Housing Bubble Bursting?

[Randolph Kinney]

NAR President Having Hard Time Selling His Home

A Humbling Lesson for Realtors' President

By Sandra Fleishman
Washington Post Staff Writer
Saturday, September 9, 2006; Page F01

He, of all people, should have known better.

The president of the National Association of Realtors, Thomas M. Stevens of Vienna, admits he didn't follow his agents' advice when the real estate market started to cool. That, he says, is why his old house in Great Falls has now been on the market for a year at the price of $1.45 million.

"What I should have done," confessed the senior vice president of NRT Inc., parent of Coldwell Banker Residential Brokerage, "was listened to my agent and cut the price by $50,000 to $100,000 early on, and the property would have sold last October."

Or, even better, he said, "I should have listed it a month earlier," when the market was only just beginning to lose air.

Now Stevens, like so many other home sellers in the Washington area and around the nation, is waiting for a buyer in a market that has totally reversed course since a year ago. With two or three times the number of properties listed this year as last in some neighborhoods, agents are urging sellers to lower their expectations, put on their best face and offer incentives such as closing cost help.

Stevens does have a better excuse than most for not paying attention. He's been on the road most of the year as head of the 1.3 million-member real estate organization, the nation's largest trade group. And when he's at his current home in Vienna, "I've been downtown lobbying."

He and his wife, Lindy, were also preoccupied in the past few years with remodeling the home they now live in, a 100-year-old farmhouse called Windover House. They bought that property in 2001 for $1.3 million. It's now assessed at almost $2.8 million, a testament to the hot market.

Stevens said that when he set the price for the four-bedroom, 3 1/2 -bath Great Falls property, his agents, Gail and Terry Belt of Coldwell Banker Residential Brokerage in Vienna, warned him that he might be high. And they have continued to remind him about the shifting market.

"They sent the letter telling me the listing was approaching a year" and that the price needed another look, he said. "They're doing their job as agents. I'm not doing my job as a seller."

But, he noted, in his defense: "Who knew last September how long this down trend was going to continue," after so many years of climbing upward?

When asked how long sellers should expect a sale to take these days, Stevens said 40 to 60 days would be typical. And if a house hasn't moved by then, he said, "You need to adjust the price. . . . But I didn't do that. And my house is still on the market."

EDIT: The fool! He has been reading and believing NAR's lies about a soft landing, not to worry, no price declines, no seller concessions, etc. Nothing like being hoisted on your own petard.

 

[Randolph Kinney]

Sellers Wonder What It Takes To Sell As Inventories Grow

By Lauren Baier Kim

Inventories rise; home sales plunge

In August, home sales took a dive in many large cities across the U.S., according to a The Wall Street Journal Online article. Among the places showing the biggest drops in the number of homes sold were California, Florida, Arizona, Massachusetts and the Washington, D.C., area, the article says. Nationally, the number of homes on the market rose 3.5%, according to the Web site. As a result of the market downturn, buyers may take their properties off the market, and home builders are offering incentives to spur sales, the article says. Prices in some U.S. locations for newly built homes are down 10% to 15% from a year ago, the article says. "We believe that the housing market is still in the early innings of a hard landing that will likely take several years to develop," one housing analyst is quoted as saying. Use an interactive tool to track inventories of homes for sale in 15 large metro areas across the U.S.

Prices falling in Los Angeles

Patience may be a money-saving virtue for Los Angeles-area home buyers, according to an article published by the Los Angeles Times. Home buyers who wait out the market could stand to profit, with home prices forecasted by one real-estate professional to drop 2% to 3% yearly for the next three to five years, the newspaper reports. "Prices are going to be a little weaker a year from now, and there'll be more listings and more choices," one real-estate professional is quoted as saying. The median home price dropped from $493,000 in June to $492,000 in July, and the number of residential properties sold was down 27% in July from the year before, the article says. Yet, the Times cautions that timing the market for when it hits rock-bottom could be tricky, and could result in missed-out real-estate deals. "If the timing is right and you've seen a home you like that has gone down in price, why not get in the ballpark?" the paper quotes one local real-estate agent as saying.

 

[moh malekpour]

The Hard Landing For Housing is Already Here

http://www.comstockfunds.com/index....t Commentary&newsletterid=1263&menugroup=Home

Posted on: Thursday, September 14, 2006
The Hard Landing For Housing is Already Here

The market is suddenly assuming that since energy prices are declining and mortgage rates are drifting down, consumer spending will pick up and the housing industry decline will end. In our view this outcome is highly unlikely. Our negative outlook for consumer spending is based far more on the end of the housing boom than it is on high oil prices. In turn, it is now evident that housing is already undergoing a hard landing that can’t be cured by a downturn in mortgage rates, and that the situation is likely to worsen. Here are some facts to consider.

Ø 32.6% of new mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000

Ø 43% of first-time home buyers in 2005 put no money down.

Ø 15.2% of 2005 home buyers owe at least 10% more than their home is worth.

Ø 10% of all home owners have no equity in their homes

Ø $2.7 trillion in loans will adjust to higher rates in 2006 and 2007.

Ø 70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.

Ø Homeowners face higher payments as mortgages are reset. Generally, monthly payments rise between $200 and $500 depending on the size of the mortgage.

Ø According to Reality Trac, August foreclosures were up 23% over July and 53% over a year ago.

Ø The number of homes for sale is at record highs, and inventories are 59% higher than a year earlier.

Ø New home sales are down 22% and existing home sales down 11%.

Ø The NASB housing market index has recorded an all-time decline.

Ø The housing affordability index is at a 15-year low.

Ø The house price-to-income (rents) ratio is off the charts. According to HSBC, in 18 states accounting for over 40% of national home values, the price-to-income ratio is 3.6 standard deviations above the mean.

Ø The OFHEO index of house prices deflated by the consumption price deflator has soared to a record high of 350 from 250 in 2001. From 1976 to 1996 it never was above 220.

Ø According to the NAR the year-to year prices of existing homes are now flat. A short time ago they were rising at a yearly rate of 16%.

Ø Nationally, home prices have not declined on a year-to-year basis since 1933. Recently, however, prices have been dropping in the North East, West and Mid-West.

Ø Sales incentives are now estimated at 3% to 7% of selling prices.

Although new housing starts directly account for only 5% of GDP, the indirect effects are far greater. Some studies show that the housing industry and all its related activities have accounted for 30% to 40% of the entire employment growth in the current cyclical expansion. In addition it has been well demonstrated that mortgage equity extractions have been a cash cow providing home owners with hundreds of billions of dollars that have gone into consumer spending. With housing already in a hard landing, it will be extremely difficult to avoid a hard landing in the economy as well. In our view the stock market is in the same kind of denial it was in 2000 when the vast majority of strategists and economists already knew the dot-com bubble had burst, but mistakenly thought it would have little impact on the rest of the economy or on stocks.

 

[Tim The Enchanter]

I actually checked the declining box today on one, I had clear evidence which I included, and my opinion of value was at $530, versus $550 last November.

 

[Randolph Kinney]

Brad,

1. There was NO recession by historical definition (two consecutive quarters of negative growth) in 2001. Per the goverment statistics, the only negative growth quarter occured in the 4th quater of 2001. Further, that happened largely because of the 9/11 attacks and the changes they occasioned, such as deeply reduced travel and hotel occupancy, etc. So, sorry, but I do not agree.

Okay, that is my point, there is no agreement about the recession of 2001. You and the government are in a state of denial. The difference between you and the government is that the government changes the data, calling it revised, two years or more after the facts are collected. You then come around to quote the government's position. You don't consider the reality.

Funny thing, if you Google "recession 2001", you get [SIZE=-1]9,980,000 hits. You can read about the news on the recession and what economists (including the government) was saying over time.[/SIZE]

Panel says downturn began in March, 2001
NEW YORK (CNN/Money) - The world's largest economy sank into a recession in March, ending 10 years of growth that was the longest expansion on record in the United States, a group of economists that dates U.S. business cycles said Monday.

The National Bureau of Economic Research (NBER), composed of academic economists from Harvard, Stanford and other universities, joined a chorus of economists and investors who were saying that a recession had already begun.

At the White House, President Bush, whose father lost the White House partly as a result of the country's last recession, said the declaration added urgency to the need to get a package of economic stimulus measures approved by Congress and passed into law.

"I knew the economy was not in good shape right after I took office," he said. "We will do everything we can to enhance recovery."

The president called on Congress to move quickly to pass an economic stimulus so that he will be able to "sign it before Christmas."

2. The housing correction of the early 90's happened ONLY in Southern California. It was not national at all. And THAT happened in large part because of the decision in the Bush I administration to cancel/reduce spending on defense and aerospace- both substantial portions of the SoCal economy back then. So again, I do not agree.

Okay, that is my point, again, there is no agreement about the housing correction in the 90's. You say it only happened in SoCal. I do believe if you do a search on OFHEO for the house price index history, you can see that both east and west coast had negative price changes that started in 1990 for the east coast and started in 1992 for the west coast and both continue through 1995. During that same period of time where both east and west coats suffered multi year declines in the HPI, you will see the HPI for the U.S. as a whole had years of less than 1% positive growth. http://www.ofheo.gov/HPIRegion.asp

You seem to think that having the U.S. FED Funds rate cut to 1% has nothing in common with what happened in Japan. So why did the FED cut rates so low? Why did the government have two massive tax cuts? You say no recession so that can't be it.

Do you recall a word that was used before the recession of 2001? CONTAGION?

Contagion is the transmission of shocks to other countries or the cross-country correlation, beyond any fundamental link among the countries and beyond common shocks. This definition is usually referred as excess co-movement, commonly explained by herding behavior.

Do you know about the hedging and arbitrage going on with currencies and government bonds? All during the decline of the Japanese stock and real estate markets, Japan continued to run a positive balance of trade, especially with the U.S. How does this happen? Why does the Yen remain undervalued relative to the dollar?

Analysts, academics and policy makers have recently asked three fundamental questions related to “contagion”: (1) What are the channels through which financial upheaval is transmitted across countries. (2) Why do some crises spread so quickly and violently, while others are constrained to a particular country. And, (3), is there anything can be done to reduce a country’s vulnerability to externally-originated shocks.

Food for thought, it just may give you a different view of the problems in Japan and how the U.S. is not as isolated as you think.

 

[Brad Ellis]

Moh,

I note all the data from comstock, but I sure do not know what you saw on CSPAN- did not view the hearings.

BUT,

Here is an article from Dow Jones ( a source I would sure trust a lot more than some private analysis firm) about the hearings. Yep- I added some emphais, but I think you will see that THEY must have heard something different from what you concluded:

Calculated Risk
Click Here to Return to Main Page
Politics and Economics
Wednesday, September 13, 2006
Senate Banking Hearing
Dow Jones reports: Experts See Limited US Housing Decline But No Collapse

Excerpts:
The U.S. housing market should experience a limited decline for the remainder of 2006, but an outright collapse with ripple effects through the economy is unlikely, housing experts told lawmakers Wednesday.

Housing prices are seen continuing a limited fall through this year, according to testimony by Thomas Stevens, president of the National Association of Realtors, to a Senate Banking Committee panel.
...
"After undergoing a boom of historic proportions in recent years, a variety of recent indicators show that housing market activity is waning in most areas of the nation," said Richard Brown, chief economist of the Federal Deposit Insurance Corporation.

A widespread bust, however, "remains an unlikely outcome," Brown added, citing continued solid growth in the economy and homeowner behavior that tends to lead to home price stagnation, not steep declines.

The housing market exerts a major influence on the economy, directly though construction spending and employment and indirectly through consumer spending.
...
Patrick Lawler, chief economist at the Office of Federal Housing Enterprise Oversight, told the Senate panel he expects housing to perform well over the long run, especially if immigration continues. He called the current state of play "general chilling."

David Seiders, chief economist for the National Association of Home Builders, said he expects a period of "below-trend" performance in housing after an "unsustainable" run up in activity in 2004 and 2005.

However, he also projects a gradual recovery to begin around the middle of 2007 and into 2008.
Here is the conclusion from Lawler's statement
Although the future direction of home prices is the subject of great speculation, there is little doubt that several factors may constrain appreciation rates in the near future. First and most fundamentally, home prices are at historically high levels and have already started to stretch past many traditional affordability boundaries. Home affordability is at very low levels in places like California and the New England states, for example. Barring very significant increases in average incomes or interest rate declines, these price levels will weigh heavily against major price increases in the near term.

The second constraint on appreciation rates is rising housing inventories. The number of homes available for sale has increased substantially over the last year, giving homebuyers much more bargaining power than they have had in recent periods. Such bargaining power can lead sellers to reduce prices.

The third and final factor involves market psychology. Although it has been difficult to accurately quantify the effect of speculative activity on recent appreciation patterns, anecdotal evidence suggests that its effect may have been material in select markets in California, Nevada, Arizona, and other states. To the extent that the recent slowdown in appreciation rates may sour some potential investors on real estate investments, home demand may decline somewhat.

Despite the presence of various factors that may act to constrain price appreciation in the near term, I would like to stress that housing markets and price appreciation are affected by some very basic economic and demographic patterns. For example, migration patterns (both domestic and international) affect the demand for housing and thus influence price movements. Also, the extent to which retiring baby boomers opt to increase or decrease their demand for second homes may also play a role in determining the direction of prices in the future. Finally, the cost of constructing new homes clearly can play a role in affecting supply and thus home prices. As is the case in other markets, the future trajectory of prices will be determined through a netting out of these factors, in addition to the short-term demand and supply determinants that have already been discussed. Thank you, and I’d be happy to answer any questions.
posted by CalculatedRisk at 11:15 AM

Comments (4) | Trackback

Brad

 

[Randolph Kinney]

Consider the source ...

Housing prices are seen continuing a limited fall through this year, according to testimony by Thomas Stevens, president of the National Association of Realtors, to a Senate Banking Committee panel.

Why would anyone believe or put faith in the words from this man? Just look at his own example of selling his house.

... his old house in Great Falls has now been on the market for a year at the price of $1.45 million.

"What I should have done," confessed the senior vice president of NRT Inc., parent of Coldwell Banker Residential Brokerage, "was listened to my agent and cut the price by $50,000 to $100,000 early on, and the property would have sold last October."

So here is the president of NAR giving his worthless opinion (he does not listen to himself) while his house sits on market for over a year and he admits he will have to cut the price significantly and offer concessions on closing cost. This is an example of a limited fall in the prices of houses?

 

[Brad Ellis]

Randolph,

This may surprise you but I made a partial misstatement and am admitting to it right here.

My quote, " The housing correction of the early 90's happened ONLY in Southern California. It was not national at all. And THAT happened in large part because of the decision in the Bush I administration to cancel/reduce spending on defense and aerospace- both substantial portions of the SoCal economy back then. So again, I do not agree."

I did check the OFHEO regionals and will admit the East coast decline as well. I had forgotten about the tech shift out of New England back then. I now recall the declines in Boston, etc. after Dukakis got his butt kicked by Bush I.

Still, my comment about it not being national is backed up by this very same data.

While the rate of increase declined, the actual prices did not decline; there was not a single quarter in the period during which national prices declined. The rate of increase is what declined nationally.

Further, even though I lived in the midwest back then, I have heard and read many stories about the incredibly steep price declines in SoCal. BUT, when we look at this data, we see mostly, if my memory is good, single digit declines in the Pacific market in that period.

So, if SoCal went down so dramatically then, does that not mean that other areas of the Paciic region must have increased? Otherwise the data should show a much much larger decline. Now, since I used the word correction, I gotta live by the sword/die by the sword. So, yes, there was a correction in other markets.

It is, however, pretty clear now that while the SoCal declines were far deeper than elsewhere, other declines were present- so giving you the brownie points for part of this.

Okay- next surprise is yet another agreement with you:

There is no agreement on these things, be they terminology, analysis of the data, etc.

So we agree again- amazing. And I think these recent posts amply demonstrate that. I use the government statistics- even though I may occasionally trip over my feet as I look at them (forgive my aging memory). You then post what a group of noted economists said.

Then, Moh posts an analysis from a private firm and I use what I believe to be a more accurate analysis by Dow Jones. I know they are private, too, but I will believe their analysis about the statements over a stock analysis firm whose track record I do not know.

Is this just now boiling down to a question of whom we each believe? And are we now simply citing sources that support our own views? Looks that way to me.

Now as to your Japan comments, we will continue to disagree. The Yen is undervalued to the dollar? According to whom? Please- do not bother finding yet another article by experts or supposed experts- you already know that I'll find one that contradicts it. If you are that convinced that you or your experts are correct, you ought to be buying Yen. Clearly the Japanese economy is starting to do well. If you do so, let me know. I have not traded Yen in years. Might actually be a god play even if you are wrong on current data since even if it is not undervalued today, future growth over there may strengthen it anyway.

This reminds me of Reagan who used to tell us the rate of growth in the goverment was going down- except that the goverment was actually still growing.

Ah well, we are now at the point where each of us is saying, My expert can beat up your expert!

Brad

 

[moh malekpour]

Brad,
I watched the C-Span on my computer. It was a rerun and at least an hour session. I didn’t record it but just took notes. It was a question and answer. I guess there were 5 or 6 senators who asked questions. Some senators were very specific. The excerpt that you put on is only 5 minutes of the hearing. Where is the rest of hearing? I saw those lines too but they all had a follow up and they were dancing around them. There was a question of demand and supply and there were several reasons for more demands besides what you see in that article such as flight of equity investors, available option arms loan to first time buyers and investors. Why your article missed them? Any question and answer had a follow up and clarification. The specific question of lowering the interest rate to 1% and keeping it in one full year and the follow up was the flight of equity investors to housing market and availability of exacting mortgage, then the geographical area like 22% metro area and 89 markets that have the most housing market.
You should know if they didn't feel there was a crisis, they wouldn't waste their time to hear housing market.

Your article is an excerpt. I have the article with the link and the author Brian Blackstone, Dow Jones Newswires from the same source Dow Jones. It has some code form Boston Fed President Cathy Minehan that your article doesn’t have and your article has something that this one doesn’t have. When there is an excerpt, usually there is some important thing missing.
http://news.morningstar.com/news/DJ/M09/D13/200609131206DOWJONESDJONLINE000800.html?Cat=WashWire
Experts See Limited US Housing Decline But No Collapse

09-13-06 12:06 PM EST
WASHINGTON -(Dow Jones)- The U.S. housing market should experience a limited decline for the remainder of 2006, but an outright collapse with ripple effects through the economy is unlikely, housing experts told lawmakers Wednesday.

Housing prices are seen continuing a limited fall through this year, according to testimony by Thomas Stevens, president of the National Association of Realtors, to a Senate Banking Committee panel.

But Stevens said there isn't a national housing bubble and called recent trends an "adjustment" to a more "balanced" market between buyers and sellers.

"After undergoing a boom of historic proportions in recent years, a variety of recent indicators show that housing market activity is waning in most areas of the nation," said Richard Brown, chief economist of the Federal Deposit Insurance Corporation.

A widespread bust, however, "remains an unlikely outcome," Brown added, citing continued solid growth in the economy and homeowner behavior that tends to lead to home price stagnation, not steep declines.

The housing market exerts a major influence on the economy, directly though construction spending and employment and indirectly through consumer spending.

The Federal Reserve is watching the sector closely as it balances risks to both inflation and economic growth. The Fed cited a cooling housing sector in last month's decision to pause its two-year rate increase campaign, keeping the fed funds rate at 5.25%.

On Monday, Boston Fed President Cathy Minehan said "there are clear risks to the baseline housing outlook."

While Minehan said she's comfortable with forecasts for a moderate downturn in residential building, she cautioned that recent data, including "gloomy assessments" by home builders, are a reminder "that this assessment could well be optimistic."

New home sales are projected to fall 16.1% to 1.08 million in 2006, and existing home sales are forecast to dip 7.6% to 6.54 million, NAR said last week. The association's pending home sales index, a leading indicator of activity, has also fallen sharply in recent months.

NAR's Stevens said future Fedaction could determine whether housing slows modestly or suffers a steeper collapse. Referring to last month's pause, Stevens said, "We're hoping it came in time." Whether the fed funds rate starts to rise again will determine if the market will "slide off that fence"between limited slowdown and a sharper decline, he added.

Patrick Lawler, chief economist at the Office of Federal Housing Enterprise Oversight, told the Senate panel he expects housing to perform well over the long run, especially if immigration continues. He called the current state of play "general chilling."

David Seiders, chief economist for the National Association of Home Builders, said he expects a period of "below-trend" performance in housing after an " unsustainable" run up in activity in 2004 and 2005.

However, he also projects a gradual recovery to begin around the middle of 2007 and into 2008.

But, like Stevens, he urged the Fed to refrain from raising interest rates further, saying any more hikes would lower both the economic and housing outlook.

-By Brian Blackstone, Dow Jones Newswires; 202-828-3397; brian.blackstone@ dowjones.com


(END) Dow Jones Newswires
09-13-06 1206ET
Copyright (c) 2006 Dow Jones & Company, Inc

 

[Steve Owen]

Not National... if you consider the source

http://www.realtor.org/rmodaily.nsf...cde2d55457ba1571862571e8005180be?OpenDocument

One-third of the country (by population) is still seeing rising home prices, including Alaska, New Mexico, Vermont, and many states in the South, excluding Florida. States that experienced the greatest increases in home prices in recent years are experiencing significantly lower sales. These states include Arizona, California, Florida, Nevada, and Virginia.

And here... where there never was any unrealistic run-up in prices, things are continuing to rock along, pretty much as usual.