Monday, March 26, 2007

'A Sneak Preview of What's To Come'

From the New York Sun:

The latest real estate message we're getting from one economist after another is like a broken record — in brief, that the housing slump is pretty much history, the market is stabilizing, and a lively rebound in home prices is in the cards for the second half.

Economists are known to be wrong at times, which is precisely the real estate read I get from housing expert Steven Krystofiak, who tells me: "The downturn is far from over. The worst is yet to come."

Not only that, Mr. Krystofiak, the president of the consumer advocacy group the Mortgage Brokers Association for Responsible Lending, predicts that housing prices — which were relatively flat in 2006 — will begin to undergo an extreme dive soon, spurred by more than $2 trillion worth of short-term fixed mortgages resetting at higher interest rates in 2007 and 2008.

Overall, he says, he expects home prices nationally to fall between 5%and 10% from current levels by year's end and to extend those declines to between 15% and 20% by the end of 2008.

Our housing bear says he thinks double-digit declines will be especially conspicuous in the hottest real estate markets, among them San Diego, Phoenix, Boston, and Sacramento, and three states, Nevada, Florida, and New York.
In recent weeks, he notes, underwriting standards have tightened considerably; it has become harder to borrow, and banks have started to pull out of loans of 100% financing. "We're getting a sneak preview of what's to come; it's the tip of the iceberg," he says.


Diggin Deeper said...

As a housing bear I would completely agree with this article based on tightened lending standards that will push 15-20% of prospective buyers out of the market. Even if this chunk of the market were able to secure loans, it doesn't mean they'd be out there writing checks for downpayments. Poor buying sentiment will take out another block of buyers. If this amounted to another 10%, then effectively up to 30% of the buying public either can't qualify to buy or will not buy because of weak perception. Prices will be the only thing that will change the outlook and unfortunately it doesn't look they're going up anytime soon

cba said...

Don't forget to factor in the 14,600,000 new households forming over the next 10 years, a 16% increase over the last 10 years (echo boomers).

Patient Renter said...

"Overall, he says, he expects home prices nationally to fall between 5% and 10% from current levels by year's end and to extend those declines to between 15% and 20% by the end of 2008."

These are national numbers. As the article mentioned, bubble areas will be hit harder.

I love it where someone in the Sac Bee comments will say that we'll never see the 40-50% declines that the "doomsdayers" are dreaming of. It's simply not possible. Unfortunate for their credibility, it's already happened in parts of Florida.

fishtaco said...

Will the new households actually out pace dead households?

Diggin Deeper said...

Lennar posts a 70% decline in profits and will no longer give future guidance. Article further cites:

"U.S. home sales fell unexpectedly in February, data released on Monday showed, hitting their lowest level in nearly seven years and raising concerns the troubled housing sector had not yet hit bottom."

Subprime and Alt-A aren't the only problems facing the real estate market. Factor in all the resetting high quality prime ARMs, hybrids, and "pick your s**t" loans. Then we should get a good look at the real story. Until all screwed borrowers and lenders are filtered through this mess, the sellers either capitulate or stack up the inventory.

Sippn said...

Diggin - you and I will always find economists to support our different views - useless!

It is possible that the subprime problems delayed enough sales 1 week to lower sales 25% in Jan and Feb while looking for alternatives.... not all can be salvaged, but new sales in our region are up.

# months inventory is up but new inventory is about the same as Feb 2006, indicator just reflects sales numbers down nationally.

CBA - what all the yelling didn't stop the birth rate? don't these people know?

Fish taco - thats net

Perfect Storm said...

CBA please state your source for the 14,600,000 over the next 10 years?

Perfect Storm said...

It is possible that the subprime problems delayed enough sales 1 week to lower sales 25% in Jan and Feb while looking for alternatives.... not all can be salvaged, but new sales in our region are up.

Sippin have you seen the Credit Suise graph, this will delay sales for years to come.

Perfect Storm said...
This comment has been removed by the author.
Diggin Deeper said...


I could care less what's going to happen in 10 years regarding real estate and demographics. I hope cba is right. More important is what has happened over the past 5 years and what now is happening due to the excesses. It creates a true picture rather than projecting what may be or could be. I appreciate the calming influence with your comments...but what is, is. What may be is just speculation and the market is not going to move positive because there will be great demand some day. In the meantime people are getting hurt financially, losing their jobs, and there's little or nothing that can be done to curtail the problem at this point. A small slice of those 14,600,000 households could get a helluva deal on a home in the not to distant future if this one doesn't land softly.

ralphk said...

House Panel Hears Testimony on Subprime Mortgages

Testifying Tuesday before the U.S. House Subcommittee on Financial Institutions and Consumer Credit, a Federal Reserve Board official says that in spite of higher mortgage delinquencies and foreclosures, government agencies must work together to keep certain types of loans available for consumers seeking to own their own homes.

Sandra F. Braunstein, director of the Fed’s Division of Consumer and Community Affairs, was one of several witnesses at the subcommittee hearing, titled “Subprime and Predatory Mortgage Lending: New Regulatory Guidance, Current Market Conditions and Effects on Regulated Financial Institutions.”

“Undoubtedly, the impact of mortgage delinquency and foreclosure on consumers and communities is one of great concern to the Federal Reserve, and we have worked to respond to the issue at both the national and regional levels,” Braunstein said.

One goal, she said, is to “address concerns regarding mortgage lending practices while preserving the flexibility necessary to allow lenders to help troubled borrowers by employing various foreclosure prevention strategies, including debt restructuring and refinance.”

She stressed the importance of “preserving the record rate of homeownership,” which benefits consumers and the economy. “A robust and disciplined subprime market is vital to ensuring continued progress in broad access to credit and homeownership,” said Braunstein.

The Fed will work with the other federal banking and thrift agencies, and coordinate those efforts with the states through the Conference of State Bank Supervisors, in ensuring “that subprime borrowers can obtain mortgage loans that they can afford to repay,” she said.

Among those slated to testify Tuesday were officials from the FDIC, Office of Thrift Supervision, Office of the Comptroller of the Currency, Center for Responsible Lending, National Community Reinvestment Coalition, Consumer Federation of America and Mortgage Bankers Association.

ralphk said...

Credit Counselors Seeing More Delinquent Homeowners

The national rise in the foreclosure rate is reflected in the increasing amount of homeowners seeking credit counseling, according to one of the country’s the largest counseling agencies.

“The bottom line is we are seeing an increase in people facing foreclosure,” says Catherine Williams, spokesman for Money Management International.

The rise is just beginning, Williams says, but is likely only going to get worse. “Given the huge amount of mortgages released five to seven years ago, I think we’re just beginning to see the tide.

“It’s a little masked in terms of the people coming in are coming in because of foreclosure problems, but many are coming in through required bankruptcy counseling and are already contemplating Chapter 7 or Chapter 13,” she said.

Most of the delinquent homeowners have ‘creative’ or hybrid loans, she adds, such as adjustable rate mortgages or second-lien loans.

“It’s rare that we interview anybody with a standard, 30-year, fixed-rate loan,” says Williams.

The “silent piece” to the troubled sub-prime mortgage market says Williams is the rise in property taxes and homeowner’s insurance. A rise in taxes and insurance can push people facing an interest-rate increase closer to the edge of financial ruin.

Counselors can help homeowners refinance or restructure their loans. But many homeowners have already exhausted all options and the legal machinery of foreclosure is underway.

"Because foreclosure is a legal issue, at that point we have to step away and tell them they need to talk to a well-qualified attorney," says Williams.

paranoid renter said...

A slow deflation of the bubble is what the fed has always hoped for. If they get that, they have done OK (at least things will have been according to plan). So far, they seem to be on track. This is good for those of us sitting on the sidelines except that it will take really long to get in. In fact, it's a better scenario that a big bang bust which would cause us to not have jobs.

Diggin Deeper said...

Here's an excerpt from an AP Business article:

"NEW YORK - Prices of single-family homes across the nation depreciated in January compared to a year ago, the worst results in more than 13 years, a housing index released Tuesday by Standard & Poor's showed. The data underscored disappointing sales data released by the government on Monday.

The S&P/Case-Shiller composite index showed a drop of 0.7 percent from a year ago in the price of a single-family home based on existing homes tracked over time in 10 metropolitan markets. Growth hasn't been that slow since January 1994 when it dropped by 0.9 percent compared to January 1993, S&P said."

What goes up eventually comes down. What goes way up eventually comes way down. Couple this with the falling consumer sentiment numbers out today, and the outlook remains cloudy with a chance of rain.

Gwynster said...


Remember to check back on those numbers in a few weeks. I'm pretty sure they'll be revised down again.