From an article in the WSJ, and four excerpts (with JtR’s comments underneath):
1. Sales may have been even worse if mortgage rates hadn’t been so low, said David Berson, chief economist at PMI Group Inc., a mortgage insurer in Walnut Creek, Calif. Low mortgage rates won’t hurt, he says, but “they will give you less traction in the market than we would normally get.”
2. How long the hangover from the tax credit will last depends on how long the economy takes to recover. Tuesday’s housing report was “a wake-up call to anyone who’s trying to understand why housing has not been recovering,” said Ivy Zelman, president of housing-research firm Zelman & Associates. “The artificial boost from the tax credit masked the impediments.”
3. One troubling sign for the market is that banks appear to be listing more homes for sale, just as demand has dropped. The number of bank-owned listings increased 12% in August from the previous month.The figures, tracked by Zelman & Associates, include listings for the top 10 U.S. banks in 20 states and from mortgage companies Fannie Mae and Freddie Mac.
4. “I’m in no rush,” said Steve Hamilton, who sold his Carlsbad, Calif., home two years ago and has been on the sidelines since. He said he was happy to continue renting a home that costs half of what the monthly mortgage payments were just a few years ago. “The tide is still going out,” said the 41-year-old commercial-real-estate investor. “When I see a steady increase in local jobs, that’s when we’ll step back into the market.”
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My thoughts on their remarks, in order:
1. Less traction than normal? What I wished he would have said: “If your house isn’t selling when rates are 4.5%, then your price must be wrong.”
2. “The artificial boost from the tax credit masked the impediments.” I don’t think the tax credit was an artificial boost. It was free cheese for buyers who bought the listings that were priced right, and the supply of right-priced listings has been exhausted. Today’s listings are priced higher than April’s, and that’s why they aren’t selling, not some mysterious masked impediments. I still keep running into multiple offers on well-priced new listings.
3. August isn’t over, yet we’re claiming a 12% increase in REO listings this month? Shouldn’t we take the count in a couple of weeks? Here are the REO listings for San Diego County, by month:
706+715+783+805+664+715+674+440 = 5,502 REO listings in 2010, YTD.
Jan-Aug, 2009 = 6,307.
It looks like August will probably exceed July, unless bankers go on vacation. If they do increase REO listings, hooray, let’s move some product. But I’ve seen some high-priced REOs lately – remember how they used to get multiple offers the first week? Only 53% of July’s REO listings have found a buyer.
4. Steve is clearfund, and I introduced him to Nick at the WSJ – thanks for participating.
Let’s ask Mr. Hamilton:
a. If you saw a steady increase in local job next year, would you buy a house?
b. If you never saw a steady increase, would you never buy a house?
I think Steve, like vegasandre, Tony Robbins, and the rest, have specific markers and guideposts to assist them with following the market, which is good. Steve enjoys extensive knowledge and experience in his designated target market, and can comfortably afford to buy if the right deal came along. Are you saying that if you saw the right house that you could buy at the right price, that you wouldn’t buy it?
We made a silly bet that I don’t want to muddy the waters. I’ll just say that I think there will be enough good deals drop in his lap over the next 1-2 years, that one will be irresistible. And one is all it takes.
I don’t think the tax credit was an artificial boost. It was free cheese for buyers who bought the listings that were priced right,
I know 3 people who bought only cause there was a tax credit.
I think something that isnt written about much is the enabling the tax credit did.
Sure it pulled a bunch of demand forward, but it also enabled a lot of people who couldnt/wouldnt have done it without getting their life savings back.
You know some nutty people.
There is an Echo boom that’s going to get louder.
I think people don’t think about that when they talk about boomer retiring etc..
In a market like this, buyers can afford to be picky and wait for the right deal. But the price is right on a good property, they will buy. Things like the local jobs market should only really matter to their individual circumstances (that is, is their individual job secure?).
JTR – I am basically saying that I highly doubt that the right opportunity will present itself in the near term (at least until after lunch the day after the Chargers win the superbowl this season).
Moreover, I have a comfort level where things will ultimately end up (which is much different from where I think they SHOULD end up). Once we’re within range of my macro economic ‘guideposts’ we’ll pull the trigger.
Mainly, the combination of quality product, price, location, and market stability (jobs, incomes, etc) just haven’t come together yet. You get 2 or 3 of these in a micro market but not all of them for us yet.
In summary, I would buy if the right deal came along, however, my experience in the commercial investment market over the past 3 recessions says it won’t.
I’ll take history as my Sherpa through this market every time.
I think the traction remark is intended to convey that while in a “normal” economic environment and housing market, dropping rates from 6% to 4.5% would induce lots of people to become first time buyers and would induce lots of existing owners to list their homes and try to buy up to the next home they want (the move up market), that isn’t happening as much in the current environment because of a host of problems that make it not a normal market. First, rates have already been very low for 18 months. Second, tax incentives and greater affordability at the low end during the past 12 months probably induced alot of potential first time buyers to jump in. Third, there are many people who are feeling very cautious/skittish/uncertain about their economic prospects and job/income stability, so they can’t be induced to take on significant new debt no matter how attractive the borrowing costs get. (This I take it is clearfund’s point). Fourth, the move up market is being held back by excessive debt on many homes (i.e. underwater or extremely low equity) that prevents the owner from selling at a realistic market price, and if they can’t sell, they can’t buy, because there is no bridge financing available anymore (unlike 2005-2007).
These impediments don’t just reduce the buyer pool, they also constrain supply, at least a appropriate prices Which further skews the market into the Mexican standoff between actual buyers and delusional sellers.
“But I’ve seen some high-priced REOs lately – remember how they used to get multiple offers the first week? Only 53% of July’s REO listings have found a buyer.”
Yes, I am seeing the same thing in my area. The hot ones still go quick but many of the bank properties should be added to the delusional seller pile. My prediction is that they will ultimately cut price very quickly and end up selling these houses below market value.
Last cycle, RE prices did not recover when jobs started to come back. Unemployment peaked in 1993,
http://www.google.com/publicdata?ds=usunemployment&met=unemployment_rate&idim=county:PS060850&dl=en&hl=en&q=unemployment+statistics+san+diego
but RE prices did not start to recover until years later.
New home sales number are out, sky still falling.
http://bespokeinvest.squarespace.com/storage/Newhomesales0710%20population.png
People often remain gunshy for a while after a jobs recovery begins, even if they didn’t lose their own jobs during the recession, and people who did will take even longer to recover from the emotional and financial shock of their jobless period. And that’s in a “normal” recovery. The current situation is made even more complicated by the fact that once you subtract wars and the housing bubble, there has really been virtually no true economic growth in the past decade. Even the 90’s dotcom bubble left a few new jobs behind in the wake of its crash that hadn’t existed before, and the only detritus left behind to sell off at firesale prices was office equipment and computers that will need to be replaced long before all the unsustainable houses that went up the bubble.
Buy when everyone else isnt.Go the opposite of the herd.You will never pick the bottom of this mess.
I also keep seeing these articles glorifying renting.Keep renting and you will not participate in the next boom.There can be periods to rent but I wouldnt bet against real estate.I would rather own something I have control over as to stepping into the stock market casino royale.
Wait,Clearfund sold home 2 years ago, so that would be 2008? I thought late 2008 was the recent low but I could be mistaken.
You will never pick the bottom of this mess.
Close is good enough, and we’re not even there yet. Besides, as many have shown, homes won’t recover until long after jobs do so there’s plenty of time.
Were close enough for me.I really think its more about people who overbought dumping there properties.The govt makes it way too easy to get out of a real estate deal.90% of the people are working.Lots of people have cash will swoop in like vultures.This happens everytime.The people who buy low will sell to the next round of uneducated people in the next boom.
None of this news changes what I have believed for a little over a year now-in general, we are at or very near the bottom. However, prices will also not rise significantly anytime soon. This means the following:
1. No rush. If you find a great deal, go ahead and buy. If not, keep looking.
2. Don’t buy counting on appreciation in the short to medium term, because you ain’t gonna get it.
3. If there is a large likelyhood of you moving within five years, don’t buy unless rents are significantly above monthly payments in your area (which means only a very few areas like some parts of the IE qualify)-transaction costs will be a killer.
4th or 5th inning.
Here is what I am telling people about buying homes right now:
you should only buy a home if:
1-If the price is similar to what it was on same house ten years ago
2-You plan on living there longer than 7 years.
If you cant answer yes to these two you shouldnt be buying right now regardless of location.
In las vegas most people can answer yes to number 1 but usually its a no for #2 .
In many areas of coastal Cal It would appear to be the other way around.
clearfund – thanks for a great response.
sean at #6, excellent points!
vegasandre,
I’d suggest that if it *is* someone’s dream home and absolutely know they’ll stay there long enough to pay it off, then it would be a situation where only the payment matters and not the price. Doubt many people could say that, though.
John – In our specific situation we absorbed about 1/3 of the downside and escaped the bulk of the pain. Fortunately we were still up a decent tick from the purchase as we never refid or took cash out.
Can’t time it perfect, but deflecting as much as one can.
Jim,
You’ve prominently mentioned a few times lately about delusional sellers needing to lower their price. Are you concerned at all about that leading to any sort of downward spiral?
If the sellers lower their price, the banks will have to lower the price on the REOs. Once the prices start going down, more people could be thrown into negative equity, potentially leading to more REOs, and the cycle continues.
With demand having been pulled forward with the tax credits, and the overall economic and job markets in the state that they’re in, there could be some serious headwind for housing.
vegasandre,
Agree with you about prices ten years ago — that was probably as close to “normal” as we’ve seen this decade (some would say they were already “topping out” in 2001). In some places, it can be found today; in others, we have a long, long way to go.
Thanks for your insights.
Ronald, I echo your comments. Everyone wants the retail sellers to immediately lower their prices to that of the last REO or scam sale but then the bank would get even more aggressive the next time. Ironically, in my area that isn’t happening too much. The banks are now the ones that seem to be behind the pricing curve. But, alas they will have to eventually cut price and I think they will ultimately still end up leading the market down further because they didn’t get the price right the first time.
I forgot to add however that if you are a investor buying a average condo in vegas(not a hi rise) than they are all pretty much good deals. A typical 1000 sq ft 2 bed/2 bath condo cost about 85k in 1995 about 85 k in 2000 and about 200k in 2006. They are now 50-60k. of course there are no loans available for any of these units so it must be all cash. eventually in a year or two financing for these units will come back – in which case the price will go back to the mean-85k – overnight.
Jim, this guy David Rosenberg in Canada (super bear) claiming no *new* home sold in the USA for over 750k in July. Can you call bunk on that?
http://www.zerohedge.com/article/rosenberg-explains-why-not-one-new-home-priced-over-750000-sold-july
vegasandre, financing won’t come back if the condos are investor owned and/or rentals.
Vegasandre, are you seeing60k condos on the strip? I haven’t seen too many condos in the nicer areas dip into the 60ks yet…what part are you talking about?
Just the average off the strip area more residential type areas all around the valley. This is a typical price. many are condo conversions but they are also usually newer built after 2000. I am pretty sure there will be some kind of financing for these in a couple years – probably some sort of 20-30% down type conventional loans. but they will come back even with a 60-70% investor owned rate in the complexes. However this will not apply to the hi rise or condo tel units. I do not see a potential for financing those type units even in the long term.