Housing Bubble Bursting?

[xm72mhd]

Moh,

Thanks for the article.

I just finally read the post. I have to download these things, I just can't seem to master reading for comprehension on a computer screen. Anybody else have this problem?

It seems the disagreement is whether there is going to be a slow and orderly "correction" or an explosion. Either way the major stimulant for the frenzy was the Fed Rate, and that changed drastically.

How can real estate sales activity and the resulting values driven by demand be sustained when the demand was for cheap money to use for personal gain? Particularly when, as many of us are witness to, prices were rising, in part, due to manipulations that had nothing to do with demand? The demand wasn't for real estate at all. Real estate was just the most obvious vessel to carry the demand because of a combination of tax laws and hype that it's value won't decrease. Did I get Shilling right?

 

[Steve Owen]

And miraculously all houses with 2005 mortgages have now been re-appraised and voila, not only has their value dropped, but it dropped enough that theya re now upside down. Does anybody REALLY believe this, even if you are on the bubble side of things.

No, of course I don't believe that. But, only because of your use of the word "all." There is no apparent bubble here in SW Missouri, as I have posted often. Appreciation rates have been in the 2 to 4 percent per year range for several years. At this point in time there is not a major excess of properties for sale... in other words, not a buyers market, although things might be cooling down a little.

BUT, I see large numbers of recent purchases or refinances where the owners are upside down. The last three SFR's I've appraised have all been that way. Skippy has been busy.

This does not necessarily reflect a bubble, but people who bought within the last few years and used adjustable ARM's or interest only loans may be in trouble. Especially if they used Skippy for an appraiser.

 

[Couch Potato]

Bottom end is bad.

And miraculously all houses with 2005 mortgages have now been re-appraised and voila, not only has their value dropped, but it dropped enough that theya re now upside down. Does anybody REALLY believe this, even if you are on the bubble side of things.

All houses no, but most every house purchased in Palm Bay in the summer of 2005 with less than 10% down is undoubtedly upside down as are many who refinanced at that time. The market for houses priced over $500,000 is still quite good here in Central Florida, but anything below $500,000 is a tough sale. That is why the median price continues to rise, the bottom end of the market is in trouble.

 

[Big ole Boy]

That is why the median price continues to rise, the bottom end of the market is in trouble.

Viola,

Rich mans inflation and poor mans inflation case study.

Have's and have nots excemplified ....

hence real inflation is much higher than index (smart core) indicates ....

nominal wages falling ....

 

[Randolph Kinney]

Land Prices Increasingly Drive Housing Markets, Fed Study Says

Land Prices Increasingly Drive Housing Markets, Fed Study Says

By Campion Walsh
From The Wall Street Journal Online

WASHINGTON -- Housing prices in big U.S. cities have increasingly reflected underlying land value rather than building value since the mid-1980s, and that trend is likely to continue, according to a Federal Reserve study released Tuesday.

In the 46 biggest metro housing markets, land's share of property prices increased on average to 51% in 2004 from 32% in 1984, according to the study authored by Michael Palumbo, chief economist in the Fed's flow of funds section, and Morris Davis, a former Fed economist now at the University of Wisconsin.

The increase was especially sharp during the 1998-2004 housing boom, when land's share of property values gained 11 percentage points, the study said.

"With residential land having appreciated so significantly over the past 20 years around the country, the future course of land prices is expected to play an even more important role in governing home prices -- in terms of average appreciation rates and volatility -- in the next two decades," according to the study.

The report concludes that land's increased share of property values "could mean faster home-price appreciation, on average, and possibly larger swings in home prices."

Even if land appreciation returns to the slower pace seen before the 1998-2004 boom, cumulative gains in land value mean that house prices might rise more quickly on average than they did before the boom, it said.

Regionally, relatively expensive housing markets have seen somewhat bigger increases in land's share of prices in the 1998-2004 period, but the current housing boom has been marked by rapid appreciation of residential land "just about everywhere," according to the report.

The Fed study also found that at some point since 1984 most large U.S. cities have gone through one pronounced price cycle in which residential land lost value for several years, usually after several years of rapid appreciation.

"In real terms, land prices have generally taken several years to go from peak to trough, and the subsequent recovery from these price declines has generally occurred at a more gradual pace," the study said.

 

[Mike Simpson]

"Herein lies my problem with the bubble bandwagon. They overeach in their attempt to make bubble news."

I've stated all along; that Bubblist would begin getting desperate for bad news & start making mountains out of mole hills as soon as the markets began to show even remote signs of slowing. After all, the longer they carry on without a bubble materializing...the more ridiculous they begin to look (go back in the archives to 2002 & read some of the nonsense predicted back then).

"...but most every house purchased in Palm Bay in the summer of 2005 with less than 10% down is undoubtedly upside down as are many who refinanced at that time."

What bothers me about comments like this is the assumption someone knows everyone's finances & the conditions of every sale and every refinance. Quite simply...that's a blanket statement that leaves a hole big enough to drive a truck through.

"The market for houses priced over $500,000 is still quite good here in Central Florida, but anything below $500,000 is a tough sale. That is why the median price continues to rise, the bottom end of the market is in trouble."

The inverse is true here in the Western WA.

"HELP Mike. Your clue is too cryptic. I would like to find something applicable to my market in the resources you cite. It must be some kind of technique that I can apply."

You know I've dropped enough hints over time...even in this thread as to where I get my information. I was about to launch into another long list of information from which I draw my conclusions, but realized; here it is 2006 & we're still rehashing the SOS. I've gotten nowhere...convinced not one Bubble Head...I've not had my views changed, and this all takes up my valuable time.

So I've got to ask...what's in it for me? People usually pay me for my insights.

But..what the hell;

Get familiar with your States Chief Demographer & learn everything you can about their estimates & projections

How's the health of your job market in your region in relation to population growth estimates?

Rate of population growth projections

Employment Growth (historic & projected)

Pay attention to the consumer confidence series

Revolving consumer debt

Most Appraisers don't pay enough attention to building permits vs. population growth (housing demand)

Track Permit Activity (past & present)

New & active listings coming to market (historical & current)...go back 5 years if you have the data (if not...begin tracking this data in a spreadsheet yourself)

Marketing times (historical & current)...go back 5 years

Affordability Issue (Index & 1st Time Affordability Index)

There's some information that should get you stared. You'll have to gather the data, correlate the data, and reconcile the data yourself. That's just off the top of my head, but it's a start.

Here's the conclusions that were drawn in Feb 2005--regarding the region in which I reside--based on analysis of the above data (it's pretty damn accurate...hindsight being 20/20);

* Housing affordability is becoming an increasing issue. Homes valued over $500,000 in this region are taking longer to sale...the inverse of what another poster had written regarding their region.

* Continue to see smaller new construction product to be brought to market. Some builders in this region are builder bigger & bigger homes...consequently...they're sitting on the market

* Sales velocities will start to taper in '05.

* Price escalation will decline to an average of 5% (this predication was way under what actually took place in '05).

* Upper end new single family sales could decline (we're seeing that now in this region).

* The resale market will further dominate.

* Mortgage rates will increase steadily (they have...though I've thought they'd increase since 2003)

* Expect Record Foreclosures

* Urban Development will continue to grow

* There is NO Housing Bubble!

 

[Big ole Boy]

Fed report is nonsense.

Land values fluctutate in direct proportion to overall loan margins and interest rates. Interest rates rise and increase the amount of downpayment and watch land values fall. Land values reflect coefficient of lending behavor and policies which have steadily deteriated over the past 30 years.

The creshendo of bubbly talk is in direct proportion to sentiment based on inescapable mathematics.

 

[George W Dodd]

Get all the demographics you need at
http://www.stdbonline.com/
It is a pay service, but value is greater than cost.
The AI offers an online seminar about STDB that comes with a 30day trail.
BTW if you're an AI member/affiliate there is an additional discount to join STDB

 

[Terrel L. Shields]

Dramatic increase in housing sales and pricing directly relates to the interest rate and liquidity of loans (i.e.- if you can walk in the door and are not in prison clothes, you qualify for at least 100,000). As IR's dropped housing prices and sales zoomed. As interest rates have begin to rise, the crunch is becoming all too obvious.
Ran into one of my long time favorite bankers and old classmate tonight in the local Mex Rest. She noted no one seems to be awares that those cheap ARM's were going to domino from 5% to 7% this year and their payment just went about $300/mo. more..now they are squealing like Porky Pig on steroids. This is only going to get worse, not better. Listings are about 3 times easier to find now and sales are down over 10%...tick tick tick. The first Q of 2007 will tell whether we are in for a bubble "pop" or a slow hiss of the RE cycle. Bubbles are not overnight creations when they take years to develop. There is a relationship between fungiblity and the high/low cycle of anything. Oil, Dot.com's, or RE.

The Oil Patch is now the area to buy housing and hold for 2+ years. Look for strong growth in Okla City, Tulsa, Houston, Dallas, Midland-Odessa, Central Arkansas, Ft. Worth, and even ole Denver may make a comeback as more oil companies attempt to build up after 20 years of low oil prices.

 

[Austin]

Site To Do Business STDB

George, I live by STDB. Market analysis is my saving grace. I am appraising a new convenience store just opened. If you think housing is screwed up, you ain't seen nothing yet. I did the location quotent on C-stores in this area. An LQ of 1 means the market is in balance. Anything above 1 like 1.23 means there is 23% excess demand for the product. Something like .5% means there is only 50% enough demand for the given supply. My C-store market was .15%. It is about the same for everything around here and they just keep building them. Motels, shopping centers. Today's headlines in the morning paper was a new Sam's club with 130,000 sf. We have a new Texas steak house. They finished construction and went bankrupt the same day. I sware. The bankers think I am getting senile?