Housing Bubble Bursting?

[Austin]

A Mid Summer Nights Dream

STRADFOR is a private for hire international intelegence outfit. See stratfor.com
A few years ago they had an excellent article titled, "A Mid Summer Nights Dream." It was about the Japanese economy. To make a long story short: Japan had two alternative courses to correct their situation. Wait it out for a generation or two, or let the economy go bust and start from scratch. I think they generally split the difference. They deflated slowly which may have been more painful because their economy is a real contraption. I am not sure anyone understands it.
Our problem is that our political system cannot survive for 16 years and endure a slow deflation. Actually it could, but it won't. I get the feeling that the Feds have realized that the jig is up and they can no longer control events. The situation due to Katrina is an example. Basically what has happened down there is that the private owners have rebuilt and are better off then ever and the people that relied on or are waiting for the government to fix things are still waiting. Have you seen a picture of the mobile homes the government purchased and can't install because they are not legal in LA? It is a hoot. The federal government is officially irrelevant. It is all a hoax. It is back to caveat emptor. What happens happens. The old juggler has to many balls in the air and two few hands.

 

[Steve Owen]

... appraisers are leaving the field....

Cool! More work for me. :new_llying:

(Actually, not cool. I'm booked through mid-October and couldn't take another one if it came through the door... unless they were willing to wait.)

 

[Brad Ellis]

Moh,

Your suggestion that NAR is "cooking the books" on their surveys is simply ridiculous. Oher studies by many sources indicate they are legitimate.

You seem to be hung up on some NAR conspiracy theory. NAR has way too much to lose in doing that I do not believe it is happening- period. Not talking about their interpretations of the data- I told you to just look at the data.

Randolph,

No doubt that new construction is off in price and volume. How much of the market is being affected? Your own posts indicate concessions on new stuff is around 3%.

To answer your question I asked my wife who is a staff reviewer. Her anecdotal data suggests we are not seeing all that many sets of concessions on existing housing- and most of her work is in SoCal. I see the same thing.

But, I still want to look at the big picture. OFHEO says prices are up as do the GSEs and NAR. Clearly slowing but still up- and after easily a year of dire predictions of a bursting bubble all over the press. Actually, it has been at least 5 years since those original predictions.

Not one month of declines in 13 years. Can it happen? Absolutely. Has it happened" Not yet.

Will it happen? My guess- probably. But again, should we call some minor declines a bursting bubble? I think not- at least not yet.

Let's see if we actually get to that magic 15% decline that you found in the FDIC definitions.

Frankly, what I think will happen is that we will most likely enter into a minor recession. During that time new homes sales will stay soft and may even decline further and existing home sales will slow as well even to the point of some price declines over a period. However, once that sets in, we will likely find that new home inventories dry up some and, as interest rates level or start to come back down (what normally happens in a recession), sales of existing homes ten begin to increase again.

That is what my data is suggesting. Interestingly, also what my Smith Barney study indicates as well.

Time will tell. Wonder what county the LA times will show today?

Brad

 

[Randolph Kinney]

Randolph,

No doubt that new construction is off in price and volume. How much of the market is being affected? Your own posts indicate concessions on new stuff is around 3%.

Brad, the article specifically stated 3% on average on existing home sales. It is widely known that new homes are being heavily discounted, more than 3%.

To answer your question I asked my wife who is a staff reviewer. Her anecdotal data suggests we are not seeing all that many sets of concessions on existing housing- and most of her work is in SoCal. I see the same thing.

Well at least you are acknowledging concessions are happening. These concessions, are the appraisers adjusting for them? Are your underwriters adjusting for them?

But, I still want to look at the big picture. OFHEO says prices are up as do the GSEs and NAR.

There is a big difference in the reported data from NAR versus OFHEO. I posted an article in this thread about that. OFHEO data and GSE data home price measure does not include homes with mortgages greater than $417,000. NAR data 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.

Not one month of declines in 13 years. Can it happen? Absolutely. Has it happened" Not yet.

Did you notice that NAR's July report of 0.9% home price increase? All regions declined, except for the South, which rose 3%, gave a net +0.9%.

Frankly, what I think will happen is that we will most likely enter into a minor recession. During that time new homes sales will stay soft and may even decline further and existing home sales will slow as well even to the point of some price declines over a period. However, once that sets in, we will likely find that new home inventories dry up some and, as interest rates level or start to come back down (what normally happens in a recession), sales of existing homes ten begin to increase again.

I remember that you pointed out that there was no recession in 2001. The government revised data did not show two consecutive quarters of negative growth. The problem this time around from last, taxes have already be cut, federal spending has already been increased with higher deficits and interest rates are relatively low already. Home ownership is the highest it has even been. I believe the government is going to have a really tough time managing the next recession, judging from the "minor" recession of 2001, which didn't happen.

Time will tell. Wonder what county the LA times will show today?

Yes, time has already told NAR that their forecast needed revising, downward. And, there are more articles with increasing frequency that are shining the light of truth on the data. Sooner or later, the truth is going to come out about how home values were maintained with seller concessions. That should be after the next minor recession that had minor declining home values.

Oh, one more thing, is your bank funding option ARM loans? What percentage of loans are 100% financed? Just curious.

 

[Greg Bell]

it's over.Please take of the rose colored glasses and realize EVERYONE is cooking the books.The biggest chef is the US Government.6 Trillion in debt???
Try 17 Trillion on debt.(Including SS AND Pensions).This house of cards will not deflate slowly , it will fall faster than Monica Lewinsky's pants at a Bill Clinton birthday party.

 

[Randolph Kinney]

Brad's Next Big Worry Besides Declining Values

Lenders rally to stem foreclosures as interest rates increase


By Lew Sichelman, Inman News
September 10, 2006

WASHINGTON — The lending business is marshaling its forces on an unprecedented scale to get in front of what could be a flood of foreclosures.

It's too early to know how many owners will face the possibility of being unable to make their house payments. But 167,000 new families are entering foreclosure every three months, according to the Mortgage Bankers Assn. And that could just be the proverbial tip of the iceberg.

With mortgage rates climbing, millions more borrowers with pay-option and interest-only loans face the prospect of larger payments in the coming months. Even those with conventional adjustable-rate mortgages will feel the pinch.

An estimated $375 billion worth of loans will adjust to higher rates this year and $1 trillion in 2007, according to PolicyLab Consulting Group, an Ithaca, N.Y., firm with expertise in housing economics. Add in higher energy costs, higher homeowners' insurance premiums and higher taxes, and it's easy to see a disaster in the making.

 

[Greg Bell]

business and Construction Magazine

DENIAL IS NOT JUST A RIVER IN EGYPT.......

Home Sales Prices to Dip Temporarily

Home sales during the rest of 2006 will be lower than earlier projections as the market works its way through an inventory and price imbalance, according to the National Association of Realtors. This year sales are slowing, homes are plentiful and sellers are negotiating. Under these conditions prices dip temporarily below year-ago levels as the market works through a build up in housing inventory. The national median existing-home price for all housing types is expected to grow 2.8% this year to $225, 900, with the median new-home price rising only 0.2% to $241, 400. New-home appreciation is dampened by builders offering incentives to reduce inventory.

Existing-home sales are forecast to fall 7.6% to 6.54 million in 2006, the third best year after consecutive records in 2004 and 2005. New-home sales should to drop 16.1% this year to 1.08 million, the fourth highest on record. Housing starts are projected to decline 9.6% to 1.87 million in 2006. The slowdown occurred mostly in higher cost markets, while other areas continued to expand.

The unemployment rate is expected to average 4.8% for 2006, while annual inflation, as measured by the Consumer Price Index, is forecast at 3.5%. Growth in the U.S. gross domestic product should be 3.4% this year. Inflation-adjusted disposable personal income is projected to grow 3.5% in 2006.

 

[Randolph Kinney]

And Now - The Kicker

Buyers play wait and see

Staying on the housing-market sidelines can make or break you.

By Michelle Hofmann, Special to The Times
September 10, 2006

And they appear to have a reason to wait. DataQuick Information Systems reported that the Southern California median price slipped from $493,000 in June to $492,000 in July. The number of sales dropped to 24,669 in July, down about 27% from 33,561 in July 2005.

With an estimated one-third of Southland properties currently "wildly overpriced," according to John Karevoll, chief analyst at DataQuick, a La Jolla-based real estate research firm, patience could be a home shopper's best virtue.

 

[Karl]

Yeah easy to see that it IS over in Real Estate. The Paid Commericials have FLIPPED from RE Investing to: Teach Me To Trade @ www. TMTT.com

NOW!! that beats any Government or NAR Data available.

 

[moh malekpour]

Brad,
I am not a conspiracy theorist and I don't belive it. I believe in self presevation and self interest protection. anyone likes to protect hisown interest first and for that reason an objective opinion alwasy is more cridible than a subjective one but if you think that NAR can be both subjective and credibile, then that is what you believe.
Weather forecasting is very difficult and some forecasters in the past that were not eqipped got tired of being inaccurate most of them and being questioned about it so, they learned to say a little bit of everything when they were forecasting and according to the law of probability some of those forecasts were correct. They usually said the weather would be partly cloudy with sporadic showers in some area and sunny in some other area, some rain and wind in the north and moisture and dry in the south so, one of these would be correct and no body could ask them their accuracy. palm readers use the same tactics.
Some real estate professionals are forecasting the real estate market in the same line. They say a little bit of everything so, they have the room to change their minds when the time comes and say that was what they said.

by the way the recession doesn't cause the housing decline, the housing decline causes the recession. With the current GDP, employment rate, interest rates and CPI rate, there shouldn't be any recession if there were no housing bubble.