Housing Bubble Bursting?

[Steve Owen]

Here's the NAHB's take...

http://www.brokeragentnews.com/news/nahb/2006_9/9_29_2006_wf_1159594862.html

As I read this thread, it seems kind of sad that this problem was exacerbated by appraiser's. Yes, it's true that appraisers are in a kind of sticky situation when in a wildly inflating housing market. But, it's also true that appraisers "reaching" to help people make the deal can magnify the effects of market participants utilizing the greater fool theory. A little bit of solid performance by appraisers in the field (including, but not limited to, judicious use of the cost approach) could have helped modify the bubble on the upside and to some extent eased the pain on the downside. And no, I'm not saying we should try to control the market or report other than what we see. What I'm saying is that maybe in our zeal to report the good news of an appreciating market we, as a group, over-reached by not paying attention to some of the economic basics.

 

[Randolph Kinney]

The problem as I see it, besides what Steve is saying about appraisers, is the easy credit, no matter how low the FICO score is, and 100% financing. Mortgages that are interest only or pay option ARM also are going to cause major problems. House prices were inflated by abundance of credit, not by rising incomes. When you have the amount of speculators flipping properties and the first time investors buying up second and third homes along with 100% financing and marginal credit worthiness, that propelled prices to unsustainable heights.

Now the chickens are coming home to roost as the expression goes. The demand that was created by speculators and investors is now evaporated. That demand created by marginal credit buyers is now turning into distress sellers.

I am watching a slow motion spiraling of the real estate market; not up but down. Like watching a figure skater starting their whirling, as they pull in their arms, the faster they turn.

 

[Brad Ellis]

Austin,

Have you been reading the string?

Housing had been in a bull market. Bull markets end. Usually, they correct and go into a bear mode. Occasionally, they crash when the prior run up happened when the underlying economics failed to support such a run up.

My opinion is now, and has been from the start, that there was no housing bubble. The run up was based upon economics more than anything. But even when underlying economics do support increases, markets can still get overheated. That is what we had and now we are correcting.

But there has always been a question as to whether or not the downturn is a crash (bursting bubble) or a correction.

The difference between me and others in this string is that I had the guts (this is what you wanted, no?) to define what I think a bubble is. If the market declines more than I expect it to decline, then I will have been wrong. But, so far, I have not been wrong.

I've said over and over again that time will tell. Now, that done, care to give us your definition of a bubble??

Brad

 

[Randolph Kinney]

Realtors Now Saying Market Has Turned

By MarketWatch
Last Update: 2:44 PM ET Oct 6, 2006

Things have done a near 180-degree turn in the housing market, good news for buyers who have been raked over the coals by sellers for nearly five years running but very bad news for sellers who now cannot get their homes to move.

A survey out this week from HouseHunt, a consumer housing-information Web site, found 74% of real estate agents reporting listings sitting on the market for 60 days or more in their area, a reversal from last year at this time when 77% of those agents responding to the survey said homes were moving in 60 days or less -- an "incredible turnaround," according to Michael Bearden, CEO of HouseHunt, Inc.

Pricing continues to be a big issue in the housing market, as sellers try to maintain their values even as inventories rise. Only 51% of U.S. home sellers are now getting 95% to 100% of their listing prices, according to HouseHunt's latest quarterly survey.

Nearly 90% of agents nationwide characterize their markets as having a good supply of houses for sale, consistent with industry numbers that show inventories of unsold homes piling up in many locations. And the inventory is growing in every price range, not just at the high end.

Home-price growth has also come back down to earth. One-third of those in the HouseHunt survey said prices were actually falling in their area; 43% reported 0% to 5% appreciation and just 16% said prices were growing between 5% and 10%. In 10% of the country prices continue to grow at double-digit rates. California agents were the most negative on pricing, with 46% saying prices were falling.

 

[Randolph Kinney]

The shifting calculus of buying a house

Home buyers have another reason to sit on their hands. In the latest news from the slumping U.S. housing market, a report released this week says that median house prices are likely to decline more than 10% over the next few years in 20 metro areas, including Las Vegas, Tucson, Ariz., and Washington, D.C. The report, by Moody's Economy.com Inc., a research firm in West Chester, Pa., also says that the slump won't end quickly. Indeed, according to the report, prices may keep falling until 2008 or even 2009 in some areas. In all, prices are falling or likely to decline soon in about 100 metro areas, the firm says. See story from WSJ.com.

 

[Randolph Kinney]

Investors Responsible For California Housing Disintegration

In August 2005, a record 652 homes sold in Merced, Calif., located east of San Jose, according to an article posted by MercedSunStar.com. Compare that to last August, where about half of that number were sold -- 369 houses, the Web site says. In fact, in August, California had the biggest year-over-year drop in homes sales since the 1980s -- 30% the article says. Cited as one reason behind the decrease is the mass exodus of real-estate investors who had helped fuel the area's housing boom, which had peaked in August 2005, the paper reports. One real-estate analyst quoted in the article says that as the market corrects, local housing prices could fall by as much as 35%.

 

[Joyce Potts]

The 2004 / 2005 appreciation trend activity was hardly exacerbated by appraisers.

That's like saying when the market goes down, appraisers need to go light so they don't exacerbate declining values. Not our job. We're not there to influence the market one way or another. We're there to report and interpret it.

Regardless of our personal biases or thinking buyers were fools back in 2005, how can you effectively argue that all of Florida and in many other parts of the U.S., the nutball market last year was the result of buyer ignorance? It was, in fact, primarily due to undersupplied market conditions, coupled with stable to increasing demand. Economics 101.
Our job is to keep our personal bias out it and convey the message after thorough analysis and due diligence.

It was a bull market. Multiple contracts on one house because of bidding wars. Why? Because of UNDERSUPPLIED market conditions. That's why when FNMA revamped the forms they left the MARKET CONDITION category in the Sales Comparison Approach. That adjustment can be market extracted by comparing the closed / historic market data with like pending contracts. Undersupplied market conditions were prevalent AND SUPPORTED by the absence of competitive listings and further supported by the few listings that went pending within DAYS, sometimes HOURS of going into the MLS.

I reported the facts and let the lender make the final call. In most cases, they agreed.

Conversely, I'm taking a real close look at today's contracts and making sure that a suitable, alternative substitute (sometimes even the same floorplan in the same development) can't be bought for less, and sometimes making a negative MARKET CONDITION adjustment because of OVERSUPPLIED CONDITIONS. Some of the builders in the Central Florida market are slashing prices on existing inventory to get out from under carrying costs. And in some sub-markets, I'm actually marking oversupply on the front of the form. Aren't I popular? 500 homes in the development with 100 active listings with market days exceeding 100+ (not including all the builder offerings) as compared to 10 active listings this same time last year with market days under 10, is pretty conclusive for me.

This is why I'm always touting that residential appraisals are NOT just about closed / historic sales. There's a much bigger picture. ERC / relocation appraising is right on. FNMA made a BIG mistake in not adding three listings into the form as was talked about during the beta testing.

It will be interesting when this all shakes out with such two such drastic markets (at least in Central Florida) that turned so quickly--within 12-18 months.

 

[murray stroupe]

RE; More than a few markets in south, west are nicely rising

The 2004 / 2005 appreciation trend activity was hardly exacerbated by appraisers.

That's like saying when the market goes down, appraisers need to go light so they don't exacerbate declining values. Not our job. We're not there to influence the market one way or another. We're there to report and interpret it.

Regardless of our personal biases or thinking buyers were fools back in 2005, how can you effectively argue that all of Florida and in many other parts of the U.S., the nutball market last year was the result of buyer ignorance? It was, in fact, primarily due to undersupplied market conditions, coupled with stable to increasing demand. Economics 101.
Our job is to keep our personal bias out it and convey the message after thorough analysis and due diligence.

It was a bull market. Multiple contracts on one house because of bidding wars. Why? Because of UNDERSUPPLIED market conditions. That's why when FNMA revamped the forms they left the MARKET CONDITION category in the Sales Comparison Approach. That adjustment can be market extracted by comparing the closed / historic market data with like pending contracts. Undersupplied market conditions were prevalent AND SUPPORTED by the absence of competitive listings and further supported by the few listings that went pending within DAYS, sometimes HOURS of going into the MLS.

I reported the facts and let the lender make the final call. In most cases, they agreed.

Conversely, I'm taking a real close look at today's contracts and making sure that a suitable, alternative substitute (sometimes even the same floorplan in the same development) can't be bought for less, and sometimes making a negative MARKET CONDITION adjustment because of OVERSUPPLIED CONDITIONS. Some of the builders in the Central Florida market are slashing prices on existing inventory to get out from under carrying costs. And in some sub-markets, I'm actually marking oversupply on the front of the form. Aren't I popular? 500 homes in the development with 100 active listings with market days exceeding 100+ (not including all the builder offerings) as compared to 10 active listings this same time last year with market days under 10, is pretty conclusive for me.

This is why I'm always touting that residential appraisals are NOT just about closed / historic sales. There's a much bigger picture. ERC / relocation appraising is right on. FNMA made a BIG mistake in not adding three listings into the form as was talked about during the beta testing.

It will be interesting when this all shakes out with such two such drastic markets (at least in Central Florida) that turned so quickly--within 12-18 months.

==========

Joyce;
Dont think appraisors are to blame either;
especially rural, local lenders/appraisors are still conservative.

Notable difference betwen them and MB.

 

[murray stroupe]

RE; Wonder why many areas in south & west that are uptrending were not included??????

Home buyers have another reason to sit on their hands. In the latest news from the slumping U.S. housing market, a report released this week says that median house prices are likely to decline more than 10% over the next few years in 20 metro areas, including Las Vegas, Tucson, Ariz., and Washington, D.C. The report, by Moody's Economy.com Inc., a research firm in West Chester, Pa., also says that the slump won't end quickly. Indeed, according to the report, prices may keep falling until 2008 or even 2009 in some areas. In all, prices are falling or likely to decline soon in about 100 metro areas, the firm says. See story from WSJ.com.

===============

Thanks, dont take this personal Randolf;
actually WSJ is one of the better newspapers, but thats not saying much.

See my headline,
many areas [a smaller number than the many downtrending markets] have nicely .uptrending prices.

No wonder Investors Business Daily talks about media bias so much.

 

[Greg Bell]

Since I was R.E. Broker in the crash of 1989 Iv'e seen how fast the market can turn.I was selling homes like hotcakes in Palmdale Ca. until October 1989.
Within a few months everything came to a screaching halt.By 1990 you could not give homes away.Prices had spiked on one type floor plan from $69,900
in 1986 to $129,000 in late 1989.The next five years the upper California desert was the forclosure capital of the world.Get ready for this crash , most of the U.S. will become flooded with forclosures , get your REO training now , business will be good.