Wednesday, October 17, 2007

"The Housing Market is Weakening by the Minute"

From Globe and Mail:

Mark Zandi of Moody's in West Chester, Penn., predicted that “well over” a million Americans will eventually lose their homes after defaulting on their mortgages next year. “The housing market is choking on unsold inventory that continues to rise as homes sales plunge and foreclosures surge,” he said.
There are 2.5 million homes sitting vacant across the United States. The only way to work off the inventory is for prices to come down enough to make homes affordable again, Mr. Zandi said. He said the worst-hit parts of the country are the markets where home prices rose most in recent years – California's central valley, South Florida, the industrial Midwest, New York and Boston.
From the Visalia-Times Delta:
Central Valley residents have the most pessimistic outlook in the state about current economic conditions, according to a survey released Tuesday. Central Valley residents posted a rating of 80.0 on an index created and tracked by the Survey and Policy Research Institute at San Jose State University.
The bad news for the housing market just keeps piling up. About 44% of the U.S. population lives in metropolitan areas where home prices are falling, according to the latest report on the dismal state of the real estate the structured finance group at DBRS, an independent credit agency. DBRS based the report on figures from the Office of Federal Housing Enterprise Oversight that track housing price data through June of this year, the latest period available.

The region of Sacramento, which saw the first innings of the housing boom, will see an 8% drop in prices this year, the report says. San Diego, home to the condo boom, will see prices drop about 6%, while Oakland is expected to record a 5% decline. Parts of the central valley region of the state -- cities like Stockton and Modesto -- will see declines greater than 10%, according to the report.
From Inman News:
A forecast compiled by Santa Ana, Calif.-based Veros Real Estate Solutions...applies more than 50 metrics in the calculations, including interest rates, current inventory, unemployment rates, inflation, population and buildable land, among other metrics.

The markets expected to see the most rapid depreciation in home values through...[the second quarter of 2008] are: Palm Bay-Melbourne-Titusville, Fla., with a 9 percent expected decline in values; Sacramento-Arden-Arcade-Roseville, Calif., with an 8 percent expected drop; Sarasota-Bradenton-Venice, Fla., with a 7 percent decline; Cape Coral-Fort Myers, Fla., down 7 percent; and Riverside-San Bernardino-Ontario, Calif., down 7 percent.
KCRA: Bank Refuses Buyers Bids On Town Homes

From the Tri-Valley Herald:
While the housing market is weakening by the minute, city leaders are strengthening the tools they have to secure homes abandoned by foreclosure. The Manteca City Council unanimously decided Monday night in favor of a series of ordinances that would secure vacant properties, primarily at the expense of the owner. Slumping housing prices and bad lending practices have turned Stanislaus and San Joaquin counties into one of the nation's leading areas for foreclosures. Manteca, a city that coins itself the "Heart of California" because of its location, is in the center of the crisis.

"This is a nationwide problem," Councilman John Harris said. "I think we are just entering the tunnel and I don't see any light at the end of it. We have to take some action; this gives us some teeth as far as prevention." "We haven't seen the tip of the iceberg yet," added Councilman Steve DeBrum in reference to the number of foreclosure properties.
From the Manteca Bulletin:
New home builders over the past few months have indicated they believe the ultimate market adjustment will be from 20 to 28 percent of what the peak selling prices were 18 months ago. The Anderson Homes auction prices generally fall in line with such market assessments.

Although several other new home builders declined to comment on the Anderson Homes auction, at least one was interested in information on what homes had the most bids and subsequently commanded the highest price in terms of percentage of the original selling price. McMansions: The real big losers? The implications for the Manteca market for the next two or so years is simple. It verifies that the 3,000-square-foot homes dubbed McMansions are losing favor either because of size or affordability.
From the Manteca Bulletin:
Right now we are faced with the bear of all bears in our current situation. I have heard over and over how this is the worst it has ever been and how this is going to run all of us Realtors out of town. CBS did us a mis-service by reporting how bad they think it is here. I disagree.

As you know, unless you have been hiding under a rock lately, the market in our city as far as real estate is concerned, is what I call "unbelievable!" It is so unbelievable for that matter that CBS News came here recently and did a story for their news program. They were reporting an abnormally high number of foreclosures here. This is just part of the cycle of real estate that happens about every 10 years. Oh yes, this one seems worse than others, but just like the downturn of 1989, this too shall pass. When the bottom of the market starts to rise and the home values start to increase again (and trust me, they will) the market will turn. I think we are starting to see that turn. The average price of pending sales in Manteca is starting to level off at around $350,000 ($352,637) and the average sold and closed price is approaching that price then stability will occur. We are at $377,340 right now.

With this happening already that is why I say the market is "unbelievable!" I didn't look to see that until first quarter next year.

I will probably get plenty of arguments from the naysayers on this but I am tracking it weekly and I do see a slowdown in the falling prices and the gap between listing price and sold price is narrowing. Too bad CBS didn't contact me. I could have shown them the figures for the last 10 years as I keep them. I predict that when the average listing price gets near $360,000 we will see a big surge in sales. That is quickly approaching. Right now our average listing price in Manteca is around $410,000. That's down from $501,276 on 9-11-06. How's that for the market self-adjusting?


Diggin Deeper said...

Are you kidding me?...

"When the bottom of the market starts to rise and the home values start to increase again (and trust me, they will) the market will turn."

Duhhhh...You'd better check on Opie. I think he's down at barber shop where Aunt Bee is getting her hair blued.

It's no wonder CBS didn't look him up when they were in town...

Cow_tipping said...

Yes the market will come back, but if it drops to 300K from the current 500K, it will not come back from 500K, it will come back from 300K and literally it will be at 300K for a while - years before it creeps up at a few pennies a day till a new generation who does not remember this crash ever happened because they were yet to be born or were living in another country like Neptune (you know they're not making planets any more, better buy while you have a chance) are enough in number to overwhelm the PE - again.

Professor Shays said...

Back in the early '90s while working for the RTC as a workout consultant, a friend suggested that perhaps the best approach to workouts is recognizing that "your first loss is your cheapest loss." I've credited him with that phrase, but it appears after conducting a Google search, that it has its roots in agriculture. Be that as it may, I'd suggest to the Bank that rejected the bids for townhomes at the auction identified in the KCRA story, that when they get the opportunity to avail themselves of hindsight in a year, that phrase may come back to haunt them.

Truth is they probably had to reject those bids, simply because if they start having to recognize loan losses based upon real property valuations they will quickly be upside down. Oh that will happen anyway once the regulators step up to the plate and start doing their job.

As a side note, I'm writing a series of articles that are being featured on Casey's old website on workouts. Hopefully some of the information I provide will help those facing the nightmare associated with purchasing residential real estate over the past few years that has unrealistic financing associated with it. That website is

Take care,

Daniel Shays

Diggin Deeper said...

Professor Shays....

Couldn't agree more about taking that first loss. The Japanese housing, real estate, and financial down turn lasted 16-17 years because they just kept piling those losses on the books and looking the other way. It's eerily beginning to look like a familiar trend is developing in this country. If it continues the Enron/World Com debacles will pale in comparison.

bubblemachine said...

Based on the Japanese housing bubble recovery, I believe the Sacramento median price will go down to $250,000 or less. We are just getting started. The fat lady won't be singing until 2010.

Jacob said...

"I will probably get plenty of arguments from the naysayers on this but I am tracking it weekly and I do see a slowdown in the falling prices and the gap between listing price and sold price is narrowing"

I have been tracking as well and several months ago I was seeing $5/$10k drops each month. Just this month I am starting to see $50k drops in one shot. It seems to be speeding up to me...

Daniel said...

Good old sid. Always good for a laugh.
Why the paper lets him write a column at all I will never know... I used to live in Manteca, and still have family there. Let me tell you, there was no mistake in reporting by CBS, unless it was that it didn't go far enough to show how bad it is. There isn't a block of homes in the city without a house for sale. Most blocks have at least one brown lawn forclosure.
When my wife and I looked at houses there last year, they were starting at $395k and up. This is an area that is at least an hours commute from even a 70k/yr job, and trust me, most of these places were bought by people making less than that in combined income.
Without a bailout, this will be one of the hardest hit areas in the state. No local jobs besides retail and warehousing, lousy traffic wherever you want to go, no local small town charm with WalMart, HomeDepot et al chasing the family businesses out long ago... The ugly has only begun.

SheWrestles said...

One of my biggest concerns is whether there will be a qualified buyer in 5-7 years when I'm ready to sell.

My FICO is below 700 and I just went in and got a loan on stated income, only a few questions asked. They didn't verify *anything* - not my income, not my stated deposit/reserve information...nothing!

Also - I'm not even putting 20% down.

My rate is 6.5%, which isn't bad, but not nearly as good as another lender just promised (but only if I buy a brand-new home from Richmond American) - 5.875%, 30-yr fixed.

Nevertheless, this does not change the fact that only a few people in the neighborhood cna comfortably afford their homes.

I admit to being nervous, but even with all the information I have at my disposal, I think this is the time for me to buy.

Jacob said...

Since you really want to buy now, just make sure to negotiate a decent price so you take less of a hit. And just make sure that you can comfortably pay the mortgage.

Some people paying 50%, 60%, 70% of their income on just the mortgage, that is crazy.