Housing Bubble Bursting?

[Randolph Kinney]

Housing slowdown spreads risk far, wide

Housing slowdown spreads risk far, wide

Jon Talton
Republic columnist
Jun. 20, 2006 12:00 AM


[FONT=arial,helvetica,sans-serif]There's only one big story on most minds in this town that's mad about real estate: the bubble deflates, the boom goes bust, the slowdown - call it what you will - occurs.

The local-yokel boosters, who never saw a leaking glass that wasn't half full, are peculiarly unqualified to interpret this event. Privately, developers, builders and real estate agents are worried.

True, the pullback doesn't have all the characteristics of the 1990 bust, especially the savings-and-loan mess of Charlie Keating and his cohorts. But it has its own dangerous elements.

The real-estate bubble was fueled by a debt bubble, courtesy of very low interest rates and easy lending. People who could never get a mortgage before became owners. Others used house equity loans for consumer spending. Now these folks are getting squeezed by falling sale prices and rising interest rates in adjustable mortgages and credit cards.

On the business side, the slowdown poses risks for undercapitalized firms. Novice real-estate agents are hurting, too.

But the big national builders aren't immune. The sales slowdown is squeezing margins. Pulte Homes stock has lost about 44 percent of its value over the past year. Last week, KB Home lowered expectations for its earnings. KB shares have been cut in half since July.

Pain is also coming from rising materials costs, which in some cases have doubled since a year ago, and, especially, higher oil prices.

Neither of these was present in a big way in the 1990 crash.

It's only a matter of time before employment numbers are affected. The big drivers behind the region's growth haven't been corporate, research and real manufacturing jobs, but construction and "services" - read many real estate services. . . .
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[Mike Simpson]

"Nice try, thanks for playing."

Thanks George...I like playing...especially when it's so easy!

"If only history could be so easily re-written."

Talk about re-writing history. You made some pretty wild predictions sometime ago regarding how far markets would tank & for how long. Those predictions are made all the more provocative considering how long ago they were written, and what has transpired since. I doubt seriously that you envisioned prices rising as far as they have (judging by your past posts) so those predictions of depreciation are magnified by todays dollars.

"I'd like to know why it is that you automatically assume that my reference to that term attributes it solely or even primarily to your usage? How can you not recognize that a lot of people whom you don't know and who have never heard of you adopted this cute little buzzword even prior to your using it here?"

For one thing...you keep attributing it to me in your arguments! Hellooooo...McFlyyyyy

This is eerily reminiscent of a thread started some years ago titled "Brokers & Investors conspiring to commit fraud using Options." It came 5 days after I (a Broker & Investor) had a conversation regarding options with the author. But I forget...it wasn't about me! (I digress).

If "people whom I don't know & have never heard of me use this cute little buzzword" then we obviously didn't learn it from each other. I believe I was the first to use it here on the Appraisers Forum (correct me if I'm wrong). I think we both understand that the term; "new paradigm" probably existed & was used as an analogy before our great grandparents were born...so I consider your point and additional remarks regarding the subject moot.

And while we're at it, why do you take personally every comment that's made on this forum?"

I don't. I like to debate certain subjects, but some impassioned writers sporadically cross the line into personal attacks & caustic remarks. I cited one such occasion a moment ago. I've also been compared to Adolph & Nero in this thread...in another thread it was said, that I counseled quitting & unethical behavior (though the author has since apologized for any misunderstanding...which I appreciate & respect...we can all get carried away from time to time...myself included). Another in the past has said, that I gave 'dangerous advice' (investing), and compared me to Ponsi.

Having stated that, consistent and inaccurate predictions of doom are fair game. If you're going to write it...it can be challenged...especially when it doesn't come to pass...come to pass...come to pass...come to pass...

"And you only wish we were talking about listing prices being reduced. We're not. If we were, that would represent almost 40% of our local market right now. Which should also tell you something about our market."

"BTW, it's the novice investors who represent the majority of the losers right now, too. That's also something worth knowing."

You presume too much my friend.

How do you know I don't know "something about your market?" Am I invested there? Do I have data sources there? Do I have clients from there? How often do I get there, and why?

BTW...I know it's "novice investors who represent the majority of the losers right now."

And not to worry ole buddy...I consider myself leaving the realm of novice, and entering the world of the more experienced. I've retained the services of three experts recently in the field of investing; a Coach, a CPA & a Lawyer.

Wish me luck...I know you're pulling for me :icon_wink:

-Mike

 

[George Hatch]

Get real, Mike. I can tell you that I was hearing "New Paradigm" from RE guys long before you used it here. You have yet to come up with anything original on the subject.

Whether you personally win or lose has nothing to do with the larger question under discussion here. I realize you struggle with this, but it really is not all about you. Notice the topic of this thread is not "Is Mike's world and everyone who lives in it coming to an end?", and the only reason we keep ending up hearing about you is because you keep injecting yourself into it. Would you believe that not everyone cares about what you say you're doing? Go figure.

As for how this story ends, why don't we wait until it's finished before you start saying it's history? Greenspan (who actually did coin a phrase - irrational exuberance) was 5 years early and yet history says he was right about the stock market all along and the New Paradigm fools were wrong. Everyone who was beating their chest during those 5 years ended up looking the fool - and then they migrated into RE.

 

[Randolph Kinney]

I've also been compared to Adolph & Nero in this thread

George has it right Mike. You personalize remarks out of context. What I said Mike, was:

Well, so much for the open mind and informed opinion. Nero and Adolf didn't want to hear about the negative either.

You go on and on about the negative and how you don't want to hear or read anything negative. You rank on my remark about an informed opinion. If you say you are being compared to Nero and Adolph, was the comparison to their infamous historical record or was it they had a propensity to dodge any news that ran counter to their way of thinking?

Big difference Mike, as George says, nice try. There was no comparison to their historical record but you make it sound like that was my intention. I for one do not take your offense seriously. You twist words to suit your status as a victim, "poor me", I am being maligned. It is your attempt as a mere diversion when you face data or reasoning you cannot refute, trying to deflect it with a retreat to "poor me".

 

[Randolph Kinney]

Blogger tries to put 'real' back in realty

Blogger tries to put 'real' back in realty
Jun. 23, 2006 12:00 AM


[FONT=arial,helvetica,sans-serif]The more Gilbert resident Debi Averett researches the current real estate market, the more alarmed she becomes.

The number of houses for sale keeps rising, sales remain weak, new houses continue to be built and many buyers have tapped all their equity or don't have any and will be in trouble if housing values fall.

So last month, she started a Web blog and called it www.HousingDoom.com to counter what she considers too much optimism from real estate agents.

"The potential here for tragedy is amazing," she said.

"Are we looking at a huge bubble? I don't know that much about macroeconomics, but I know a lot of people are going to get hurt."

What is unusual about Averett is that she is not a Realtor, economist or financial expert.

She is a mother of five and a botanist who is more familiar with Arizona mint plants than real estate.

She just happens to love crunching statistics and preparing and examining spreadsheets and charts.

The Averetts sold a Chandler home last year because they were considering a job transfer. They decided against the transfer and rented a Gilbert home for a year and began looking in March to buy another house.

They were shocked to discover how much prices had risen and that they would end up with a house smaller than the one they sold. Also, they learned they could rent a house for at least half the cost of the mortgage payments.

In the process of trying to determine the best time to buy, Averett became a real estate junky. She reads The Arizona Republic, Wall Street Journal, Business Week and other publications and has discovered Web sites that can tell her what houses are selling for and what houses are valued at. She focuses on Gilbert.

Her oldest son, Carlos, 21, created the Web site for her so she could share her findings and link readers to other sites that indicate a bubble about to burst.

The Arizona Regional Multiple Listing Service, Inc. reported last week that there were about 41,800 homes for sale across the state at the end of May. And 16,400, or 40 percent of those, were in the Southeast Valley.

About 7,560 homes and condos sold in May, including about 3,000 in the Southeast Valley. Throughout Arizona, homes took an average of 60 days to sell.

Meanwhile, Averett points out that builders keep adding new homes to the competitive mix and says she knows people who have tapped more than 100 percent of their equity.

"We have been using our homes as ATMs for years," she said. "We have this perfect storm brewing at the moment. So many people are into these exotic mortgages."

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[Steve Owen]

I think I first hear the phrase "new paradigm" in 1969... but, it wasn't used in reference to housing, it was about the Viet Nam war and how the culture was going to change and make war obsolete (age of Aquarius stuff). I've been skeptical of that phrase every since, but have a couple of times heard it used accurately... of course, accuracy is often a matter of opinion.

...history says he was right about the stock market all along and the New Paradigm fools were wrong.

The phrase I remember best from that era was "this changes everything." It basically means the same thing as "new paradigm" and I don't know that that phrase was not also used in relation to the stock market.

I remember posting here at the time that if what they were trying to say with "this changes everything" was "this changes basic economic theory" then they were wrong! I remember my awakening well. A local bank sponsored an economic expert from back East to come and speak to our business community. Someone asked him about PE ratios, which had become astronomical (infintesimal in some cases). His response was that when you buy stock in one of these new tech companies, you are buying talent and PE ratios really don't matter. That was my wake up call... sold all my tech holdings that afternoon. The guy saved me a bundle with his illogical reasoning... market crashed just a few months later. I got hurt a little bit in the short run, but not nearly as bad as I would have. All small holdings, of course, I don't claim to be as financially successful as Mike... one guys "bundle" is another guys "small potatoes."

 

[Tawfik Ahdab]

"The number of houses for sale keeps rising, sales remain weak, new houses continue to be built and many buyers..."

This describes the contraction phase of the real estate cycle.

"...... have tapped all their equity or don't have any and will be in trouble if housing values fall"

This describes the recession phase of the real estate cycle.

Mike,

The word paradigm came to be fashionable in the 1960's when the American philosopher of science Thomas Kuhn published the highly infuential the "Structure of Scientific Revolutions". I've had this book in my library for decades, having received it from my uncle, a professor of philosophy of Science.

The word paradigm, in his sense, referred to the set of practices that define a scientific discipline during a particular period of time.

We've seen this term abused, stretched, and applied in contexts that are not so much empirical in nature as science is, but as a description of a pshychological state existing at a given time, such as the dot-com boom, where at its height, pie in the sky valuations of ephemeral stocks with no completed competing product, without meaningful physical assets as part of their book values, and with no sales were said to be justified by a "new paradigm".

Steve wrote his post before I completed mine, but he illustrates my point.

 

[xm72mhd]

I stumbled across this in another thread. Apparently we are making up for the decline in the market somehow,

http://www.globalinsight.com/gcpath/1Q2006report.pdf

Can somebody make sense of this disconnect? According to my intuition, these things (bubble break and increasingly pervasive overvaluation) are not symmetrical. What is going on? Is somebody else nuts, or just me?

 

[xm72mhd]

in another thread it was said, that I counseled quitting & unethical behavior (though the author has since apologized for any misunderstanding...which I appreciate & respect...we can all get carried away from time to time...myself included).

Um...the author of that would be Edd.

But, come on Mike, you swim against the stream on here in most of your posts and wear it like a badge of honor. Most of us don't agree that your choice is appropriate for us and your methods of expression are very close to proselytizing. You appear to be on a crusade, and your not getting agreement or even appreciation for it.

Even though you seem to still be seeking something more, you've found part of what you were looking for by entering real estate sales that wasn't in appraising for you. Good for you!

I'm not ready for it yet, and apparently others aren't either. It's still just your opinion and your experience, even if you do have most of the right answers for you and have proven them by reaching personal goals.

Now, chill out would you. The error was mine and I admitted it and apologized to you for the resulting response. I still wonder why it got your attention, why do you care? Having retracted the statement, what I said hardly has relevance, unless it somehow continues resonates for you. If you bring this up again you're definitely shooting blanks and the mistakes will be all yours.

 

[Randolph Kinney]

Good bye soft landing, hello reality

"Unfortunately as we feared, the soft-landing scenario does not appear to be unfolding as many had hoped," wrote JMP Securities analyst Alex Barron in a recent note. "It may not be until next year that the housing market finds a bottom."

With mortgages moving up, housing affordability stretched and an uncertain outlook, many buyers are simply waiting on the sidelines for the housing market to stabilize.

A stumbling housing market "coupled with higher mortgage rates (especially on the shorter-term ARM products) prompted significant levels of inventory to enter the market, which in turn, overwhelmed demand," wrote Robert Stevenson at Morgan Stanley in a recent note.

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B1345277D%2D1A6C%2D4D26%2DB51B%2D81797D5475FE%7D&siteid=mktw&dist=nwhpm