Tuesday, August 14, 2007

The "All-Powerful" Bubble Sitters

From the Sacramento Bee (hat tip Jeff):

With a cool and steely patience over the past year, John and Toni Daniels have waited out a capital-area housing market buffeted by oversupply and price depreciation. They've resisted every call from a real estate establishment that says this is the time to buy. Now comes a new factor to reward their patience: the growing fallout in Sacramento from subprime lending. For the Danielses, holding a powerful upper hand in a game of supply and demand, subprime's spiraling turmoil may be one more reason to hold out for lower home prices.
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Rising subprime-related foreclosures are pushing more houses onto an already overcrowded market. Tightened credit standards for all loans, not just subprime, are shrinking the buyer pool.
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[N]o one knows exactly how the subprime fallout will affect the Sacramento market or the U.S. economy. But clearly, what started in March as a focus on people with bad credit has morphed into something larger, a psychological and investor malaise that dominates the whole housing market debate.
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Analysts and industry experts can speculate all they want about subprime lending's effects on a housing market or the U.S. economy, but it still comes back to Sacramento homebuyers like the Danielses. John Daniels says he's heard the subprime "horror stories." He says he can only assume they won't help the capital's housing market. "We're watching prices of houses that we've seen on the market for a year," he says. "They've gone from $350,000 to $275,000 to $260,000."

Real estate executives say no one can guess the bottom. The Danielses have waited a year through record oversupply and now the spreading local fallout of subprime lending. They can wait a little longer. They have both the money to buy and the upper hand in negotiating. "It makes no sense for us to jump into something while prices are falling like this," John Daniels says. "Everybody wants the best deal possible. That's what it is."
Julie Jalone in Roseville & Rocklin Today:
I agree with Jim Wasserman, being a buyer with good credit in this market is a nice place to be but it also may be a reason to wait a bit longer. I know most people don’t understand what subprime means let alone the crisis in the mortgage industry that these loans have caused. But the constant media attention and reports of declining home prices make many stay away. As long as that happens prices will fall.
From the North County Times (hat tip Neil):
Let me begin by passing along my congratulations to the many people who are celebrating the current situation in the housing market. In concert with much of the national and local media, they have been able to artificially construct something that has never ---- I repeat, never ---- been done before: drive down housing prices at a time when unemployment is low, the economy is booming and consumer confidence is approaching record highs.
NC Times reader Leo responds:
This alone tells you that the real estate boom of the past few years has been a speculative bubble. Driving down prices by psychology alone is only possible when prices are supported by psychology alone. That's what a bubble is."
From CNN Money:
The binge that many housing markets went on in the early- to mid-2000s is over, and some of the hottest markets like California are now experiencing the worst hangovers...Stockton, California now leads the nation in foreclosures. Of RealtyTrac's top 10 metro areas for foreclosures, four are in Central California...Stockton recorded one foreclosure filing for every 27 households during the six months ended June 30, a 256 percent increase compared with the first six months of 2006.
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The other California cities in the top 10 were Riverside/San Bernardino [#4] (one in 33, up 198 percent), Sacramento [#5] (one in 36, up 231 percent) and Bakersfield [#8] (one in 47, up 222 percent).
From USA Today (hat tip Jeff):
For evidence of what is spooking Wall Street and wreaking havoc on the mortgage industry, one need only look at the housing market in Stockton, Calif., 40 miles south of Sacramento. During the real estate boom, Stockton was a hotbed of speculation, bidding wars, and rocketing prices. Now, foreclosures are soaring, sales are plummeting, and there is more than a year's supply of homes and condos on the market.

The housing market "is still sliding," said Larry Underhill, president of the Lodi Association of Realtors, which covers Stockton. "The buzz is there is just a ton of foreclosures, and banks are going to own a lot more property before it's over."...Underhill says he's seeing homes go under contract two or three times, and each time, the deal falls apart because "buyers can't qualify, or buyers are understandably cautious. They see property values sliding and are saying, 'Why am I doing this?' "

27 comments:

norcaljeff said...

There's absolutely no evidence right now to convince anyone to buy a residential property at this time. Successful stock trader/investor Jim Cramer said the credit market is so bleek he personally wouldn't buy now or anytime in the near future. There are too many factors pointing people to the sidelines for some time.

Bakersfield Bubble said...

If Jim Cramer said that then I might turn bullish. He has been wrong on this for so long it is not even funnny.

Last month he was calling all the bears fools. (see Lou Maniati's video on YouTube).

Diggin Deeper said...

Echo that...

"I repeat, never ---- been done before: drive down housing prices at a time when unemployment is low, the economy is booming and consumer confidence is approaching record highs"

The reason prices can be driven down has nothing to do with the economy or employment. Pure speculation plays have huge highes and huge lows. We've had our wild high...Now as far a consumer confidence is concerned, lack of confidence by the RE buyer is playing a key role in keeping the lid on this market. As long as buyer sentiment is seeking fair value while home prices remain high, eventually the buyer wins. Buyers control this market right now and they shouldn't settle for less than a 40-50% drop from the highs...regardless of the neighborhood.

norcaljeff said...

BB, you got $250M in the bank like Cramer? I'm assuming you guys are buying homes then.

smf said...

"I repeat, never ---- been done before: drive down housing prices at a time when unemployment is low, the economy is booming and consumer confidence is approaching record highs"

But housing was what gave us low unemployment, a booming economy and high consumer confidence.

RMB said...

Cramer $250M in the bank. Don't make me laugh. That's like saying the Donald is worth a billion. I bet cramer has about $10M tops. If he follows his own investing advise I bet he has less....

Bakersfield Bubble said...

norcalljeff-

I am obviously not turning bullish, I am just calling BS on guys like Cramer who have been going on and on about how rosy things were and now they want to change their tune. Next thing you know Cocaine Kulow will turn bearish...

Bakersfield Bubble said...

*Kudlow

Diggin Deeper said...

As goes housing so goes the economy, same with subprime and the financial health of the country.

I disagree that high home prices created the credit crunch and subprime mess. Rather it was artificially low interest rates held down as a stimulus to the economy for an extended period of time. Low rates meant lower house payments, which meant more people could buy, which created more demand, and prices rose. Rates should have been pumped up to cool the economy and take dollars off the table before the housing market got out of control. Just another example of the Fed asleep at the wheel.

Bakersfield Bubble said...

Backstory: Earlier this month, Jim Cramer of CNBC fame said that Thornburg could survive even the worst housing downturn because of its profile: it concentrates on Jumbo mortgages, lending money to wealthy people who like mortgages for the tax advantages.

Update: Thornburg took a standing eight count today in the market, losing 46% of its value before its shares were halted. Analysts couldn't downgrade the stock fast enough after the lender said it won't accept new rate lock requests for four days. The company blamed "the present unprecedented and irrational sentiment in the secondary mortgage market, which has generated conditions of illiquidity throughout the industry."

SacramentoCrash said...

This market is so shaky that the couple got ripped off by their agent.

The Bee must BEE hard up for news.

Did you see the chart for the Dow today? It looked like a cliff diver with a couple of dead cat bounces thrown in for good measure.

norcaljeff said...

rmb, Wikipedia says $100M, but even at $10M it's still $10M more than what's in your account.

anon1137 said...

Re: jumbo mortgages (this is part confession for my post last week on this subject), I noticed that the Calpers rate for 30-y jumbos jumped from 7-1/4% yesterday to 7-7/8% today. I think it was 7-3/8 late last week when I argued that the mortgage fears were overblown.

Gwynster said...

I have to back up BB. Any time you agree with Cramer, you should be nervous.

It's like the Holiday Inn Express commercials: "I'm not really a financial genius but I did take a position opposite Cramer yesterday".

That doesn't mean I'm a now a housing bear - not by a long shot.

What I think is really happening is that Cramer is just trying to scare the Fed into dropping rates and Ben isn't moving.

The fact that I had an agent in Woodland encourage me to put in an offer on a house that was 35% less then list tells me we have a whole lot more to drop.

I saw the news on Thornberg but I missed the blurb on Soverign.

anon1137 said...

BB- your quote on Cramer/Thornburg came from the LA Land Blog & you should attribute it as such.

Cmyst said...

An agent told you to lowball?? Wow.
I had a savvy businesswoman tell me to go ahead and lowball some of the homes I'm interested in, but she wasn't an agent. Plus, even if I lowball 10 to 20%, and they TOOK it (which some of the places I'm looking at, the owners seem very unable to drop prices) I'm thinking that a year from now I might be regretting it.

Gwynster said...

Cmyst,

This was on a small 1900s house listed for 309k. After a few minutes, it became really apparent I knew more about the property and the area, especially the crime stats. The owner moved to Oregon already and it's been on the market for a long long time. The agent probably just wanted the offer to prove he was still on the case.

It didn't hurt that there was a really awful duplex right across the cross booarded up with foreclosure notices on the doors.

Bakersfield Bubble said...

anon1137 said...
BB- your quote on Cramer/Thornburg came from the LA Land Blog & you should attribute it as such.


That is correct (I missed the link). At this point I think all of us bears go to the same 50 blogs so I was not trying to steal that as mine.

I will now do as the Chinese who are humiliated and commit sucide as my punishment...

You know what is funny when I imploded the first 20 lenders no one gave me any credit. All the media (NY times, Blommberg,etc.. were on my blog) visited and gave me zero credit. Nevermind I will not commit suicide I will fight on!

Bakersfield Bubble said...

Thanks gwynster!!

Sippn said...

Norcal Jeff and Gwynster...try this last paragragh


http://www.californiahousingforecast.com/consulting/

Gwynster said...

Why me? I'll see your Miss "since 2005" and raise you a Schiller and a Thornberg >; )

norcaljeff said...

Unless you're all now bulls on RE, you should be agreeing. You can't categorically disagree with everything he says, otherwise you sound like the talking heads on TV. Regardless, this is a RE blog, not a Cramer blog :)

And agents need to make a living too, so lowballing on a house doesn't really say anything me. I see lawyers do the samething, they could make more money by waiting for lawsuits to go to court but the crank out the settlements so they get paid faster.

capitalME said...

Most people with real property, tv personality or not, will do everything they can to promote the idea of demand on their asset. This never fails, in my experience. I hear little one-liners dropped by the evening news anchors after a big segment on how bad housing is...I'm not stupid. I get it. I will state this as fact: I have $24k in savings, a credit score of 760, and I will buy a sweet house in 2 or 3 years for far less than I would pay today. It's a fact. You can gripe all you want...it's just true. Eat it. I've been reading this blog since it started...little ol' me getting yelled at by my stupid relatives who thought "real estate in california would never go down." You were wrong. I told you you were wrong then and I'm telling you again now. Eat it. I'm just hoping, like Cramer, that this doesn't collapse our economy, completely. http://www.ronpaul2008.com/ Viva Ron Paul!

norcaljeff said...

RE: interest rates
The Fed can't keep the over night bank to bank rate below 6%, that's a major concern. Additionally, Countrywide is on the ropes. They're still able to write loans and get funding behind the scenes for those loans, but as of now, that rate is 12%. (Kinda hard to make money at those levels) I think they are pretty much toast at this point, and so is the housing market. So who's still bullish? :)

Jennifer said...

Hi Ya'll! This is my first post. Been reading the blogs here and Patrick.net. We recently moved to Sac from the midwest. Sold our house there and holding the cash.

We've been renting while looking for a purchase, but through all the great advice here, we will continue to rent till the bottom hits!!!

As I am looking at properties, I want to consider what they WILL be selling for. You guys think 1999-2001 values?

Gwynster said...

Jenn,

Welcome to Sac and the board.

We began our run up in 97' as people from the BA began buying with money from stock options and inflated salaries from the the tech industry.

My ballpark for interest in property is 97' price adjusted for inflation annually and 3% appreciation annually. But then I remember looking at those gorgeous old homes downtown selling for 130k for a 4/2 craftsman that needed little work. I'm pretty jaded.

norcaljeff said...

Good comments, Gwyn. I'd be happy with 2001 prices :)

Jennifer, welcome. I too came to Sacto from the midwest. You'll really like it here.