Housing Bubble Bursting?

[Pamela Crowley (Florida)]

If you think people buying houses the last five years were “speculating” and are going to all sell any minute, then where do suppose they will live?

Right where they are living now?

NARs latest has the 'investment' and 'second home' purchases, nationally, at almost 40% for 2005. It was 36% in 2004. Those are the ones that selling off. Various areas of the country have much less than that 40% involved in their market, some areas have much more than that 40%. In Florida, many of those in that 40%+ purchases here last year are sitting here vacant with For Sale or Rent and number of them just like that is growing fast. Only negative ROI if they can find a renter. My only conclusion at this time is that this area of Florida at least is overbuilt for the population and the speculation buyers are gone. Lots and lots of speculation owners are trying to get rid of what they're holding and these are not owner occupied.

IMO, the single family residential market does bear up well under that much speculation. These are houses that nobody lives in and I'm seeing a growing number about equal to the number being built for a while now. Some have been vacant and for sale or rent for over a year now.

The longest list in my MLS daily update is the price reductions. 10% or more drops in asking prices is not unusual now with some hitting 20%. The total number of active listings is more than double than this time last year. The total number of closings is less than half of this time last year. 0 - minimal contingent pendings last year, more contingent than straight pending now. Fast rising DOMs and the list to sale price ratios are rising just as fast.

I'm seeing some places that I could have appraised for almost 20% more last early Fall than it will appraise for now. I'm talking 6 months time.

I'm just watching and reporting the facts.

 

[Couch Potato]

Why let the facts get in the way?

I'm seeing some places that I could have appraised for almost 20% more last early Fall than it will appraise for now. I'm talking 6 months time.

I'm just watching and reporting the facts.

Gee, but I talk to a guy last week making money in Palm Bay real estate so you must be wrong?

:rainfro: :rainfro: :rainfro:

 

[DTB]

Can someone in a price crashing market report the following: I appraised house zzz for $$$ on YYY and then appraised it for $$- on YYY.

There should be hundreds of these to demonstrate, if what some say is true.

I know I have many to demonstrate the opposite in my market.

 

[Brad Ellis]

Randolph,

Here is the summary from the Case/Schiller article you linked- and thanks fro that:

"In summary, because home prices have appreciated briskly over the past several years and outpaced income growth, concerns have been voiced about the possibility of a nationwide home price bubble. However, it is unlikely that home prices are poised to plunge nationwide, even when mortgage rates rise. Housing markets by nature are local, and significant price declines historically have been observed only in markets experiencing serious economic distress. Furthermore, housing markets have characteristics not inherent in other assets that temper speculative tendencies and generally mitigate against price collapse. Because most of the factors affecting home prices are local in nature, it is highly unlikely that home prices would decline simultaneously and uniformly in different cities as a result of some shift such as a rise in interest rates."

So, I read this as" 1) local markets can experience a downturn and 2) the national housing price level is either not declining or if declining, not by very much.

Seems to explain why some are seeing declines while others continue to see price increases, no?

George,

Quite true that, while it has not yet happened that it does not mean it could nct happen. Of course- anything can happen. But "predictions" ought to be based on what is likely to happen. I believe that, based upon history, we will not see a bubble burst nationally.

George and Steve,

When I talk about Moh's posts I react more to the threat to the banking industry than to anything local.

Mike,

So you lived in Japan for a while. So did I, but much earlier- back in the early 70's.

Having lived there you may be aware of the very basic change in the way the Japanese economy is structured today vs. back then. No more lifetime employment and the like.

Brad

 

[moh malekpour]

Moh,

Of course the scenario you lay out could happen to some loans. At the same time, the overwhelming majority will not default even when rates and living expenses go up- including gas. Lots of these folks have the abiliy to change priorities. Sometimes one spouse will take a full time vs. part time job. There are just so many variables. Individual loans are underwritten to determine the rates and then go into portfolios that are priced according to the risk they present. And the risk is NOT represented by the whole loan but, rather, by the portion of that loan that would be lost if foreclosure occurs. That is currently about 10-12%.

Now some borrowers face steady incomes while others are at the start of their careers. UWs know that. So does the secondary market. There is decades of data and experience out there.

Brad

Brad,
As you are well aware, it's early innings yet. In prior 'busts,' we were not dealing with ARMs mortgage holders, or 'no money down'/'negative amortization' buyers, or ...Fannie Mae and Freddie Mac, and the whole new world of derivatives. Only time will tell if this time is different.But, even just by the historical record, we are looking at a 20-30% drop!A recent Federal Reserve study examined housing booms and busts in 18 countries since 1970. It identified 44 booms, centered in the 1973-1974, 1978-1979, 1986-1989 and current years. On average, inflation adjusted house prices rose 28% in the five years before a peak but then fell 22% in the following five years

 

[Randolph Kinney]

Brad,

Yes, some local markets are showing some price appreciation. However, the Northeast and California regional markets are showing signs of stress as well as Florida. David speaks of the NY market he is in. Pam speaks of the FL market she is in. I speak of the Southern California market I am in. We all have one thing in common: we see a problem with the housing market.

 

[Fred]

NARs latest has the 'investment' and 'second home' purchases, nationally, at almost 40% for 2005. It was 36% in 2004. Those are the ones that selling off. Various areas of the country have much less than that 40% involved in their market, some areas have much more than that 40%. In Florida, many of those in that 40%+ purchases here last year are sitting here vacant with For Sale or Rent and number of them just like that is growing fast. Only negative ROI if they can find a renter. My only conclusion at this time is that this area of Florida at least is overbuilt for the population and the speculation buyers are gone. Lots and lots of speculation owners are trying to get rid of what they're holding and these are not owner occupied.

Oh please. No wonder you all use the word "bubble." It fits with stretched logic.

Even take your 40% of everything that sold in 2005 (and not making any allowance for how many bought the second home before selling the first beccause they could afford to, and subsequently sold the first home). What sold in 2005 1% of the houseing stock? And less than half of that may be second and thrid homes. And some portion of those may be mortgaged. And some portion of those mortgaged propertiies can only rent at negative cash flow because rents are too low. And some portion of those who own two or three homes suddenly can't tolerate losing a couple hundred bucks per month and are going to panic sell?

Let's see, 1,000 per day moving to FL, but no sellers an no renters? Mabye Epcot can bulld a Bubble Word exhibit, so the millions of visitors can see what it looked like before the big burst,

I still think it worse last time. Interest rates were 10%. Corporations were "downsizing."

 

[The Warrior Monk]

Can someone in a price crashing market report the following: I appraised house zzz for $$$ on YYY and then appraised it for $$- on YYY.

That's not the criteria I use for a declining market.

Let's say a market appreciates at 20%-25% a year for several years. Then the price appreciation goes to 0% in the course of a year.

The fact that a 20%-25% annual appreciation evaporates is not ignored. This is where my market is.

Does that make a difference to the average investor?

Do you think that when the average investor pulls out of the market that prices will remain flat or increase (i.e., not decline)?

 

[Bobby Bucks]

Since someone somewhere is predicting every possibility at any point in time, you can always look back and find someone who was “absolutely right.” That’s called random chance.

Steven thank you. About once a month there is something of value in the bubble threads and that was certainly worthy. There seems to have been a rash of Nostradamus type posts/blogs within the last few years related to real estate. I have to wonder who will have the time and energy to search and find the genius who predicted exactly when the bubble happened/happens. I predict that it will occur on February 29, 2007. If I’m correct, I expect to be handsomely compensated and have a cult following for centuries thereafter.

 

[Randolph Kinney]

I still think it worse last time. Interest rates were 10%. Corporations were "downsizing."

And the time before that? Interest rates were higher than 10%.

Outsourcing and downsizing has been the norm since the last time and is still going on.

Interest rates are still rising. However, we have the help of foreigners buying up debt instruments of all sorts that keep our interest rates lower than what they would be if they did not do that.

For example, if China lets their Yuan rise relative to the dollar and not buying as much of our debt, that will cause interest rates to rise here. It will also raise prices on imports from China. Just a thought.