Wednesday, June 27, 2007

"This One is Shaping Up to be the Ugliest"

Brad Inman on the Inman News Blog:

I recently spoke with Joel Singer of the California Association of Realtors who said he had never observed the first-time homebuyer market being hit so hard. The math is simple: the risky loans both created and masked the problem of home price inflation, creating a temporary, cheap and artificial entry for first time buyers to get into the market. Now that those loans are drying up – the NEW credit squeeze – prices can only do one thing: fall and fall dramatically in some areas to match the true market realities of income, affordability and normal lending practices. The move-up market then suffers when the real estate purchase sequence is broken.

Foreclosures are going to stack up this year and next, adding to the dynamics of falling prices as inventory climbs and buyers thin out.

I have observed three real estate recessions; this one is shaping up to be the ugliest.

20 comments:

Diggin Deeper said...

Looks like CAR is finally caving in to the truth...they've been so stubborn over the last 18 months.

I believe, as many have expressed, the inflation mentioned in the article was wildly induced by greed, exhuberance, and perceived local demand... artificially skewed by speculators who created their own ficticious demand . The builders over-reacted and over-built, and homeowners perceived new paper wealth...liken it to the gold rush days in Sacramento's past.

History could overlay these same characteristics, again and again, in markets that went from from boom to bust... only this one's sucked up a lot of people who had no business getting involved in the first place... And they're giving most of it back in the form of distressed inventory.

I agree with the article, levels have to fall to meet the widest range of buyers with local incomes capable of supporting a fixed 30 year note (new regs will demand this). Otherwise, the inventory will keep rising until sellers are forced to match their prices to the typical buyer's income. Whatever that level of income turns out to be, it is likely to be quite a bit less than home prices are demanding today.

Just as the boom created emotional price inflation, chances are pretty good that sellers will also over react with prices that are below fair value before things settle down.

Thank you CAR....finally somebody has the cajones to tell the truth.

Patient Renter said...

"finally somebody has the cajones to tell the truth."

Agreed. I hope that Brad Inman and Joel Singer have some good bodyguards. The powers that be don't take kindly to dissenters (just kidding... maybe).

norcaljeff said...

They otta get Sippin as their PR guy, I'm sure he can come up with some slogan about how this recession is just a big dream dreampt up by the religious right.

Perfect Storm said...

Were right on track for a 50% decline by 2009.

cole said...

you mean,

Angelina and Brad Pitt are not in El Dorado Hills or Granite Bay or even Citrus Heights looking for a nice 2800 square foot stucco dump for one million dollars?

Who would have thought it?

a_builder said...

perfect storm is a schill for the NAR, his predictions are far too rosy, we're on track for a 60% decline by 2009! Don't be fooled by rose colored glasses wearing NAR cheerleaders !

dvobell said...

"Thank you CAR....finally somebody has the cajones to tell the truth."

NOT Agreed.

All the emphasis should be on the 'finally,' there.

Joel Singer thinks this is the worst RE bubble yet?
Brilliant. How'd you crack the case, Joel?
Is he also shocked -- Shocked -- to find gambling here at 'Reek's' Place?

Realtors knowingly submarined their own profession and entire industry in a thousand ways lo this last decade. Now they'll DEIGN to tell us it's going to be ugly? Like they still hold a SCINTILLA of credibility in the eyes of we the unwashed non-RE-industry proles?

Eff them effing haughty effers.

It is some solace that so many of them actually like the Kool Aid, and put the much of the ill-gotten 6% right back into real estate 'investments.' Good luck with that, Realtors.

Perfect Storm said...

a_builder,

LMFAO,

I'm all doom and gloom and honestly do think plenty of Sacramento areas especially South Sacramento, Oak Park, Rio Linda, Northighlands, Norwood Area, Del Paso Heights and now the majority of South Natomas, will all decline by 60%. North Natomas will be the next South Sacramento in 15 years.

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

Like a rocket that spent all its fuel, powered as high as it could, its nose has turned over and now gravity is in control...

The subprime issue will not go away. Its effects are beginning to spill into the money centers (Bear Stearns)and many greedy unsuspecting sophisticated investors are about to find out just how dangerous all this cheap and easy money can be. Before its over, imho, CAR will be handing out soup chits to the legions of agents and brokers that couldn't tell the difference between a market correction and a crash.

And then keep in mind who's running our Federal Reserve. Will helicopter pilot come to the rescue? Probably Ben's most famous statement:

"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press, that allows it to produce as many U.S. dollars as it wishes at essentially no cost... We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation"

CAR had better lobby for rate cuts and then get ready to pay the high cost of soup that these cuts will produce...

paranoid renter said...

Thought I had posted this but doesn't look like it made it.

>>>>>
Were right on track for a 50% decline by 2009.
>>>>>>>>>

Is this 50% from the peak or 50% from today's prices? We're already down 15% or so from the peak, no?

Perfect Storm said...

50% from peak, I think we will see serious declines next year as the foreclosures start to have a greater impact. We really are just beginning to see foreclosures having an affect. REIC is trying to minimize the impact using these stupid auctions, but in the end their effort will be futile. The greed of making the loan and earning the points on sale to WallStreet and the gain on securitization of the loans was just too much for them to pass up to worry about the asset supporting the loan. What morons, that guy in charge of PIMCO knows whats going on all the others are just idiots.

Sippn said...

Now Inman is a credible source, has been eating, breathing and writing about RE for decades.

Whatever he says...

Mark the tape here.

smf said...

"Now Inman is a credible source..."

No, but Joel Singer from NAR is.

You know, there is a few houses in Delavan Circle (95742) that you should check out their current sale prices as opposed to what they were bought for.

That's what I call blood.

NAR has been about a year behind what bubbleheads are saying.

We'll see what they say next year.

Sittin' Out This One said...

It does not matter what all the pundits are saying. The statistics say this:

Last month lenders took back 969 houses in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to Fair Oaks-based Foreclosures.com.

http://www.sacbee.com/103/story/246770.html

There are only 18,000 houses listed for sale in those counties on MLS and they sell about 1500 houses/month. As the foreclosures accelerate, there may be more houses being taken back by lenders each month than the market can absorb in a month of selling. The rising wave of a foreclosure tsunami has been spotted on the horizon. You are starting to see the water recede and to quote the guru Buffet, we shall see who is swimming naked....just before they get buried in 30 feet of water.

Sippn said...

SMF - seen Delavan before and IMHO the original sales price was likely BS - some kind of cash out deal or lease back. These were never $million dollar homes.

smf said...

"SMF - seen Delavan before and IMHO the original sales price was likely BS - some kind of cash out deal or lease back. These were never $million dollar homes."

These homes are listed as being built in 2006, hence they were (99% sure) bought from the builder. Therefore, the chances of a cashback deal are basically nil.

At this size, the million $$ price tags translates to $180 sq.ft. That was the price for the house we sold in 2003. Therefore, whoever bought the house for a million, thought they had a good price, and it WAS a good price then.

Now one of them is selling for $120/sq.ft.

I think these houses represent real losses.

Sittin' Out This One said...

Sippn and smf,

You are both right to some degree. The Delevan homes are JTS homes. JTS has probably created more FB's than any other builder. They specialize in selling to stupid investors! Look at all their subdivisions. They sold to flippers and the all became FITs. They have huge numbers of home owned by banks now.

http://flippersintrouble.blogspot.com/

It is right here on Max's FIT listings. I ran across one of JTS' homes they sold to some GF in 2001. Paid $500,000. Can't sell it today. JTS is selling the same model for $520,000, after their $200,000 liquidation pricing. Six years later. And JTS can't sell them, because the GF pool is drying up.

The point is, the Delevan houses are a joke. A JTS joke. A $241,500 loss for the Greater Fool turned to FIT. Anyone who buys a JTS home is a fool, unless they wait for one to go thru foreclosure for the second or third time, coming out in 2010 at a reasonable price.

norcaljeff said...

Sippin, the tape is still on...are you now saying that you're agreeing with the bears on RE right now?

Sippn said...

Norcaljeff - Thanks for listening... I'm saying what Inman says is good... but you will not see me agreeing with all bears all the time. Read carefully what he is saying.