Sunday, September 24, 2006

Ben Jones and the Bee

From the Sacramento Bee:

Eleven months ago as the Sacramento-area real estate market stood at the beginning of a downturn, the National Association of Realtors said there was only one thing that could make the region's home prices fall 5 percent.

That would be a simultaneous combination of 25,000 job losses and 7.8 percent interest rates, events the NAR called extreme and unlikely. The headquarters arm of a million real estate agents across the United States pronounced Sacramento's housing market in "excellent shape with a potential for significant equity gains." Within months, area median sales prices fell 5 percent, proving how wrong experts can be.

In fact, home prices have managed to sink in Sacramento even as interest rates fell -- to an average of 6.4 percent last week. Prices have dropped even as the region celebrates some of the state's strongest job growth. The real estate industry publicly professes this an "excellent time to buy," yet a sense of paralysis grips the market. And one question seems paramount for those with a roof over their head and their money on the line: Where is this real estate market headed?

"Have you in the last 20 years ridden a roller coaster?" asks Scott Syphax, president and chief executive officer of the Sacramento-based housing firm Nehemiah Corp. of America. "They take you to the top of the ride and before they fall, they pause for a second to assure maximum terror. We're at that pause point."

At such a dramatic moment, guessing how far this ride will fall has become a major sport of bloggers, economists, home builders, buyers, renters and an army of armchair experts...

Arizona-based Ben Jones, who runs a nationally known "housing bubble" blog (thehousingbubble.blogspot.com), agrees wishful thinking can't overcome what he sees as negative fundamentals in Sacramento. "Those home prices are out of whack with local incomes and rents," he says. "There's a lot of exotic lending going on. You add those together and that's been the formula driving a lot of markets down. I don't think you need much more than that."

Jones says his beliefs are grounded in seeing thousands lose their homes during the 1980s Texas oil bust. Noting the dominance of investors in the Sacramento market -- buyers of 25 percent of area homes during the boom's 2004 peak -- he says, "If you have significant numbers of those folks fold, you could see a lot of defaults and lenders fold. That's when stuff snowballs. That's what we saw in Texas. It was worse and worse for five years."

21 comments:

SCProfessor said...

Way to go Ben.

HighSierraGuy said...

Good work Lander. And nice kudos to Ben. There may be one or two readers left here who haven't heard of him. 18-36 months from now, we'll all look back and say "I knew these guys back in '05 when..."

Anonymous said...

The Bee gave the link to Ben's "old" blog page. I'm sure it was intentional, the Bee specializes in old news.

Anonymous said...

Sacramento Bee? What would you expect? News? Hardly, these guys get their paychecks on the back of the Real Estate Advertising, pages and pages of it.

Any "news" in the Bee is so out of date that one might as well read that other hack rag, Sacramento "Business Journal". "Business" alright, they give the "Business" to their stupid gullible readers.

So just how many of these sleaze bag loans that make up 77% of the loan activity are those no down payment, interest only type?

Anonymous said...

Who is Ben Jones besides just another blogger? His site(s) say nothing about him.

Ya know if we have a big oil bust here, I would expect our market to crash also.

The exotic loans are a huge problem, but they are still happening. Maybe if they would start with stopping loan fraud, that would help.

JR said...

I think Jim Wasserman did a very nice job writing this article. It is interesting to note how the MSM is NOW QUOTING the blogs! How exciting, as it used to be just the opposite.

I wish Jim had been a little more aggressive in showing potential buyers the benefits of being patient. Given that huge advertising dollars come from the REIC (real estate industrial complex), I wonder if the editors asked him to tone it down.

Anyway, several things are clear:
1) the market will not appreicate anytime soon and may be stagnant for 10-years
2) it is far more likely prices will continue to drop, perhaps 30-50% more.
3) given these situations, renting, at 1/3 the cost of owning, is the SMARTEST CHOICE today.

Some of Jim suggestions, such as "change your outlook to long term" or "offer 10% less than asking" or "don't buy with the expectation" of appreciation, all seem to be pretty week.

How about this Jim? If you're looking for a home today, SIT TIGHT and HANG LOOSE. The typical $400,000 home is likely to sell for $250,000 in 24 months and you will save $150,000. Or perhaps, in 2 years, you can buy a much nicer home than you could buy today. In the meantime, the $3200/month you would spend on a mortgage and ownership costs today, equals about $1500/month in rent. SAVE $41,000 over 2 years and take no MARKET RISK.

Anonymous said...
This comment has been removed by a blog administrator.
# said...

There were 3 Beazer Homes ads on the screen when I read that article and arguably a 4th because Beazer seems to be supporting the Bee's Business Section.

Anonymous said...

getting hard to pretend to not notice the obvious. So many real estate signs, " human directionals" everywhere.
A friend of my wife helped us move some large items into our inherited fixer upper ,,, and she was spouting off the usual reasons to refi like a brainwashed cult member: " UNLOCK THE EQUITY. DONT LET MONEY SIT AROUND. YADDA YADDA"
I tell you what, a few years ago I would have been chomping at the bit to get a loan on this mortgage -free house. Now, however, I like the debt free, hassle free, peace of mind. When I tried to explain this to our friend,but it was like speaking Greek to her ,,, she was puzzled and just resumed her spiel !!
My GOD the real estate industry has really brainwashed people.
Keep that kool aid coming !

Karl Marx Brothers

Matthew said...

Please give up the speculation that "editorial & advertisers" somehow influenced the information in this article and what the Bee publishes. I suspect that Jim Wasserman would quit his job if he were forced to slant his articles to curry favor with business & home builders. There clear separations at newspapers between advertising/news and between news/editorial. In addition, the Bee is not in the advice business. The role of its news articles is not to offer bold suggestions or financial advice to the general public. One more thing, if you were a home builder would put you ads on the "international politics" webpage or the "real estate/business" page. Think about it. It does not mean that builders can dictate or even influence the content of the articles.

Anonymous said...

The criticisms of the Bee here are unwarranted. All newspapers make money from real estate ads. That's not news. The Bee has religiously reported monthly sales and price figures, whether up or down, and they've been doing so for many years. Wasserman is a thorough and unbiased reporter and Sacramento is lucky to have him covering the real estate scene. The Bee has been a frontline source of news and data about the Sacramento real estate bubble and will continue to be so.

Anonymous said...

Everyone needs to get off this median price BS.

You need to look at price per square foot by segments to know where the market trends lie.

Lander said...

Everyone needs to get off this median price BS. You need to look at price per square foot by segments to know where the market trends lie.

Anon-If you have that information, please do share.

clemente619 said...

This is significant, in my view.

A reporter went back and looked at NAR predictions and how they didn't forecast what took place. He called them to account for their terrible call.

Then he highlighted a source (Ben's Blog) that made the correct forecast.

I think this is an angle reporters from many papers should pursue. Finally seeing it in print is satisfying. Maybe it will catch on.

JR said...

Matthew,

You are right, it is unecessary for me to speculate why Wasserman did not take a stronger, more cautionary approach to the housing bubble popping in Sacramento. We each are entitled to our own views. The fact that I believe a 30-40% correction is coming SCREAMS to me "Do not buy a house now!". The fact Wasserman suggests we might go ahead an buy now "If we are comfortable with the payments in the long term" or we are willing to "re-adjust our thinking about the home as a positive investment" seems erroneous.

I think you are correct in that the editorial content is seperate from the advertising department. And I can only conclude Wasserman is foolish for suggesting anything other to a potential buyer than to be patient in this market. The Bee wrote a story about a F'd Borrower last week. The best service we can offer the populace today is to keep more of them from wading into the quicksand of home ownership in a declining market. After all, it's probably a $150,000 mistake, given the reversion to the mean for the median price, supported by the median income. With the median income at $42,000/year, that is "only" 3.5 years work. Wow. Think, think, think, before you act.

tom stone said...

i live in sonoma county,and i wish to god we had a paper half as good as the bee.in historic terms the bee is about average for a metro newspaper.the santa rosa press democrat's only value is the ads...

Matthew said...

I am glad you agree. One reads so much speculation on many of these blogs and often times if the same comments are repeated enough, it becomes fact. One myth is that newspapers won't report or tend to suppress negative housing data and stories, which I think is false. They report it and the readers need to decide how to act on it. On the way up, there were constant stories about +20% gains, etc. But the headline wasn't "buy real estate". Maybe these stories helped convinced people that they should speculate on housing? Now the flip side, housing prices declining, inventory building, but the headlines are not and shouldn’t be "stop buying". It would appear that they are having an effect, because obviously more and more people (myself included) are not buying.

Anonymous said...

I don't think we're at the top of the roller coaster mountain yet in Sac. I watch the central city market (95814, 95816, 95819, etc.), the built-out neighborhoods, and the flippers are still making money here. I've seen sales in the past month that make it seem like the party is still going strong (ok, maybe we went out to get more booze, but everyone is still rockin').

I have a feeling that December may be the turning point. The election will be over and the bad news (economy, iraq, etc.) that has been bottled up will be leaking out, the republicans won't be in control of congress anymore so no more tax cuts for wealthy investors, property tax bills are due, xmas bills rolling in, more option-arm loans will be "adjusting", ford and gm will be laying off thousands of workers, a recession may be looming, . . . .

Anonymous said...

I don't know Ben Jones, but if he called this thing right, I may have to name a child after him.

I earn a very decent salary (way above the median for a Metro valley household, just by myself) and I've been sitting this market out. I can't tell you how many people told me in 2004 that if I didn't act, I would never be able to buy a home in the Sacto metro area. According to them, I needed to get in while the gettin' was good, even if it made me a mortgage slave with more than half my disposable income going toward a mortgage payment. Their logic was that if they could afford a home, certainly I, who made far more than they did, could afford a home. They also thought that I'd make it up on the back end with price appreciation.

I thank God I had the independent judgment to "stay my course."

Up to now, it seems that the mainstream press has been predicting a "correction" and "soft landing," but I can't swing a dead cat in my neighborhood without hitting a "For Sale" sign. They're like mushrooms or something.

And even though the sellers describe themselves as "motivated," their pricing says otherwise. They must be taking some kind of pricing Viagra that they're getting from their realtors, but they can't prop up those asking prices forever. Clearly there's some pricing erectile dysfunction going on. But even Viagra wears off sooner or later.

sf jack said...

"pricing erectile dysfunction"

******

THAT is the best description yet.

Hilarious.

Anonymous said...

AGENT BUBBLE DO YOU HAVE PRICE PER SQ. FT. INFO?

"

Everyone needs to get off this median price BS.

You need to look at price per square foot by segments to know where the market trends lie.

Monday, September 25, 2006 1:26:00 PM
Lander said...

Everyone needs to get off this median price BS. You need to look at price per square foot by segments to know where the market trends lie.

Anon-If you have that information, please do share.

Monday, September 25, 2006 1:41:00 PM "