It’s time once again to check in with our local press to see who simply rehashed the NWMLS press release and who did some actual journalism.
First up, the NWMLS press release that accompanied yesterday’s numbers: Inventory shrinking, sales rising, prices stabilizing in some Northwest MLS areas
Waiting longer to buy a home is not likely to pay off, according to Northwest Multiple Listing Service director Kathy Estey after reviewing reports summarizing May activity. Estey pointed to shrinking inventory (about 20 percent fewer listings than a year ago), double-digit increases in the number of pending sales (up 17.7 percent from a year ago), solid open house activity, and signs of stabilizing prices (eight of the 19 counties in the report show price gains since January) as indicators of an improving market.
…
Estey, the managing broker at the Bellevue Downtown office of John L. Scott Real Estate, said affordable homes inventory is down to the levels of a normal market and reaching for a sellers’ market. “Multiple offers are common in the under $400,000 range when the home is priced well, shows nicely and is marketed professionally,” she remarked. “Buyers who are waiting for prices to come down more have missed the bottom,” Estey believes.
…
“What we’re currently seeing is real estate’s version of Back to the Future,” said J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. He believes the combination of historically low interest rates, adjusted lower prices, and the $8,000 tax credit has created advantageous conditions for buyers that haven’t been seen in decades. He noted sales in the four-county area continue to see double digit increases.
You heard it here first, folks. You have missed the bottom. Again.
The release also makes mention of an “explanatory note” that is not included online. According to Aubrey Cohen’s article, the note “mention[s] the change in the definition of a pending sale but blam[es] short sales and foreclosures for the “widening gap” between pending sales in one month and closed sales in the next.”
I can’t help but think that the ever-increasing disparity between the NWMLS’ much-touted “pending sales” and the number of actual closed sales is the kind of thing they would much rather not have explained. But with the Times and the P-I both finally making a big deal about this issue (which we have been following here since August), it looks like the NWMLS couldn’t ignore it any longer.
Eric Pryne, Seattle Times: Deals made for homes are slow to close
Pending sales of King County single-family homes — offers that have been accepted by owners, but haven’t yet closed — were up 27 percent from May 2008, eliciting cheers from brokers starved for good news.
Closings, in contrast, were down 14 percent. Real-estate professionals attributed the disparity to slow-closing short sales.
Historically, the number of closed sales in a month has been about 90 percent of the previous month’s pending sales. May’s closings in King County were only about 62 percent of April’s pendings. In a note, the listing service said the gap “should begin to shorten as short sales close and the short-sale inventory shrinks.”
But others question whether the turnaround suggested by the pending-sales statistics will happen. “Short sales don’t close at the same rate as normal sales,” says Tim Ellis, who edits the bearish Seattle Bubble real-estate blog. “I definitely expect the gap to shrink, but I don’t know by how much.”
…
Dave Sunlin, a senior vice president with Bank of America, which acquired Countrywide last year, told reporters last month that it typically takes 45 or 50 days to decide on a short sale. Complications can make the wait significantly longer, he added.
…
But Sunlin told reporters more than 60 percent of the short sales the bank does OK, nationally, ultimately fall through, often because the buyers back out, buy another home or have trouble getting financing.
That 60% statistic is especially interesting. If indicative of the market as a whole, that would definitely indicate why so many of the now-pending sales are never turning to closed deals. The article goes into more depth on why short sales tend to take so long and often end up failing to close altogether. Also, this marks the first time I have been quoted or this site mentioned in the Seattle Times real estate section. Thanks, Eric!
Aubrey Cohen, Seattle P-I: Pending home sales up again, but will they close?
Buyers and sellers reached deals on 711 houses in Seattle and 2,246 countywide in May, up around 24 percent and 27 percent, respectively, from a year earlier, the report said. Those pending sales totals were up from increases of around 15 percent in the city and county from a year earlier in April.
Closed sales continued to lag however, down more than 15 percent in the city and 14 percent countywide in May from a year earlier, although that was around half of April’s annual drops.
…
“I’m not ready to call the bottom yet. I think we’ve still got too many mortgages that could have problems in the months ahead,” Crellin said, noting that Washington had some of the biggest increases in mortgage delinquencies and foreclosures in the first quarter, according to the most-recent report from the Mortgage Bankers Association.
It’s nice to see Crellin resisting the urge to call a bottom. Aubrey’s article also includes a great little graphic that does a good job illustrating the disparity between the pending and closed numbers.
Mike Benbow, Everett Herald: Inventory of unsold homes down in Snohomish County
There were 5,656 homes on the market last month. That compares with 7,472 homes for sale a year ago, a drop of nearly 25 percent, the listing service reported.
Inventories were down by double digits in every county in the listing service except San Juan and Skagit, indicating the market is stabilizing.
…
Listings weren’t the only thing to fall.Prices continued their slide, falling by more than 9 percent in May. The combined median price for a home or condominium in the county last month was $299,950, according to the listing service.
No mention in Mr. Benbow’s article of the still-record-low number of closed sales, but he does repeat the bit from the NWMLS press release about the high volume of short sales, estimated to be a third of the total pending sales volume.
Kelly Kearsley, Tacoma News Tribune: Pierce County home prices hold steady in May
The median home price in Pierce County held steady in May at $225,000 instead of dipping slightly as it has in recent months, according to figures released Thursday by the Northwest Multiple Listing Service.
And the year-over-year declines seem to be slowing. Though the median home price was down 13.4 percent compared with last May, the decline was less than the 14.5 percent decrease in April.
Dick Beeson, a broker with Windermere and a Northwest MLS director, said a two-month flattening out in the home price doesn’t necessarily mean rock bottom – or that prices can only go up from here.
“I think we’re going to bounce along the bottom for a while,” Beeson said, though he does see prices beginning to stabilize in some areas.
An interesting turnaround for Mr. Beeson, who you will notice is responsible for three of the four quotes in the above bottom-calling graphic. Perhaps he finally learned his lesson about calling the bottom.
Rolf Boone, The Olympian: Home sales rise, but prices fall
The number of homes sold in Thurston County rose in May, although South Sound real estate professionals say the housing market still has plenty of room for improvement.
Last month, more than 200 units sold in Thurston County for the second time this year, and pending sales increased 12 percent in the year-over-year May period, according to combined single-family residence and condo data released Thursday by the Northwest Multiple Listing Service.
The increase in pending and closed sales likely is due to the seasonal uptick in real estate activity during spring and summer, Thurston County real estate agents say.
Disappointing reporting from Mr. Boone. The number of closed SFH sales in Thurston (210) was up from April (191), but down 26% from May 2008 (284). Is a regular seasonal increase in sales really worth reporting? In other news, average temperatures this week are reportedly higher than a month ago.
(Eric Pryne, Seattle Times, 06.04.2009)
(Eric Pryne, Seattle Times, 06.05.2009)
(Aubrey Cohen, Seattle P-I, 06.04.2009)
(Mike Benbow, Everett Herald, 06.05.2009)
(Whitney Coleman, Tacoma News Tribune, 06.05.2009)
(Rolf Boone, Olympian, 06.05.2009)
Oh my my my Dick Beeson. There is no bottom. Just a long trendline down forming a flat bottom over this next decade with little or no appreciation. Real Estate has been seriously wounded and will take a great number of years to recover. The short sales have barely reached the 2nd inning of a very long game. The foreclosures will continue for many many years increasing yoy.
Unless programs are enacted (Mtg Cramdown) people will NOT stay in their homes. Its very difficult to make payments when you are upside down 50k, 100k, 200k, no matter what your interest rate is. Give the masses 0% it still will NOT help until principle reduction is enacted WITH RESTRICTIONS!
People are NOT stupid and people MUST sell in our mobile society. I guarantee you the masses will NOT be bringing in the cash to close. They don’t have it and they will NOT have it for many many years. Divorce, job, illness, transfers, and the masses upside down will watch and see how their neighbors continue to short sale their properties and they too will walk. ** Don’t forget the National Cheese programs and what occurred!**
Find your GEMS Buyers, be patient, avoid multiple offer scenarios, and ALWAYS keep the ball in your court.
since last year, every time I hear someone say “we’re at the bottom” with respect to the RE market, I imagine they’re commenting a play by play of the location of their head in an impending recto-cranial inversion.
At some point someone will be right about the bottom….
Isn’t great to read Crellin as the voice of reason? Perhaps as he nears retirement there is less of a need to kiss up to the realtors, or perhaps he’s just been burned too many times.
Overall, isn’t it amazing that the press are still fooled by the spring bounce, something that happens EVERY YEAR!
Question: we are starting to see a surge of new listings here in Pullman. Is something similar happening in the west side? I don’t know if this is due to renewed optimism (pent up supply) or just people moving who have lost their jobs in the WSU budget cuts.
Why do I think Kathy is a sales manager and not a serious student of current economic conditions? I wake up this morning to read about another 350,000 jobs lost (now 9.4% unemployment) and 10 year bond rates jumping to just under 4% and 30 year mortgages at 5.5%.
No, Kathy, this is not the bottom. And in fact, it’s still so far away you can’t even see it from here. But head on out and fire up those troops! Sell, sell, sell!!
By Acerun @ 3:
What people don’t realize, though, is that we will be bouncing along the bottom for years. (Interesting that Beeson is now making this same argument.) So you don’t have to worry about missing the bottom.
RAY, YOU HIT THE NAIL ON THE HEAD
They call it a “L” recession. To support no rebound YOY in RE is the horrifying unemployment reports and now the Dr Doom Softwarengineer is main stream media. The cat’s out of the bag, that recent 10% unemployment statistic using the method that President Clinton dreamed up after NAFTA/1998; eliminating severely underemployed, is a complete joke.
I’m seeing the real unemployment rate at 17% on MSM now [check it out], but my New York University Economic sources are saying, unofficially its like 20-25%. Even ABC News today is admitting it too.
Use 25%, after all, we need to make up for all the unemployment lies we’ve heard the last ten+ years, worst case scenario is probably the actual truth anyway.
Now we can compare the 25% we read in the history books during the Great Depression to today’s actuals.
Realtors: Buy now or miss out
Realtors: Home Prices will always rise
Realtors: Home Prices will decline elsewhere but not here
Realtors: Home Price will decline a bit
Realtors: Home Price declines are not due to a bubble but economic issues
Realtors: Home Price declines are over, we are at the bottom
Realtors: Buy now or miss out
I remember when everyone was showing off saying what their broker was telling them. Ever hear anyone say hey my broker told me about this hot stock? The dot com bust destroyed that model. I predict Realtors are going the same route, mainly it is due to a) they lied and the result is millions of folks underwater with ruined credit, b) they continue to try to sell their snake oil. To me their industry has zero credibility. If buying a home means dealing with a Realtor, count me out.
Can’t these people be held accountable for their comments to potential buyers? It’s one thing to listen to advice from a friend, but when the “experts” in the realty establishment (those standing to profit) assure us that “now is a great time to buy” and “prices have hit bottom”, they’re creating a climate where people can loose serious money and be forced into horrible life stress. The industry should be available to help find a home, not cheerleading people into potential financial doom in this bad economy.
I know a lot of the libertarians on this board will utter “caveat emptor”, but most of us common buyers aren’t all realty experts nor do we have the time to become experts. Unfortunately, we have to rely on the very cheerleaders that partially responsible for this mess. And that’s why the realty industry and its cheerleaders need to stop giving advice (or lying, yes, I said it) and do their actual job, not acting as self-important mouth pieces for a crashing industry.
Bh
I certainly don’t think the housing market has bottomed yet, but the trend is positive.
If I had to guess, I think the housing market MIGHT bottom some time next year, but it’s still too early to tell.
The reason I am posting today is I feel the need to respond to several posters who seem to think that everybody is going to bail out of their homes because they are upside down in value.
While I enjoy and appreciate all the hard work Tim puts into his graphs and data, I have a fundamental disagreement with “technical analysis” alone in attempting to predict the housing market.
This is not the stock market. Most people don’t buy and sell houses as an investment.
For MOST people (i.e. people who don’t read this blog) buying a home is at least as much an emotional decision as a financial decision. They buy a home because they want a nice place to live. They are NOT watching the housing stats and trying to time the market so that they get in and out at a maximum profit.
For example, let’s say I bought a great house with a great view for $900K at the peak of the market in 2007. And let’s assume that the housing market totally craters and my house value falls to $500K in the next couple of years.
Would I sell JUST because the house value has fallen?
Of course not!
I bought the home because I liked living it and I enjoyed the view. I STILL like living it in and it still has a great view. Nothing has changed — unless I decide to sell. And since I like living here, I have no reason to sell.
It’s still the same great house and my mortgage payment is the same (or better) than the day I bought it.
So why would I sell my house at a loss and go through all the work and expense of moving?
I will continue living in the house for many years because it is my HOME, not an “investment.”
Sure, I’m upset that it’s worth less than I paid for it, but what can I do about it? I will just keep living in the home and enjoying and hope that some day it comes back up in value.
But the key point is that “I enjoy living in it.”
THAT is why most people buy a house, not to “get rich.”
We work with all kinds of home buyers at my mortgage company and we rarely, if ever, hear somebody say “I’m buying a house because I think it be worth 40% more in 3 years and we can sell it and make a killing!” They say things like, “It has a great big yard for the kids” or “I’m a musician and it has a perfect basement that I can soundproof and turn into a recording studio.”
Sure, there were lots of “flippers” during the credit booom, but they were the minority of home buyers.
The vast majority of home buyers buy a home because they want a nice place to live.
Now I know that might not be the smartest move from a purely financial number-crunching standpoint, but that’s reality.
There’s a reason that the Seattle housing market did NOT crater after the 1970 Boeing bust when 70% of employees got laid off: most of those people liked living here and wanted to keep their homes. They didn’t just walk away from their home and mortgage and move out of state, they found ways to make ends meet. I remember reading newspaper stories about aerospace engineers puming gas (that was before self-service gas stations).
The same thing will happen this time.
MOST people like their homes and will find a way to keep them. I’ve been in my current home for over 13 years and the majority of people who bought their homes during the credit boom will probably keep their homes for 10 years or more — partly becuase they would have to take a loss if they sold.
I love my home. It’s gone down in value like everybody else’s, but so what? I’m not moving. I like it here. I’m not going anywhere.
That’s how most people feel about their HOME. It’s not just an investment to buy and sell at the whims of the market.
So keep that in mind when trying to predict future home price movement in this area.
By Steve Tytler @ 9:
Would you like syrup with your waffles?
One other thing I forgot to mention …
Mortgage lending guidelines have tightened dramatically over the past 18 months.
The people buying homes today have to verify their income, have good credit and they’re locking in 30-year fixed rate loan interest rates in the high 4’s and low 5’s.
In other words, it’s highly unlikely that many of the people buying homes now will be forced to sell in the future due to “payment shock” because they are well qualified for the loans and can afford the payments on the homes they are buying — unlike the people who inflated their income 400-500% on a stated income “liar loan” and had no way to make their mortgage payment on a long-term basis.
So that adds to the long-term stability fo the local real estate market.
By Steve Tytler @ 9:
Sorry, that statement appears internally inconsistent to me. Are we talking second derivative here? Is this a “less bad” condition?
Again, this does not make sense. The NAR says the average length of home ownership is 6 years. So how can MOST people keep their homes more than 10 years?
By tomtom @ 10:
Take a look at California and Arizona. There is a booming market in the low-priced homes.
We just sold a home in the Phoenix area for $210K … we had 3 offers in 3 weeks and took the best one. If the current deal flips, we could put it back on the market and sell it again within a week or two.
Many lower-priced homes in the Phoenix area and Southern California are now getting multimple offers.
You might think these people are “dumb” to buy now because the market has not bottomed yet, but that’s not how most people think (see my post above). They see low home prices and low interest rates and figure this is a great time to buy a nice house to live in at a good price. I don’t blame them.
Mortgage interest rates are going to increase dramatically over the next few years due to inflation caused by all the insane goverment spending. Home prices are likely to keep falling but this may be your last chance to get a 4.75% 30 year fixed rate mortgage for MANY years to come.
I know that many of you don’t agree with that, but the number of people who read this blog on a regular basis waiting for the absolute bottom of the housing market before they buy a home is such a small portion of the housing market that it’s not even measurable.
By Steve Tytler @ 9:
Steve,
I don’t think anyone here is saying you have to sell your home or move if it drops in value. But if your home is worth 20% less, you might not move but the guy moving in next door sure isn’t going to pay 20% more. The whole point in doing an economic analysis is to understand the trend and what make sense based on the fundamentals. You can love that yard all you want but if you can’t afford it or can’t get a loan you aren’t going to be able to buy it. As for your quote about why people buy a home, I’m sure they tell you that and there is truth to it but the next time they say that ask them if they would still buy the house with the pretty yard if they knew it was going to drop in value by 40%? Just because people didn’t buy a house based on the degree of value it would go up doesn’t mean they didn’t make the decision based on the fact that they thought it would go up. The future value and utility of an asset is figured into the current price.
By deejayoh @ 13:
The positive signs are the increasing home sales in Phoenix, Southern California and other hard-hit home markets. They are starting to show signs that the lower-priced homes have bottomed.
As for the “average” you number crunchers should know better than that … you drown in a lake with an “average” depth of 6 inches.
For example, you have proably heard that stat that 50% of marriages end in divorce.
Did you also know that 85% of married people have NEVER been divorced?
How can that be?
Because some people get married and divorced 3,4,5,6 times, or more … while others get married once and stay married … but the divorce “average” comes out to 50% of total “marriages” NOT 50% of total married people.
Get it?
With all the talk off tight inventory at the low end, shouldn’t we be hearing about rising rents for houses soon? Once that happens, then investors will see even more houses that pencil out and things will pick up from there.
As long as housing prices continue to fall, the Fed has a free hand to create reserves, aka money, to manipulate interest rates and the yield curve. Once prices stabilize, such action will be inflationary, and so rates will jump up. With rents going up because of short supply and interests rates high, well you know what they say…
Hey guys,
It’s fun chatting with you but I have to get back to work.
I have don’t have time to respond to any further comments on my posts.
Please don’t be offended or think I’m ducking you. I just have to go make some money being the evil money-grubbing mortgage company owner that I am. :-)
RE: Steve Tytler @ 10 –
You are so wrong. Over and over again. Sorry, but it’s true.
“So why would I sell my house at a loss and go through all the work and expense of moving?”
Because you see that you can buy almost the same house across the street for half of what you’re paying now?
Because you would then have half your mortgage payment to spend on other things, like a new car, vacations, a second home, college for the kids without having to tap savings, etc.?
How much do you have to like a house to pay $5500/month to buy it when your neighbor has rented his similar home for $2500/month? That is the exact situation my cousin is in. When do you think he will walk? Sure, it was his “dream home.” Now it’s just a nightmare.
People can’t afford to throw money away, especially when the uncertainty of continued income and security is a pressing issue for many. While they may not have made wise choices in the past because circumstances were there to bail them out, those days are gone. Reality forces a new perspective and hard choices, one consequence being that the frivolous and unsustainable soon vanish.
RE: jon @ 17 –
That’s a great theory- if only any of it was indeed happening as you suggest. But it isn’t. Please check for current facts before posting. ;-)
OK .. I lied . .. one more post …
Let me throw this out for discussion:
How many of YOU (readers of this blog) have sold or are currently planning to sell your home SOLELY because it has gone down in value and not because of other reasons such as moving, divorce, job loss, etc.?
I’d really like to see proof that a lot of people are selling their homes PRIMARILY because of the drop in home values.
RE: Steve Tytler @ 10 – Well, I guess Steve has headed out, but I will respond to his comment anyway.
Which is exactly why so many people are walking away from homes that are worth half what they paid, despite the fact that financially they can still afford it. They made an emotionally-charged, financially unwise decision to buy an overpriced house at or near the peak of the market, and now that they’re seeing how much money they could be saving / spending on other things if only they didn’t have the heavy yoke of a massive mortgage, they’re making an emotional decision to walk.
Readers interested in exploring the emotional side of the issue should check out the post I made about Robert Shiller’s visit in April as well as a relevant post on Mish’s Global Economic Analysis today: Walking Away Revisited
Could the gap have something to do with this?
http://finance.yahoo.com/echarts?s=^TNX#symbol=^TNX;range=5d
http://globaleconomicanalysis.blogspot.com/2009/05/mortgage-market-locks-up.html
“The negative consequences of 5.5% rates are enormous. Because of capacity issues and the long timeline to actually fund a loan very few borrowers ever got the 4.25% to 4.75% perceived to be the prevailing rate range for everyone. A significant percentage of loan applications (refis particularly) in the pipeline are submitted to the lender without a rate lock. This is because consumers are incented by much better pricing to lock for a short period of time…12-15 day rate locks carry the best rates by a long shot. But to get this short-term rate lock, the loan has to be complete enough to draw loan documents, which has been taking 45-75 days over the past several months depending upon the lender’s timeline. Therefore, millions of refi applications presently in the pipeline, on which lenders already spent a considerably amount of time and money processing, will never fund.
Furthermore, many of these ‘applicants’ with loans in process were awaiting the magical 4.5% rate before they lock — a large percentage of these suddenly died yesterday. To make matters worse, after 90-days much of the paperwork (much taken at the date of application) within the file becomes stale-dated and has to be re-done with new dates — if rates don’t come down quickly many will have to be cancelled out of the lender’s system. To add insult to mortal injury, unless this spike in rates corrects quickly, a large percentage of unlocked purchases and refis will have to be denied because at the higher interest rate level, borrowers do not qualify any longer. For the final groin kicker, a 5.5% rate just does not benefit nearly as many people as a 4.5%-5% rate does. Millions already have 5.25% to 5.75% fixed rates left over from 2002-2006.”
RE: Steve Tytler @ 21 –
HI STEVE
How about Timothy Geithner for starters.
RE: Brian @ 9 –
“Can’t these people be held accountable for their comments to potential buyers?”
This is an interresting question and close to something I was wondering about myself. Now when we see the SEC going after Mozillo for having mislead investors I wonder if the SEC have any reach to the NAR? The NAR it’s not a listed company but they are an organization of business members that issue statements and reports that could be seen as a guide for investors as to the state of the real estate market and it’s direction. If it can be proven that they have intentionally mislead investors for their own members winning can the SEC go after them?
By Steve Tytler @ 16:
Bad example. Married vs. divorced is a binary condition. What you said is the equivalent of “most marriages last 10 years”. Which if the average marriage lasted only six years, may or may not be true. What we need to know is the median.
The RE guys once accused SeattleBubble and its groupies (like me) of being a stopped clock, saying “we’re at top!” all the time.
Funny how now they’ve become a stopped clock, saying “we’re at bottom” nonstop :).
True, though, that at some point one of them will turn out to be right.
By Steve Tytler @ 21:
1) Good grief, jingle mail has been very well documented in the markets with steep depreciation Steve. Google is your friend.
2) As for people on this blog, few of us bought a home during the bubble, hence don’t need to see because it has gone down in value.
3) We aren’t talking about selling your home because it has gone down in value. We are talking about walking away, walking away from onerous monthly payments, walking away from a house that never really was a good investment despite what the Realtor said.
4) If you want to live in a really nice house, for emotional reasons, does that mean you would willingly pay $5000/mo for that value when you could walk away and pay $2000/mo for the same thing?
By alex @ 27:
The difference is that we agree that home prices WILL eventually hit bottom. The used home salespeople steadfastly denied that home prices would ever go down.
By alex @ 27:
Unlike buying the top, failing to buy the bottom won’t cause you to go broke :)
Listening to the relentless “green shoots” drivel spewing from every orifice of the Ministry of Truth, I’d say we’ve “returned to normal“.
Interestingly, the mortgage default rates on new mortgages is at all time highs. For example,I was reading that FHA insured loans made in the last year are defaulting at extremely high rates.
It looks like standards still have a lot more tightenting to do, but with the government calling the shots now that is unlikely. Politicians aren’t about to allow FHA or Fannie Mae massively increase their lending criterion.
Instead of building a healthier real-estate market, we are creating a new crop of home owners more vulnerable to default than ever.
Also w/r/t Steve Tytler’s original post and the claim that most people buy a house primarily because they “enjoy living in it”:
People may not buy a house to “get rich,” but many, many people who have bought over the last few years did so *because* they assumed or were told that its value would keep appreciating — i.e., buy now or be a renter forever — and/or *because* they planned to flip it within a few years and move up to the place they really wanted. For real-estate agents to deny the reality they helped feed, with glib and revisionist statements like Steve’s, is irresponsible or cowardly or both.
RE: Scotsman @ 5 – A 9.4% unemployment rate? Fo what it’s worth, I read recently that today’s unemployment stats no longer include those folks who have simply stopped looking for work. Whereas, during the 1930s depression, those folks were included in the stats. (Can anyone confirm this?) If this is true, then the current unemployment rate actually may hover around 20% or so, I guess.
RE: Steve Tytler @ 21 –
Hey Steve – So let’s say you buy a great Lake view house for 900K and you are happy. You get fired from Yahoo or MSFT or Amazon but immediately get a good offer from Google.
Your house is worth 600K at the time it happens.
You have to move to California now.
You paid 150 K for the house.
If you sell for 600K you have to pay an extra 150K which maybe a whole year of salary. So do you just walk away or just do a foreclosure?
RE: Steve Tytler @ 16 -
“They are starting to show signs that the lower-priced homes have bottomed.”
First of all, what does this even mean? Either something has bottomed (and YOY prices are FLAT) or it has not bottomed (and YOY prices are still declining). The “have bottomed” part of this statement implies past tense, whereas the “are starting to show signs” indicates a trend occurring now that will continue into the future. In other words, this is pure semantic gibberish.
Second of all, according to C-S numbers, there is a decreaes in the RATE OF DECLINE in CA, AZ, etc., NOT a flattening of YOY prices. That curve has really long time to go before it reaches zero. THAT would be the point that things have bottomed. Please stop confusing first and second derivatives to back up your false conclusions.
RE: Steve Tytler @ 12 –
I would not really count on stability returning the market now. The Fed and others have identified, such as Tanta at CR, that low/no money down loans are a bigger factor in foreclosures and instability than ARM “payment shock”. In fact, Prime/Alt-A foreclosures are now higher than subprime which suggests that being underwater during a poor economy is what matters the most now. ARMs and Liar Loans certainly were a problem, especially at the beginning of the burst, but most people who could not afford in the first place are long ago foreclosed and people with ARMs adjusting are now getting relief from low rates and lower payments.
The government has juiced the market with $8k rebates (meaning less real down for new buyers), and FHA loans are 25% of the entire market. Combined with VA this is likely even higher. With their low downpayments, and gifting ability, we have basically turned FHA into the new Countrywide to try and keep the gravy train moving. This bodes very poorly for the market in the future when we have seen that low/no skin in the game is a major factor in the bubble crash.
RE: deejayoh @ 26 –
OK, had satisfy my own curiosity – if anyone else cares, Median length of home ownership appears to have been 8.2 years as of 2001. It is probably shorter than that now, given the amount of flipping that went on during the boom (e.g. sales volume went up much more than the number of houses available to sell, so there had to be disproportionately more short periods of ownership vs. the past.)
Lots more stuff in this study about why home ownership is so GREAT from the d-bags in the hip pocket of the NAR at the JOINT CENTER FOR HOUSING STUDIES of Harvard University
http://www.jchs.harvard.edu/publications/homeownership/liho01-12.pdf
I’m a little disappointed with all the Tytler-bashing. Seems like a lot of vitriol being spewed.
That being said, I’m not sure the issue is people selling their homes because value has dropped so much, but people walking away from them, a la Ray Pepper’s theory.
But if someone haD substantial equity, and most of of that has eroded, it makes a lot of sense to sell before the remaining equity (if any after fees) is wiped away. Then start elsewhere.
RE: Steve Tytler @ 10 –
Wow off to the health club for an hour and what action. Steve you are correct ” Everyone will not bail”. But, I assure you the numbers of people that will walk from their homes in the coming decade, because they MUST, will be staggering unless Mtg Cramdown is initiated in some fashion.
Between Realtor fees, excise tax, closing costs, and a long market downturn we will see a WAVE of short sales that will be astounding in the coming years. It is VERY expensive to sell and people will NOT have the money to close. They don’t have it now and they surely will NOT have it in 3 years!! Your predictions will be out the window because even I cannot predict how severe it will get nor can I predict the duration.
But, I again remind YOU and everyone here. Take your time. Find your Gem. Let the prices come to you. There is no shame in renting because our property taxes are going no where but up up up and the “dream of home ownership” has been been severely damaged and the “mantra” takes many years to come back.
We are in a horrible mess and being a Broker in real estate I still offer my opinion. I sincerely hope I’m wrong and rates stay low, prices begin to surge, but I assure you this………………………..I will be the first one out in round 2 of any type of Bubble Buying.
Be smart buyers. Know how to buy and what to buy. Real Estate is ALWAYS an investment.
By deejayoh @ 13:
People will stay in homes longer if they are not appreciating as much. The appreciation is what gave them the ability to move up, but without that they’ll stay put.
As I’ve mentioned in the past, earlier generations kept homes a lot longer. This moving all the time is a relatively new thing, IMHO.
By Scotsman @ 19:
Just how do you think you’re going to accomplish that? Even assuming you could time a purchase followed by a foreclosure, most people don’t want a foreclosure on their record.
Also, I’d point out that many people are frequently upside-down on their car loans. It doesn’t make them go abandon their cars in mass.
The idea that people who are able to afford their loans will allow their homes to be lost is pretty absurd.
RE: S. Marty Pantz @ 33 –
You’re correct- the commonly released number, called U3, is about 9.5%. The true unemployment number, called U6, is closer to 16% last I heard. And it does include those who have given up looking for work, among others. But why would the government want that information published, even though they do generate the statistic?
Don’t worry, be happy!
By Snigliastic @ 38:
Tytler is getting it because he has been talking nonsense this morning… not sure why.
But I don’t really see the point of selling because equity has declined and will decline further unless you are selling a second home or selling the primary residence to rent. Even in the later case, the transaction costs may make it a wash… you’ve already lost the money, so just enjoy the house if you can afford it or walk away otherwise.
By The Tim @ 22:
Where is your evidence this is actually occurring?
Question on short sales:
Loan outstanding is $650K; I bid $400k for a 4500 1 year old mansion with 0.70 acre of land
They said no initially, and now they are warming up to the idea at $425K
I’d think that I am bidding close to replacement cost;
Real Estate is purely a function of rents, and I think I am getting a fair price; its fair from a discount cash flow perspective – if I factor in the rental market
Now the bank has indicated that they are reviewing this..lol
Considering these guys are drowning in TARP money; why not give me the place for a 30% haircut?
Any ideas? Why are these guys shy about moving this…? Am I not alleviating the problem; granted, the whole neighborhood will be worth stuggots – place was listed at $1.3 million! lol, i might get shot by my neighbors…
And on that, what do people here think a 4500 sq foot; 1 year old, quality custom built home is generally worth in Pierce County (Puyallup/Auburn) area..? Think nice construction, nice neighborhood, etc….
By Kary L. Krismer @ 41:
It is happening in the hardest hit markets all over the country. Mish has been documenting this quite extensively on his blog if you want to investigate further. YOu are obviously going on personal experience here in the PNW, and we haven’t yet see the major declines, we are behind the walk-away curve. Once people in Seattle realize that their lost equity isn’t coming back, they will also do some walking in the rain.
RE: Groundhogday @ 28 – Googling stories of a few individuals doing something does not mean it’s actually happening.
RE: Andy @ 45 –
Remember, the cost to own a mansion isn’t trivial. Heat, maintenance, taxes, etc…. This segment of the market has a LONG way to fall, and just about anyone who buys now is catching a knife.
And as for the quality construction, HA! There wasn’t any quality construction over the past 5 years. You might well have some quality finish work, but it would be very unlikely that your house was well built through and through. I’ve seen some of the worst construction practices on ultra high end homes…
RE: Sniglet @ 31 – I think the reason for that is that credit scores are lousy tools for granting mortgage debt, but that’s still what they’re using. They don’t need to move to higher and higher numbers, what they need to do is move to entirely different numbers.
By Kary L. Krismer @ 47:
Then read the Fed reports, mortgage bankers, investment bank reports, etc… this has been very well documented Kary and you have your head in the sand to think otherwise.
From what I’ve seen, things are going up. Things like unemployment, gas prices, foreclosures, and interest rates.
RE: Kary L. Krismer @ 41 –
Kary, they won’t repurchase- they’ll just walk. If the equity is gone, and as for most people your home is the biggest net asset you have, what’s to save? Walk and rent. There are however, plenty of examples in more “advanced” markets, California and such, of people buying a new home at reduced cost while still in the original home. Once the new home closes, they default on the first purchase. Yeah, their credit is trashed, but they’re buying and rebuilding. You need to think more like a criminal. Actually, it’s all legal.
The car example has been invalidated many times over. Apples and oranges.
Actually, this isn’t the first time this has happened either. Ben Jones at the housing bubble blog has been writing about this phenomenon since 2005 based upon his first hand experience with Texas real estate bubble bust. When people are seriously underwater AND have no hope of a near-term reversal, they will walk in large numbers. In the PNW, many people are still hoping for a rapid near-term reversal. When they give up hope, we will see the walk aways.
RE: Scotsman @ 52 – For a delta of 50% as in California, that makes sense. But Seattle is still only a 20% drop from peak, and that only applies to a small window of purchasers. It has to get a lot worse here before that happens in significant numbers.
RE: Groundhogday @ 50 – Oh, well I guess I’ll just believe it then.
I’m sorry, but I really doubt the fed or mortgage bankers know which owners who are losing their homes can afford to pay or not.
By Groundhogday @ 53:
Wasn’t that in the 80s to the oil glut? I got to see this first hand and people do walk away en masse. Not pretty.
RE: David McManus @ 56 – Were they walking away, or were they moving out of the area for new employment opportunities? If the latter they don’t fit my definition of someone who is otherwise able to pay.
Keys in the mailbox, Kary. Considering that Texas is now and has been for st least the past decade, one of the fastest growing population centers in the country, I think it’s safe to say that if they all left, they probably came back. ;)
RE: Andy @ 45 –
“And on that, what do people here think a 4500 sq foot; 1 year old, quality custom built home is generally worth in Pierce County (Puyallup/Auburn) area..?”
More now than it will be in two years.
By Kary L. Krismer @ 55:
Read the studies. Yes, they are capable of analyzing incomes and debt loads.
By jon @ 54:
Yes, and it will get a lot worse here. Fasten your seatbelts kids…
Are there any evolution disputers around to debate? This is fun!
Oh, real life story: I just got off the phone with my landlord. He has a negative amortization loan on the property, our rent just barely covers the payment, within a couple hundred dollars. Best guess is he’s 100K underwater now, and heading higher. He wants to update the lease in an attempt to put together a refinance. So far, so good. but here’s the kicker- his payment resets 1-1-2011 to over $5,000/mo, more than twice what it is now. Without a refinance (which is doubtful) at that point he will default. And we will (hopefully) buy the house through the bank.
There are thousands of like stories going on out there. Another reason why we are no where near the bottom. Most of the similar second wave resets don’t start to happen for a year or more. And we and our landlord, like many others, are stuck in a stalemate between the market, the banks, the government, and reasonable expectations.
Steve is correct though about home owners who appreciate their house not the appreciation. I am one of those in a house with view, big yard, 3 car garage and a ton of features.Even though some neighbors are selling + 1 in foreclosure, even if my house dropped less then what it cost me, I would not move. To replace the proximity to office of 6 minutes, school district, amenities (walk to the beach) is impossible even in today’s market.
MR. GEM hunter had one even for $500k+ recently…. If Mr. Gem calls it so then it must be.
The house is on a fast track to getting paid off and will be my home for a long long time.
RE: ray pepper @ 1 –
Don’t underestimate the ability of our government to inflate underwater homeowners up to take a breath.
Not that I buy into all the points made by the mortgage brokers and realtors in this thread but I doubt that credible buyers will walk away from their SFR purely because they are underwater. The people that will do this are the marginal buyers, idiots and crooks that took on suicide loans and were overextended at the instant they signed their mortgage papers.
I am an example of someone in the former group. I purchased near the peak, put down 20% and locked in a 30 year mortgage at 6.25% which I could afford based off my income. I just refinanced at 4.5% and the valuation came in $135,000 less than what I paid for the home. I still have some equity but a lot less than when I bought. Being a rational guy, I can’t reverse a decision previously made all I can do is try to improve my situation. So I paid down my principle and refinanced. My P&I payment went from $4,231 / month to $2,560 / month and I am now at the point where I could rent out my home and break even on mortgage and property taxes if I was forced to. More importantly, I sleep easier at night knowing I can take a substantial pay cut and still afford my home. The cost to me is that I have accepted a less than optimal return on the capital I have plowed into paying down principle. I don’t see that as a big deal as pre-paying your mortgage gives you an implied return equal to the current mortgage interest rate (less tax shield) which is a lot better than what the market has provided over the past year.
Are we at the bottom? I don’t know and neither do any of you. I doubt it though. There will be no recovery – economic or real estate – until we actually create real jobs. An economy where the only good news is that the pace of layoffs has slowed won’t hack it. Personally, I am pessimistic about the future of the USA. We elect morons who lack the intelligence and education to understand basic economics and do what is politically expedient rather than what is right.
At some point China, Japan and Germany will stop funding our out of control spending at ridiculously low interest rates and then wait for the implosion. Geitner was snickered at by a Chinese college audience at a recent speech he gave in China on how America is responding to the economic crisis and is positioned to rebound. I think that reaction is appropriate given the death spiral the US is in. Time for us to learn how to say “Do you want fries with that?” in Mandarin.
RE: S. Marty Pantz @ 33 –
HI MARY
You’re right, its all over the media today and yesterday, we’ve been totally lied to in the past, RE: the approximate half factor unemployment rate, compared to historical Great Depression (GD) norms.
Which brings up another interesting brainstorm I’ve been daydreaming about today:
If unemployment is about as bad as the GD, where’s the breadlines, masses of beggars, etc?
Answer: during the GD we also had a dust bowl, seriously mitigating food production in America, today we have Safeway, Albertsons, etc. charging like $4 for a box of cereal that probably costs 50 cents wholesale, etc….hence the past date food products [covered by the mass product markups] to be thrown out are then sent to food banks, to feed the hoards of unemployed needing food assistance.
I hear food banks have trouble getting the cash for truck shipments [especially when diesel gets expensive]; so if you want to give food banks charity, send ‘em cash.
By Kary L. Krismer @ 44:
There have been multiple news stories about this, which I’m too lazy to google right now, but what they’re basically saying is “Being upside down on one’s mortgage is the biggest predictor in whether a home goes into foreclosure”.
Here’s what happens:
Couple owns a home, they have a $400,000 mortgage on it. They now realize it’s only worth $250,000. They have a 6.5% mortgage, they can’t refinance to today’s 5% mortgages because they’re upside down on their loan.
They realize they could either buy a new house just as good as theirs, or rent a house, and pay half of what they’re paying today in housing costs. They realize that THEY ARE GOING INTO FORECLOSURE EVENTUALLY. They’re not going to live there for 20 years, so they will never be able to sell as housing values will never come back before they have to leave, the foreclosure is going to happen so they might as well get it over with now.
In fact, letting the house be foreclosed on now is the best financial decision they can make. This cuts their home expenses in half, and it lets them start rebuilding their credit now. Maybe they’re tricky and they buy a new house before they abandon the old one, or maybe they just stop paying on their mortgage and live mortgage free for 9 months before they finally get evicted.
Wether many mortgage holders will decide to just “walk away” or not is beside the point. Statistics show that there is a high correlation between the percentage of homes that are worth less than the debt owed on them and the foreclosure rates.
When your home is under water, it means that there is no cushion left if you need to sell due to job loss, divorce, or any other life changing circumstances. Even if we don’t see masses of people just up and leaving their homes when they cease to have equity, large numbers of under-water homes are NOT good for the broader real-estate market, and lead to high rates of foreclosures.
RE: Kary L. Krismer @ 44 –
I FOUND IT ON DR ROUBINI’S WEBSITE
It was in Stockton CA about a year ago when prices collapsed 50%. The shrewd buyer saw a home next door for half price, qualified to buy it too [probably a rarity among recent home buyers...LOL]; then handed the keys to the bank on the overpriced one. They rented the defaulted home out for year, mortgage free too…LOL.
I may add its totally unethical to me, but Hades, the unethical rich do it too. Perhaps that’s why the next horrifying bubble will be Comercial Real Estate…..noticed the For Lease signs are getting thicker and thicker every day?
RE: Andy @ 45 –
No one ever said the banks were rational.
On a foreclose property I was watching, here’s my experience:
- Last purchase price (2006) – $550K
- Loan amount – $495K
- Estimated peak pricing – ~600K
- Property foreclosed in August 2008 to bank.
- Local broker starts marketing the property in Sept 2008, initial price @ $550K. He specializes in BPO/REO sales.
- I noticed the property, and since I rented on the same street, knew the area. But 550K was too overpriced.
- Price drops approx ~25K-50K every month, usually around the 10th of the month.
- By December, price is 425K
- Jan 09 price is 390K, we offer 300K on Feb 2. Bank rejects the price. We counter @ 325K, bank agains rejects the price with little explanation (‘too low’).
- Feb price drops to 375K, we re-offer 325K. Bank rejects
- March, price drop to 350K, we again re-offer 325K, Bank counters at 340K. We stay firm at 325K and tell them our next offer will be lower (which gets the listing agent really upset and writes a slightly nasty reply that we’re behind the curve and the price is amazing blah blah blah).
- April, price drops to 325K, we again offer 325K and think we’re a shoe-in this time. However, before accepting our offer, bank pulls the listing and sends property to be auctioned at a REDC auction (www.auction.com) taking place in early May.
- We attend auction in early May at the Meydenbauer center, and win the property for 370K + 5% premium (going to the auction house), “subject to seller confirmation”. We place 5% non refundable earnest money (cashier’s check) and wait for “confirmation”
- After approx 3 weeks, and no response, our buyer’s agent lets us know the property is back on the market at 325K, and apparently this is our auction rejection notice
- We re-offer 325K for the property and this time get acceptance in pricipal
- Now comes the one-sided buyer’s addendum with a whole bunch of gotchas: bank only need supply “insurable title”, rather than “marketable title” (not being familiar with title matters I had to consult 2 attorneys on the difference). $100-per diem fee for later closing. Contract says seller will not pay any transfer or excise taxes. and a whole bunch of other verbiages that generally protect the bank, give them the right to back out and screw over the buyer.
- I bring the addendum to my lawyer who makes several changes. Submit offer and addendum with changes. Bank will not accept any changes (actually, they’ve outsourced the sale to a 3rd party who does not have the authority, supposedly, to accept changes). I ask that the decision be escalated. Reply is that a new addendum can be added and they will consider changes on new addendum, but no changes will be accepted on their addendum.
- Listing agent keeps telling us that he has other backup offers and even rejected one at 10K above asking (yeah right, nevermind his legal fudiciary duty to the seller to take the best price) and that he is doing me favours (yeah right) and generally rushes the process. I am not easily rushed.
- Much back and fourth ensues, and we finally get the legal matters sorted out more or less to my satisfaction (I accept some compromise based on my belief that the bank actually doesn’t want to keep paying carrying costs on the property and wants it to be sold =)
- Inspection and resale cert are acceptable
- Locked in a mortgage rate of 4.25% on a 30yr fixed /w 1/2 pt & 25% down (lucky timing!)
- Closing date set in mid June and we should make it to close, I hope!
My conclusions (as a first time home-buyer):
- Bank have very poor and slow process
- Bank actions almost make things seem like they don’t really want to sell their property
- Their basic strategy appeared to be a Dutch auction: start the price above market value and drop price monthly to find a market clearing price. The problem is that the market was largely dropping with them, and so they could have sold the property much earlier and probably at a higher price if they had simply started the price at a realistic level and had some flexibility to accept lower than asking price. The Dutch auction strategy would work very well in a appreciating market, as each month’s appreciation will probably cover at least carrying costs.
- Auction process was a waste of time, money for the seller and an annoyance to buyers (and kept the property off the market for ~1month of peak season, (i.e. May)) Side note: properties at the auction where financing was available (read: not in horrendous condition) generally sold for 40-50% off peak market pricing. I’m not sure if they were expecting a miracle, not sure why the bank sent the property to auction if they weren’t serious to sell,.
- My wife became very frustrated with this process and was pushing me to just walk away several months ago. She has utter disdain for the seller and takes things personally
- In the end, I got a property for approx 45% off peak pricing, record low interest rates and I should qualify for the federal tax rebate. I personally expect the overall market to also fall about 40% in the long run, though would not be suprised to see an overshoot in the short run
- I calculated “fair market value” by averaging out comps from the early 1990s based on county records, adding 3%/yr for inflation and determining a fair price for this property would be around $325K – $375K. So my offer was not based on bubble pricing.
- In the long run, I don’t expect this property to make money, beyond inflation.
RE: Ross @ 71 –
Now this is the guy that I want to be my realtor :)
“17 jon » Jun 5, 2009 at 10:54 am
With all the talk off tight inventory at the low end, shouldn’t we be hearing about rising rents for houses soon?”
“20. Scotsman » Jun 5, 2009 at 11:02 am
“RE: jon @ 17 -
That’s a great theory- if only any of it was indeed happening as you suggest. But it isn’t. Please check for current facts before posting. ;-) ”
” 63. Scotsman » Jun 5, 2009 at 1:30 pm
” Oh, real life story: I just got off the phone with my landlord. … He wants to update the lease… “
Here’s one example of a guy likely to end up in foreclosure.
http://www.raincityguide.com/2008/10/11/joe-sixpack-and-the-subprime-crisis/
I agree that being underwater alone will not cause a huge number of foreclosures, it is the losing ones job while being underwater, or the job requiring someone to move or take less hours, the ARM resets on a person who was counting on refinancing, or they get a serious illness that affects their cash flow, ect. Instead of selling they will be foreclosed on because they can’t sell for the mortgage balance.
Also consider the many people the last 10 years who bought a new house to live in and rented the old one at a loss rather than selling, because they thought it was a good investment. That won’t happen now that most people are aware that prices can drop, therefore there will be more sales. Also, many of these financed their 2 houses with interest only ARMs and the like counting on rising rents or refinancing, and they may be foreclosed on. At the very least fewer people are doing that now, meaning more supply coming online.
Also consider the people that bought because they were sure they could sell at a profit when they wanted to move. Those who bought “starter homes” that they wouldn’t want to live in for the long term, once their kid gets old enough to need more space or better schools, ect. Or those who bought early in a career knowing they would likely change locations in a few years but were sure they could make up the transaction fees in appreciation. These people may or may not get foreclosed on, but there are certainly a lot fewer people who would do that now, meaning fewer buyers.
What percentage of homeowners retire in the first home they bought. I would bet it is pretty low. That means people need to be able to transfer homes a some point, which means foreclosure if they are underwater. Maybe not for Steve and Mukoh, who are apparently already comfortable in their dream homes, but certainly for enough people to keep prices lower. I would ask those who don’t care about your equity, is that your first home, or did you require equity from a previous home to buy it?
RE: Ross @ 71 –
HANG IN THERE ROSS
They may not take the offer today, especially if they get a 30% off offer for the banks to mull over for like 5 months…LOL
I’m with Scotsman, in 2010 and 2011 your offer could sound quite sweet.
This stagflation recession depression or whatever the Hades economic mess we’re in is one thing; a quagmire with no quick way out. The deals will sweeten with time in my hunble opinion and if you get it for 50% off and your job prospects look adequate in a year or two….who cares if you bought at bottom, if its the house you want.
I’m a younger baby boomer and every night, thank God I’m not in debt. Those HELOCs even got a good portion of my generation in horrifying debt by surprise.
RE: Steve Tytler @ 21 –
I hope that my home goes up in value (some day).
I am not depending on any equity at the time I sell and would not sell if the market went down another 25%.
I searched for 2 years to find a house, neighborhood, and location that fit 95% of my functional and economic requirements through the end of my children’s college years (~14 more years). My wife would divorce me and my kids would leave me if I sold for purely financial reasons.
Should a hardship come upon me and I was forced to sell for some reason, it would suck. Knock on wood.
By Sniglet @ 69:
Um, gee, uh, did it ever occur to anyone that if you’re not underwater you have another option? Like selling. I mean really. That’s somewhat obvious, especially given the discussion we’ve been having about how hard it is to close a short sale.
RE: Ross @ 71 – I agree the banks are very bad at selling property. We once made on offer on an REO that was lower than the list. They just rejected the offer without a counter, and then within days lowered their list price to within 5k of our offer. What kind of a rational seller would do that? Our buyer didn’t come back.
All this bottom calling and “green shoots” rambling allover MSM reminds me of when one of the posters over at rcg dedicated a post to say that noone should talk about any potential problems with Countrywide since it might become a selffullfilling prophecy. Now is kind of if we say bottom, recovery and “green shoots” enough times it will come true independent of what fundamentals tells us. Well, we know now how well it worked with Countrywide…
RE: HereWeGoAgain @ 66 –
I know you put yourself in the “marginal buyers” group (that definitely sounds the best of your 3 categories ;-) I think you became are a big exception in my mind, when you stated matter-of-factly that you just paid of your principle. From the numbers it is obvious yours is at least a medium-priced house. You are in a different financial world, obviously, than the other people thinking about their bad decision to buy during the bubble.
How many other people do you think can pay down a few hundred thousand or more? I doubt there are many who have 10K to do this, and even then, they probably don’t want to sell one of the vehicles or one of the kids. What you did is not a possible solution for 99% or more of the people with the same housing situation as yours. More power to you, though, for not welshing on your deal.
RE: Ross @ 71 –
I am in agreement with some other posters. You play hardball, Ross. That was very fun to read. I especially liked the part where you’re all “We stay firm at 325K and tell them our next offer will be lower (which gets the listing agent really upset ” and the listing agent is all “writes a slightly nasty reply that we’re behind the curve and the price is amazing blah blah blah)”. Nice job.
RE: jon @ 73 –
Rent’s not changing. He just needs a current document for the lenders. Sorry. And if anything, rent-o-meter.com shows my rent has gone from being slightly below market to slightly over market in the last year and a half. so they have been falling, not rising.
By Steve Tytler @ 10:
I agree that it’s an emotional decision for many, but I also think MOST people do not get their dream house. People make tradeoffs. Most people get the home they can afford that’s good enough. But when prices fall 20%, 30%, 50%… you start to see a lot of homes you like a lot more. So are you going to bust your butt for the next 30 years to pay off the house you happened to pay too much for, or are you going to try to jump over to a better house for less money. For a lot of people, it might just be worth the risk to their credit rating.
RE: sead97 @ 83 –
Yeah, I agree with this. How many people bought townhouses or condos (or "chocolate"boxes with 5′ basement ceilings) in 2004-2008 because they were priced out of reasonable SFH during those years? Many people were convinced to buy any piece of "chocolate" they could find to get in on the gravy train and if they just held on for a few years in suboptimal housing their equity would magically become their dream mansion.
RE: b @ 84 – It really did become a mantra of the Bubble Cheerleaders. It was the idea that a modest, reasonable SFH in a decent neighborhood was only for the select few. The rest of you mouth-breathers must first buy a 500K condo (apartment), toil away for years with your mortgage and $500/month HOA dues, and maybe, just maybe, you can reach the next rung of the property ladder. Better hurry, since the last spaceship off the desolate planet of renterville is warming up its engines!
Ross;
Thanks very much; again, there is nothing wrong with bidding on a home
People should just undercut by 50% or more..lol
My wife and I will probably pay this off in 5 years…
30 year mortgages should be outlawed…
Interesting about the bottom bumping along. It’s true that properties that have been for sale a long time are now sold.
Just a quick observation, that with every closing a new set of statistics are being generated. When homes take price reductions and sell for less than asking price that also lowers the Comparative Market Analysis.
Short sales closing lower prices, but so do all sales that are less than asking price or reduced.
So sales rather then indicating a bottom are creating another stair step down in pricing.
After the market cools in August, September, October, and December the new set of statistics will be another step lower.
Next year the Fed will be talking about inflation and another step down in pricing will be needed to compensate for the higher mortgage interest rates.
It’s 2011 that will be scary. The low end job market will be falling off and rental property will be harder to fill. Commercial Real Estate will be taking the lumps residential properties took in 2007.
I’d like to see what the commercial loan resets are going to look like and speculate on how many people will be renewing five year leases from the 2006, 2007 years.
2012 will be the first hint of recovery for housing and at that time many of the projects completed in the past ten years will be looking pretty worn.
It’s going to be a long decline in pricing that should have been immediate if some bad business models were simply allowed to collapse.
RE: Ross @ 71 -
Great job, but I don’t think I’d have the patience for all the back and forth nonsense.
“As I’ve mentioned in the past, earlier generations kept homes a lot longer. This moving all the time is a relatively new thing, IMHO.”
Earlier generations typically worked for one company their entire lives before retiring, so there was less need to move.
“Just how do you think you’re going to accomplish that? Even assuming you could time a purchase followed by a foreclosure, most people don’t want a foreclosure on their record.”
The hypothetical $400K in Steve’s post actually costs $800K if borrowed. By the time the market bottoms, the loss will most likely be well over a million. That’s powerful incentive to walk away.
Instead of paying $5K/mo to keep the underwater house, rent a place for $1K/mo for 7 years while saving the additional $4K/mo. In 7 years, the bankruptcy goes off your record, and you have saved $400K for a downpayment (4K/mo + taxes and insurance). By then, house prices should still be scaping along the bottom (see house prices 1990 to 1997 as an example). Buy the house back cash for $400K and live happily ever after.
Either that or be a stressed out debt slave for the next 30 years.
RE: Ross @ 71 – Ross, what a smart and great way to stick to your guns. Most level headed post in this comment thread.
RE: David Losh @ 87 – Short sales affect mean and median, but they don’t necessarily affect CMAs or appraisals.
RE: deejayoh @ 13
Maybe there are a few people who hold properties for a few months and that brings the average down.
RE: Kary L. Krismer @ 91 –
That sentence was actually to make that distinction between short sale closings and regular closed sales. However short sales in my opinion have been closing at what I think is fair market value, by the time they close in a declining home price market.
RE: Jonness @ 89 -
I think we can all agree that in the next ten years there will be a period of inflation. That’s what mekes a difference in locking in price. yes your dollar is worth something today, but in the future it will be worth less.
There is a saying in Real Estate that you will be paying today’s price with future dollars. Does any one actually see a time in the future when the dollar will be worth more than it is today?
RE: alex @ 27 –
We won’t be at the bottom until all of the pundits think that the long trend down means we will keep going down. They will say the bottom isn’t in sight and then we will hit bottom.
Thanks for the hilarious bottom bubble quote graph. That gave e a good laugh this morning. So funny.
By David Losh @ 94:
Please explain the mechanism by which wages increase rapidly so that people can afford ever more expensive homes? In the 1970’s a sizable fraction of the labor force had inflation-indexed salaries, often via union contracts. Those are almost non-existent today. Unemployment is going exponential. Globalization has been dragging down wages for over a decade even before this collapse. So just how do we get a wage-price spiral?
The Fed provides easy money for lenders, but who will be qualified to borrow it? And if consumers don’t have the money to spend (statistically they are tapped out), why would companies borrow money to expand operations? That is the key issue going forward. Until increases in productivity can be translated into wage gains, we will see little traction in the Fed’s deflation fighting efforts. Credit=money. And if credit continues to contract, as many argue it must, then how can we have inflation?
I have a substantial amount of my retirement money in TIPS, just to hedge my bets. But it is very hard to see how inflation (other than asset inflation) actually happens.
By David Losh @ 93:
I guess that might depend in part on when the offer was made and when it actually closes. For example, if the offer was made 8 months ago and closed last week . . . ..
RE: Groundhogday @ 96 – “So just how do we get a wage-price spiral?”
It won’t be your father’s stagflation. Instead of a wage-price spiral, it will be a falling productivity spiral. The government faces enormous voter demands for preserving jobs and entitlements. To fund those, it will continue to create money and credit. As larger sections of the economy are in protected industries and living on government pensions, they produce less and so the available supply of things to buy fall. The falling dollar makes it more attractive for companies to export than sell domestically, so there is less to buy here, at the same time that imports are more expensive. So the people that do work will have no trouble finding a job, but their products are exported so find it difficult to maintain their standard of living. Mostly we will be working to pay the interest on the federal debt.
By Alan @ 92:
Alan – yeah – but only slightly. I found the median for home ownership, which is 8.2 years. See #37.
Based on my understanding of math, I am 100% positive that “most people” do not keep their homes for more than 10 years.
Of course, other people’s “truthiness” may be different.
RE: deejayoh @ 99 – “The NAR says the average length of home ownership is 6 years. So how can MOST people keep their homes more than 10 years? ”
I have owned and lived in my current house X years, but the total amount of time that I will keep my house is some unknown number that is longer than that. I won’t know until I move out. So when you ask people how long they have lived in their house, it will be a smaller number on average than the average number of years that people live in the same house.
Also, it is kind of like marriage where flippers go around owning houses for a year or so. They bring the average length of occupancy down, while most people stay in their houses for a long time.
I’m not speaking to the statements of the NAR, just the statistical problems.
Lately, I’ve been posting about why it makes sense to save money and buy with as much cash as possible instead of rushing out, and borrowing most of the money necessary to purchase the dreamhouse. As Steve T. points out, for most people, buying a house is an emotiional decision where financial common-sense isn’t a factor. Actually, that kind of buying works in an inflating market, but when house prices are going down, it’s the death nail.
To me, buying a house on credit is similar to asking the govt. to borrow money for jobs and services it can’t afford to pay for. Eventually, you become a debt slave, and wind up paying a very large portion of your income to finance the debt. But remember, this kind of emotional credit-based borrowing actually works during times of inflation.
I believe most people would rather inflate our way out in order to get around the burden of sacrificing most of our future wealth to pay for the party we already had. Many older people I’ve talked to want me to have a lot of babies (and embrace immigration) so someone will be around to pay for their retirements. I got to thinking about this the other day and realized it’s a complete ponzi scheme. Our entire country’s economic strategy is a gigantic ponzi scheme! What keeps it alive is politicians’ need to satisfy voters in the short-term. Nobody wants to pay the necessary price to correct this mess, so every decision that comes down the line is directed toward the best short-term outcome as opposed to looking at the big picture and embracing the long-term health of America. In short, we are like a bunch of spoiled little children who want, want, want, and the govt. is our parent and does it’s best to satisfy our desires one day at a time. In a way, it’s like driving with a blindfold on.
I believe most of my future investments, other than a place to live, will be made in other countries that are up and coming as opposed to wealthy and entitled–especially when that wealth and entitlement is dependent upon borrowing money from countries who are up and coming. IOW, it’s not anit-American to dump U.S. stocks and buy into companies overseas. You either buy their stocks and make money, or you borrow money from them you don’t have. I suspect many other Americans will adopt a similar strategy.
The green shoots we keep hearing about are laughable to me. We are experiencing the effects of borrowing money, but where are the jobs going to come from when we attempt to balance the budget in the last half of Obama’s term? The U.S. attempted to bring down the debt after the economy begin to heal during the Great Depression, and it sent the economy back to Hades. No wonder the Chinese laughed at Giethner when he pledged to bring down the debt and protect the dollar. Unlike the American’s, the Chinese have read up on American history; thus, they know exactly what’s going to happen when we try to bring down the debt. The reality of the real underlying economy is going to set in. What will the U.S. govt. do when faced with that reality? Borrow more money.
RE: jon @ 101 – Please read my comment right above yours.
You are right, the average does not supply sufficient information. but the Median = 8.2 years
half own longer, half own less than this. definitionally
so the statement that “most people keep their homes more than 10 years ” is definitely incorrect
RE: deejayoh @ 103 –
From the study you cited in 37, “While renters maintain their residences for a median duration of 2.1 years, homeowners stay in one residence for a median of 8.2 years.”
That is a statement about the period of time of each ownership. The statement “most people own their homes for more than 10 years” is a statement about people. I don’t have information to verify that, so I simply assume that sampled a group of people and measured the length of time they owned their previous home. That is going to be a differently weighted sample than if they measured based on a sample of sales. Flippers will be weighted more heavily in a sample of sales than they will be in a sample of all people. That’s how flippers will bring down the average length of ownership relative to the amount of time of all people on average.
RE: Ross @ 71 –
Thank you for sharing that, Ross.
Did you use a real estate agent to help you through the process?
RE: Groundhogday @ 97 – RE: Jonness @ 102 –
Yes you can invest in foriegn countries, and yes there is profit.
When Americans talk about a global economy they assume we will be importing goods as we always have. Today is the first time any one has mentioned exporting American goods. A lot of talk about Japan centers on stagflation and deflation, but Japan needs to import. They are a rock surrounded by water.
The United States is self contained. We can afford a weaker dollar. We can export.
The way it gets inflationary is by having a dollar that is worthless.
A dollar that’s worth less: Exports become cheaper, while imports become more expensive. All else being equal, gasoline prices go up. So do other commodities — meaning that we’d likely resume the upward pay-more-for-food and pay-more-at-the-pump trend that was evident about a year ago.
A stock market and bond market crash: If investors start to view inflation and a devalued dollar as inevitable, it could result in a broad sell-off of stocks and bonds, and a flight of capital to other assets and currencies. (Swiss francs might become more attractive.) Inflation expectations are important.
U.S. banks have an enormous amount of excess reserves, according to Federal Reserve data, that would rapidly expand the money supply once lent out. “The enormous increase in reserves is potentially inflationary,” Stanford economics professor John Taylor told the U.S. Congress in February. “With the economy in a weak state and commodity and many other prices falling, inflation is not now a problem, but at some time the Federal Reserve will have to remove these reserves or we will have a large increase in inflation.”
Think of paying your debt with worthless dollars. It’s not that wages will increase it’s that the dollars you get will be worth less.
Per our discussion on foreclosures, here is a great piece by Matthew Padilla (hat tip Calculated Risk) reporting on a new academic study:
http://mortgage.freedomblogging.com/2009/06/05/do-these-homeowners-deserve-help/11597/
Guess what, the housing ATM might be more responsible for the massive wave of foreclosures than market dynamics! Yep, some really sympathetic victims out there.
RE: jon @ 104 – Again, now I know you are just trying to yank my chain.
On the amount of time people stay, what about neighborhoods that are less than 10 years old?
I looked on my block and the mean and median were both over the reported stat, but we have two that have been here over 20 years.
RE: deejayoh @ 13 –
I don’t think Steve was trying to quote a statistic regarding length of home ownership. It was a prediction based on an assumption it will be a poor sellers market for a while.
“the majority of people who bought their homes during the credit boom will probably keep their homes for 10 years or more — partly becuase they would have to take a loss if they sold.”
RE: Alan @ 105 –
Indeed, we’ve been working with a very patient real estate agent.
Do people actually walk away from their homes because of the big price drops, even when they can financially afford the home?
I can understand the logic, but what about everything that comes with a foreclosure? I’m not talking about ruined credit alone, but all the pressure, the shame, the notices being put on your door, the harrassing phone calls from the bank, mortgage negotiators, attorneys, and other people “who can help”?
Can people handle all that?
RE: SeaBuyer @ 112 – What we need is people that bought at the top to walk away. Since their timing was so bad before, that would likely be the sign of a bottom. ;-)
RE: Steve Tytler @ 10 –
Um, if the house has lost 400K, I would walk away, and rent, until my credit cleared. Why sell it? Give it back to the bank. If it is upside down 10, 20, 30K, fine, I will eat it,.. but 400k? time to walk. The bank has a loan with an asset to back it. Give them back the asset they they AGREED was worth the loan. You don’t agree the house is worth the loan? Fine, the bank can have it back. Totally moral.. businesses would do the same thing.. If the banks were ambitious and didn’t require 20% down, have a cushion.. well, maybe the head of that bank should not have gotten a million dollar bonus.
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