-prices, uk, cml, mortgage-lenders, housing-market
The Council of Mortgage Lenders has revised up its forecasts for housing market activity for 2006 and 2007. But, at the same time, this has also prompted the CML to up its forecast on the level of interest rates and the extent of repossessions.
The CML now expects house prices to end the year 7% higher than at the start, compared with a 2% forecast back in February. Next year, the forecast for house price inflation has been raised from 2% to 3%.
Property sales are also now set to be stronger than the CML expected back in February, prompting a rise in the forecast for this year to 1.2 million (up from the previous expectation of 0.97 million).
This increased strength is reflected in the CML's revisions to its lending forecasts. Gross lending is now expected to reach £310 billion this year (up from £285 billion previously forecast), although the CML sticks with its previous forecast of £285 billion next year. Net lending is now predicted to total £100 billion this year (up from the £80 billion forecast in February), before falling back to £85 billion next year (up from £75 billion).
Unfortunately, the very strength of the housing market is one of the reasons why the CML now expects interest rates to end both 2006 and 2007 at 4.75% rather than the 4.5% previously forecast. And this in turn feeds through to modestly higher forecasts for arrears and possessions. The CML now foresees 130,000 rather than 120,000 mortgages in arrears of over three months by the end of 2007, and 15,000 repossessions in both 2006 and 2007 (up from the previous forecast of 12,000).
Jim Cunningham, CML senior economist and author of the forecasts, said: "The immediate signs are that demand will remain robust over the next few months. But we take the view that confidence and activity are closely associated with interest rate movements and expectations.
"The small rise in short-term interest rates expected in the second half of this year and the rise in fixed-term rates that we have already seen is likely to result in a modest fall in the level of transactions in the second half of this year, and we expect this to continue into 2007.
"At this distance, prospects for 2008 look brighter. The more benign inflation outlook is expected to result in lower interest rates by early 2008. This in turn should support demand from home-buyers and buy-to-let investors and result in firmer house price growth."
In2Perspective provide free news and analysis emails on UK house prices, interest rates, Home Information Packs and the UK economy. If you would like to receive the free In2Perspective newsletters register here.
By Laurie Osborne, Editor
Published 7th Jun 2006, (a Wednesday) at 12:00PM
See also... house-prices, uk, cml, mortgage-lenders, housing-market
The Council of Mortgage Lenders has revised up its forecasts for housing market activity for 2006 and 2007. But, at the same time, this has also prompted the CML to up its forecast on the level of interest rates and the extent of repossessions.
The CML now expects house prices to end the year 7% higher than at the start, compared with a 2% forecast back in February. Next year, the forecast for house price inflation has been raised from 2% to 3%.
Property sales are also now set to be stronger than the CML expected back in February, prompting a rise in the forecast for this year to 1.2 million (up from the previous expectation of 0.97 million).
This increased strength is reflected in the CML's revisions to its lending forecasts. Gross lending is now expected to reach £310 billion this year (up from £285 billion previously forecast), although the CML sticks with its previous forecast of £285 billion next year. Net lending is now predicted to total £100 billion this year (up from the £80 billion forecast in February), before falling back to £85 billion next year (up from £75 billion).
Unfortunately, the very strength of the housing market is one of the reasons why the CML now expects interest rates to end both 2006 and 2007 at 4.75% rather than the 4.5% previously forecast. And this in turn feeds through to modestly higher forecasts for arrears and possessions. The CML now foresees 130,000 rather than 120,000 mortgages in arrears of over three months by the end of 2007, and 15,000 repossessions in both 2006 and 2007 (up from the previous forecast of 12,000).
Jim Cunningham, CML senior economist and author of the forecasts, said: "The immediate signs are that demand will remain robust over the next few months. But we take the view that confidence and activity are closely associated with interest rate movements and expectations.
"The small rise in short-term interest rates expected in the second half of this year and the rise in fixed-term rates that we have already seen is likely to result in a modest fall in the level of transactions in the second half of this year, and we expect this to continue into 2007.
"At this distance, prospects for 2008 look brighter. The more benign inflation outlook is expected to result in lower interest rates by early 2008. This in turn should support demand from home-buyers and buy-to-let investors and result in firmer house price growth."
In2Perspective provide free news and analysis emails on UK house prices, interest rates, Home Information Packs and the UK economy. If you would like to receive the free In2Perspective newsletters register here.
Canucks are paying more for New Houses
House prices rise at fastest rate since 1989
Last Updated Thu, 08 Jun 2006 09:51:16 EDT
CBC News
The price of a new home in Canada rose by the fastest rate in 17 years in April, led by Calgary, the nation's hottest housing market.
Demand keeps rising for new housing in most Canadian centres. (CBC)
Homebuyers now have to pay 8.2 per cent more on average than they did a year ago, and 38 per cent more than in 1997, Statistics Canada's base year.
In its regular monthly report, Statistics Canada said its New Housing Price Index rose by 1.2 per cent between March and April, to 138.2. The federal agency did not provide a dollar value for the average house.
Prices rose in 14 of the 21 urban areas that were studied, pushed up by high demand for housing and higher costs for construction material, labour and land.
Prices rose by 4.7 per cent in Calgary, 3.9 per cent in Edmonton, and about one per cent in Montreal and Vancouver.
In Toronto, the price of new homes rose by 0.4 per cent between March and April and by 4.1 per cent over the year.
Last Updated Thu, 08 Jun 2006 09:51:16 EDT
CBC News
The price of a new home in Canada rose by the fastest rate in 17 years in April, led by Calgary, the nation's hottest housing market.
Demand keeps rising for new housing in most Canadian centres. (CBC)
Homebuyers now have to pay 8.2 per cent more on average than they did a year ago, and 38 per cent more than in 1997, Statistics Canada's base year.
In its regular monthly report, Statistics Canada said its New Housing Price Index rose by 1.2 per cent between March and April, to 138.2. The federal agency did not provide a dollar value for the average house.
Prices rose in 14 of the 21 urban areas that were studied, pushed up by high demand for housing and higher costs for construction material, labour and land.
Prices rose by 4.7 per cent in Calgary, 3.9 per cent in Edmonton, and about one per cent in Montreal and Vancouver.
In Toronto, the price of new homes rose by 0.4 per cent between March and April and by 4.1 per cent over the year.
Subscribe to Posts [Atom]