Housing Bubble Bursting?

[CANative]

In my markets, agents do not list concessions or seller credits with only rare exceptions. I have to pry it out of them usually with trickery. The tip off is a sale price higher than listing price when there are a high number of days on market. Even then, many agents will claim there were multiple offers.

The best strategy is to ask the selling agent. It seems they're more willing to admit to it. Maybe they're proud that they negotiated a seller concession and the listing agent is ashamed that their client had to settle for less.

I've complained to the various boards I am a member of but my concerns seem to fall on deaf ears.

 

[Terrel L. Shields]

agents do not list concessions or seller credits with only rare exceptions

Our MLS's do list such AT THE LISTING....i.e.- if a builder is offering upgrades, etc. you'll find it...but, if during negotiation additional concessions are made, we are unlikely to find it in the MLS...even with the closing statement, I am often uncertain what is 'kosher' and what is typical in some complex deals.

1031 exchange hinging on seller paid closing costs, new carpet installed, Nehemiah contribution, and the broker willing to "eat" $3000 to keep from losing a $20,000 commission.....

 

[Randolph Kinney]

Randolph,

No- I do not know how much of the concessions are reported; however, most boards (do not know about yours or mine) require that concessions be reported. The MLS systems all require that the actual selling price be shown- most have a fine if the broker fails to do that.

Randolph, please pardon me as I do not want to blantantly question your data since you seem to pay attention to the actual data- but can you please tell me how you would know what percentage of sales occur with such concessions?

You see, from your statement it is clear that you are seeing that from deals you work on and maybe from some verifications, but, if as you seem to indicate, the brokers are failing to report this, how would you actually know?

If this is extrapolation from the more limited sample you have then please say so. I'll tell you that nationally, based only upon the contacts I see- and they are numerous, although statistically unsatisfying- I have not seen much of an increase in concessions.

Perhaps it is endemic to your specific market.
Brad

Brad, first, lets look at the new home market. Are you aware what is happening? You can read about the concessions the builders are giving away in the reports from the stock brokers and analysis it has on their earnings; big time negative. Do you believe any of that?

I have driven around, walked through, talked with sales agents in these new developments here. Guess what? $50k to $100k of builder concessions on homes that range from $700,000 to $1,000,000. Are these concessions being recorded as part of the sales price? Absolutely.

So anyone that has any dealing in the new home market in California knows for a fact that builders are giving away all kinds of stuff to sell their homes. The question becomes, how much of an impact does this have and is it distorting the values being reported? Are values really declining? What do you say, Brad?

As for seller concessions on existing homes, I have not had an appraisal order this year that did not have concessions. As for the MLS, some brokers do report them, most do not. The big clue that concessions were involved is when the recorded sales price is higher than the list price. Is that typical in my market? Yes it is. What happens when I ask the listing agent for a comp about concessions, they have memory problems. Surely you can accept that when they didn't report concessions on their MLS listing. Or are you really that naive to suggest brokers really do tell the truth when asked or their listing are truthful about terms of sale?

As for public information about seller concessions on exiting homes, I posted an article from the New York Times about it. It is widely known that the market for existing homes across the country have seller concessions. Two economists estimate the average concession is 3% of the sales price. The article went on to say they believe that prices are really declining but you don't see that with the unadjusted sale prices that NAR reports.

In your operations, are you seeing any concessions in the sales contracts? In the appraisal reports? Are your underwriters adjusting for concessions?

It is all a conspiracy with lenders, Realtors and appraisers allowing concessions to go through to make the deal, especially on 100% financing. As long as the appraiser can bracket the subject, even with concessions as noted in the report, the lenders are funding the loans without adjustments. And that is my market and I suspect that is happening nationwide.

 

[moh malekpour]

Brad,
Please tell me if you really believe that the NAR has an objective opinion and feeling about real estate market. If you believe they are objective when they want to publicize a real estate market, then you should take their data, their analysis, their listing prices and their purchase contract prices for granted. If you believe that they are marketer and sellers agents and it is not in their interest to be objective, then you have to be careful when you see their data, listing prices and purchase contract prices because they are not bounded to be objective, they are bounded to protect the seller’s interest and sell the highest price possible.
Data can be anything. We are dealing with real estate data all the times. You can pick your own data if you are not objective and want to inflate the value. That is what some dishonest appraisers do. But appraisers have to be objective and can be punished if they are not, realtors don’t. That is why your bank doesn’t accept BPO or the purchase contract price as a real value. If you have that much faith on NAR Data, may be you should accept BPO’s instead of appraisals. They are cheaper and come from realtor’s data

 

[Randolph Kinney]

Some Housing Pessimism From Real Estate Brokers

Some Housing Pessimism From Real Estate Brokers

By JEREMY W. PETERS
Published: September 8, 2006
NY Times

Concerns about the housing market deepened yesterday as the nation’s leading real estate brokers’ group issued a more pessimistic outlook for the year, and two major builders cut their earnings estimates by hundreds of millions of dollars.

The latest report to predict a decline in the housing sector was notable for its source. The assessment from the National Association of Realtors, which has until recently been generally upbeat about the health of housing, was the group’s least optimistic yet.

“The boom is cooling now,” said David Lereah, the chief economist for the association, who added that falling home sales have been “a bit worse than we had anticipated.”

The group said that it now expected sales to fall further than it has said in the past — about 7.5 percent this year compared with an earlier projection of a 5 percent decline. It also said it expected prices nationwide to drop during the next few months, instead of appreciating modestly. If that happens, it would be the first time since 1993 that median home prices have fallen in any given month.

The revised realtors’ forecast came on the heels of announcements from KB Home and Beazer, two of the nation’s largest home builders, that profits this year would be lower than initially predicted.

A third builder, Hovnanian Enterprises, said yesterday that its third-quarter profits fell by more than a third. It left its guidance for the year unchanged.

The Realtors’ association said it expected both home prices and sales would slide in the coming months as the upper hand in the housing market shifts from the seller to the buyer. But that shift has yet to occur fully, with buyers and sellers staring each other down while unsold houses pile up.

But once sellers begin to drop their asking prices, housing industry officials hope that home sales will start to rise again.

The rising number of homes on the market and aggressive discounting by home builders are putting pressure on sellers to lower their prices, said Ronald J. Peltier, president and chief executive of HomeServices of America, a subsidiary of Berkshire Hathaway that owns real estate brokerage firms around the country.

There are already signs that prices may soon start to decline nationwide. In a report issued last month, the Realtors’ association said home prices in July barely inched up. The median selling price for existing homes, which rose at double-digit rates for much of the previous two years, rose only 0.9 percent compared with a year earlier. And that rise was entirely dependent on a 3 percent median price gain in the South, the only region in the country where prices did not fall.

John Lonski, chief economist for Moody’s Investor Service, said, “That’s got to be one of the biggest difficulties facing the sellers of real estate: the uncertainty of the durability of real estate prices into the foreseeable future.”

As KB and Beazer cut their earnings guidance, they cited a growing supply of unsold homes.

“A higher percentage of home closings are being deferred or canceled,” Beazer said in a statement yesterday, “immediately prior to closing in many cases, due to worsening buyer sentiment and the inability of buyers to sell their existing homes.”

KB lowered its earnings guidance for the year to $8 to $8.50 a share, down from an earlier estimate of $10 a share. That is the second time this year the builder has lowered its guidance. Other major builders like Toll Brothers and D. R. Horton have also cut their earnings forecasts.

Yesterday’s housing news raised questions about just how soft that landing would be. “As an economy, we’re more sensitive to housing than we’ve ever been,” Mr. Kleintop said, adding that as home values have increased with the housing boom, so has individual net worth. “Having that suddenly go away and pull into a recession really creates a big question mark.”

 

[Randolph Kinney]

Home Prices Fall in Nearly One-Fourth of Metropolitan Regions

Home Prices Fall in Nearly One-Fourth of Metropolitan Regions

By VIKAS BAJAJ
Published: September 6, 2006
NY Times

Prices of traditional single-family dwellings fell in 87 of the nation’s 379 major metropolitan areas from the first quarter to the second, the government reported yesterday, as the overall value of homes leveled off across the country.

On a quarterly basis, prices were lower in Boston, Sacramento, Pittsburgh and much of the Midwest, where the loss of manufacturing jobs has hit the housing market hard.

Nationally, prices increased 1.2 percent in the quarter, the weakest gain in almost seven years, leaving them 10 percent higher than a year earlier, according to an index of home purchase and refinances produced by the Office of Federal Housing Enterprise Oversight from mortgage data supplied by Fannie Mae and Freddie Mac.

By comparison, prices rose 2.2 percent in the first quarter and 3.7 percent in the second quarter of 2005.

The latest data indicates that slowing home sales and the rising number of properties for sale is forcing more sellers to reduce prices in many locations across the country.

Price declines are spreading to more parts of the country. The 89 areas affected in the second quarter compares to 66 metropolitan areas where prices fell in the first three months of the year. In the fourth quarter last year, only 29 areas reported such declines.

Prices were lower in five states — Michigan, Massachusetts, Maine, Ohio and Indiana — though the declines were less than 1 percent. Just one state, Iowa, had a price decline in the first quarter and none did in the fourth quarter last year.

“The slower sales get, and given where inventory is, it is going to require sellers to cut prices in certain markets,” said Celia Chen, director of housing economics at Moody’s Economy.com.

Ms. Chen noted that the index showed that prices were still rising in much of California, Arizona and Florida, states that experienced some of the biggest rises during the recent boom. But that may be in part a result of the fact that the government’s home price measure does not include homes with mortgages greater than $417,000.

By comparison, data from the National Association of Realtors showed that the national median home price for existing homes, the price at which half sold for more and half for less, increased 0.9 percent in June from the same month a year ago. That measure, however, is not adjusted for changes in the quality and size of homes sold from one year to the next, which the government index does take account of.

In recent years, the boom in home prices has helped increase spending by allowing consumers to take out home equity loans and larger mortgages with cash out.

But home equity borrowing has slowed in recent months and mortgage applications are down about 20 percent from a year ago.

 

[Steve Owen]

Housing Bust or Stock Market Bust?

No sign of a bubble bust in my market yet... but, there are some obvious nationwide signs, including the stock market for housing stocks.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/AHousingCorrectionOrABust.aspx

The size of the housing-price correction and its duration all still depend on our old friends the Federal Reserve, the banking industry and the economy.

And, there are some interesting trends in actual housing prices nationwide.

But while housing prices are still rising on average, they are decelerating at a record pace. The 1.17% increase in the second quarter of 2006 represents a huge drop from the 3.65% increase in prices in the first quarter of 2006.

I don't really tend to be this much of a pessimist, but I do think that when something can go wrong it often does.

I can see the housing market muddling through with something like Lereah's 5% to 10% correction in the hottest markets -- but only if the economy runs at 2.5% or better in 2007, interest rates stay at current levels and inflation doesn't kick up again. I think there's a stronger likelihood of a deeper correction because I think the scenario for the so-called soft landing has too many moving parts. When so much can go wrong, the odds are that something will.

 

[Randolph Kinney]

Steve, one thing I am taking note of is that when Intel lays off 10,500 people in the tech sector, GM and Ford are laying off in the blue collar sector, and the real estate industry is laying off LO, processors, underwriters, and real estate agents are leaving the field, and appraisers are leaving the field, it tells me that the economy is slowing faster than what all the pundits are saying. It also tells me the summer months, which are usually the highest turnover months for sales, are very sick for real estate transactions.

Some of the more Pollyanna people here can tell me about the soft landing, however, I am looking at the data and it does not support that.

 

[Couch Potato]

School Enrolments.

Something different happened this fall in Central Florida. Many school districts overestimate the number of students by large amounts; Seminole county had 3000 fewer students than expected. IMHO the reason is all the empty housing units owned by investors. The growth in student populations was based on the construction of housing in the area, a method that is normally very reliable. The method failed this year due to the large number of those new houses that are setting vacant. Many like to optimistically point to the strong population growth that will fill the vacant units rather quickly, but I'm not so sure about that. Florida used to be very attractive as a place to retire due to low taxes and low housing costs. Those advantages are now gone. Not only have housing prices risen directly, the taxes on the houses have gone up and insurance costs are through the roof. It is not uncommon for a new homeowner to find that of the payment, PITI, the Principle and Interest part is smaller than the Taxes and Insurance part. Rates will drive prices lower in Florida, but it is insurance rates not interest rates at the wheel.

 

[moh malekpour]

If the correction in real estate market took place, it would be a real and local correction. Some areas may need more correction than others and some areas may not need any correction because there hasn’t been anything there to be corrected,
In my area, when I look at current listing prices or recent sale prices and compare them to their sales history in 2001-2002 of those that have that history, I can see 100-125% price increase in that short period without any major upgrades. The normal increase for these properties should be 20-25% and the real correction should be the difference of those two something between –75% to –100%. If and when that correction happened, the corrected values are still can be considered gained values historically speaking but lost values from their unreasonable gains in a short period. Does the law of balancing and equilibrium would do that correction now or delay it for another decade? It seems that it has just started but if the Fed intervene by bringing the rates down again as it did in the past, the need for that correction might be delayed that would need even more correction later. The need for correction is inevitable sooner or later but the sooner, the better.