Wednesday, November 28, 2007

"Prices soared beyond reason"

From Fortune:

If your business suffers from real estate blues brought on by plummeting prices, it may come as little comfort to know that this trend was supposed to have ended by now. When the market began its downturn in early 2006, some of the smartest economists in the country, as well as the CEOs of major home-builders and the National Association of Realtors, predicted that prices would rebound by mid-2007. Instead the experts have been humbled by the depth and breadth of the downturn - and the resulting sub-prime credit crisis has shaken financial markets around the world. Expect tremors to keep shaking the real estate market along multiple fault lines in 2008.
As a whole, the national housing market will finally hit bottom - and start bouncing back - at the end of 2008, says Celia Chen, director of housing economics at

The regions that will likely lag the national recovery are Phoenix, Las Vegas, south Florida and California's Central Valley. Although publicly-traded home builders packed these areas with inventory, prices soared beyond reason thanks to easy credit and an abundance of speculators who never intended to occupy the homes they bought.
From the Stockton Record:
Bad loans and mortgage foreclosures are threatening the economy, and the nation's housing market is collapsing. By the end of 2008, 2 million home mortgage foreclosures are predicted with the loss in real estate value expected to top $3 billion. San Joaquin County is listed No. 1 in foreclosure activity by Irvine-based RealtyTrac Inc....

The situation will get worse before it gets better as adjustable-rate mortgages continue to reset at higher rates in the coming months. We're in the middle of a crisis of unprecedented proportion that strikes at the essence of home-ownership. It was created by a culture of greed....


Cow_tipping said...

Oh now its 2008. OK. Plenty of time to revise that, If you buy before then ... well its your loss not theirs ...

norcaljeff said...

Yes, I'd say that Centex now offering $350K discounts on their properties shows prices were beyond reason, but just by a hair.

KTM 300 said...

Ok, if I understand what Ms. Chen is saying, I better buy something by this time next year, risk being priced out forever…. again. I just wonder what effect all of the 2/28 ARMs that were written in 2006 are going to have on this prediction. Buyers, who made purchases in 2006, while prices were very high, will begin to get their rate increase notices in the Spring of 2008. In addition, the 5year ARM’s that were written in 2003 and beyond are going to begin to adjust in 2008. And I’m to believe that these two issues alone are going to be resolved by the end of 2008? I don’t have an east coast graduate degree; so maybe, this issue is over my head. The fundamentals are the issues. What has Ms. Chen said that changes fundamentals?

Citibank just borrowed funds at 11% from the Bank of Bin Laden, just to stay in business. Anyone care to guess what rate they are going to loan it out at? And how is this a good thing? Once again, taking on more debt, versus producing income through adding value to goods and services, and earning reasonable profit, growing the business, and hiring more people with decent wages that pay taxes.

sacramentia said...

are you kidding? why would you bet against rubin at citi? he's taking their money....

Sold in '05 said...

New Construction Homes- Tax Value VS. MLS Sales Prices.

Due to mounting distress in the builder world, we were considering putting some very lowball offers in on some homes in the WestPark area in Roseville, so I did some research to find out what really is "LOW", what I found has really shaken me...

Can anyone explain why the "sold prices" listed on SacBee's MLS would be WAY WAY WAY higher than the assessed values on the Placer County tax bills for new homes being built and sold in the WestPark development in Roseville?

Now, I'm not misreading these tax bills, they are carrying private individuals names, and have values assigned to both the land and the structures. I looked them up because they were all houses that we had seen earlier in the year and I knew that they had been sold and were being lived in.

Some of these MLS selling price vs tax bills are showing more $200000 difference. My examples are in Lennar's Laureate subdivision but I've found similar mismatches in other subs that have updated tax bills available in WestPark.

If you look up properties at 101, 109, and 117 Allimore Ct, Roseville, 95747, the assessed tax values for land plus home are $390,660; $353,940 and $340,680 respectively. MLS shows the sale prices at $683,509; $542,000 and $527,000 also respectively. Two were sold in late April and one in late June this year.

Do the incentives the builders give not show on MLS sales price?

Are the tax bills reflecting the "true" sale prices?

If the tax bills are the actual price the buyers paid, then the builders have cut prices MUCH further than anyone believes and are hiding the true numbers from the MLS as well as all other data miners therefore masking even bigger losses in values.

Anyone help me out on this, is it a tax scam or should I start dropping offers $250k below list?

Mike said...

Soldin'05, wow thank for the nice analysis. This information is especially interesting to me as I've been looking in WestPark/West Roseville area for homes.

If what the tax bills says is true, and those folks bought the home around mid 300K then I think it is very good deal. That is $200K+ off the list price. When I visited Lennar in Westpark, they did not seem that desperate to me to offer $200K+ off the price.

Please let me know if you end up making that kind of offer and they accept. I might try that during Christmas time (when they should be really slow)and see what their reaction/response is.

David said...

"some of the smartest economists in the country, as well as the CEOs of major home-builders and the National Association of Realtors, predicted that prices would rebound by mid-2007"

Well you really don't expect them to come out and tell the truth do you! If you dole out the bad news in a continous series of small bits the sheeple will not react so badly.

The reality is the economy is completely disfunctional and the powers that be really can't afford for the general public to really understand what is going on.

Sippn said...

The tax reassessment is not instantainious. . . sometimes takes up to 2 years.

You might be seeing a "partial" where the assessor puts together a value "in progress".

SheWrestles said...

As I mentioned a couple of weeks ago, Southcreek Dr. has become the new Foreclosure Lane in TB, and this one is now on my radar. The sign in the front says 'bank owned' and there's an eviction notice on the door from a month ago. The house is in decent condition (let's overlook all the drawings on the windows), so I'm led to believe that the foreclosure is what prompted the tenant eviction.

alba said...

I think there's such a thing in CA as a SUPPLEMENTAL tax bill that is sent subsequent to the initial assessment at the time of purchase. I bought new '99 in AZ, and it took 2 years for the tax assessment to catch up, as sippn mentioned. I'd never look at tax assessment for value.

Patient Renter said...

Laugh of the day (conversation with co-worker):

patient renter: so have you found any houses you like yet?
co-worker: yea, but we still need to get a realtor. we've been looking on the internet so far.
patient renter: well you know what they say, buy now or be priced out forever!
co-worker: oh, totally, i know!


alba said...

Houses are like cars right now. Its a good deal until they give you the keys. Over the course of this year, Lennar Homes (LEN) stock has been a great deal, if you believe it will go up sometime soon.

On the other hand, new home builders are way ahead (6+ months)of homeowners, selling existing homes, in predicting and responding to trends, despite what they spin in the press.

Cow_tipping said...

On a sorta unrelated note.
Has anyone seen 50% losses in listed price on houses yet.

At 49.6% of its 06 sale price

1530 Belinda Way
Sacramento, CA 95822

Is the winner so far ?? is my source for the above listing.
No idea if its a short sale subject to bank approval, but they bought in 2006 from a flip off a 2005 purchase.

Patient Renter said...

Man, that house on Belinda is beat. It's nice to see that thing priced closer to where it belongs... though, I'd probably expect that thing is worth under 100k.

Diggin Deeper said...

"are you kidding? why would you bet against rubin at citi? he's taking their money...."

Bet against him? He had no choice. Citi's $10B hit will equate to $80-100B in loss reserves Citi will have to post against their books. If they played the game like HSBC, their $80+ Billion total exposure in off balance sheet tier 3 accounts would force them to place $800B in loss reserves. Nearly a trillion dollars for one company to eat? They go down before that happens.

BofA smells blood and is making overtures. Rumor has it that 45,000 employees at Citi could get their pink slips soon.

Rubin has zero control of what's happening.

Diggin Deeper said...

"The reality is the economy is completely disfunctional and the powers that be really can't afford for the general public to really understand what is going on."

Among those powers that be, I think there's a sentiment of complete denial swirlling around the subprime/credit crunch problem. And since most of the problem rests with credit instruments that no one can value, they really don't know how pervasive and widespread the problem has become.

Credit is being sucked out of the system faster than the Fed print money to save it.

G Spot1 said...

sold in 05, I think alba may be right - the explanation is probably that the county sends out a supplemental tax bill sometime after the sale is complete. When I bought my first home I got a bill for the previous assessed amount based on the seller's prior purchase price, then sometime later I got a supplemental. Then the next year I got the full bill. I think the supplemental took a few months, but it was LA County and Placer might take longer (especially with all the downward reassessments going on....)

SacramentoCrash said...

Why this downturn will be worse than the downturn in the early 1990's:

This is a recession / depression caused by a severe drop in real estate values. The last downturn was caused by defense cutbacks. Cutbacks in the early 90's led to a recession and a decline in property values. This time around it is the "house of cards" that is collapsing.

The credit markets are in shambles due to the idiotic subprime lending. Citibank was in serious financial trouble which brought in an infusion of funds from the middle east investor. Wells Fargo is even having problems with their regular loan portfolio.

Subprime 100% loans with no documentation - 40 to 60% of 2004 - 2006 purchases in bubble submarkets (Lincoln, FloodTomas and Da Grove)

Household credit card debt is at a record level.

The spending excesses in the last five years is a relatively new phenomena (huge SUVs, Boats, blinged out cars, boob jobs, backyard living rooms). All of which did not exist to a great extent in the 1990s.

Oil near $100 a barrel.

9% combined inflation rate after throwing in health insurance increases, food costs, energy costs.

It is a case of America living the lifestyles of the rich and famous on a beer budget.

Now the sword is swinging in the opposite direction and it is going to be really bloody out there.

Diggin Deeper said...

As one article put it

"Racing inflation is on a collision course with the unmoveable object...deflation"

On the one hand you get smacked down by falling paper asset values and on the other you get stung by inflation that's eating up what's left over. Not a great recipe for wealth progression.

I hope that's not the case, but there's really nothing to reference that would dispell that possibility either.

HOUSE2008 said...

diggin deeper..
"Credit is being sucked out of the system faster than the Fed print money to save it."

I was wondering where all of it was going? I know they've printed a TON of it! Any idea? Are the hedge funds sucking it up?

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

Housing2008...It's actually being taken off the table and put into loss reserves at the banks. They must leverage losses with at ratios of 8 to 10 times loss. Reports are that one in ten hedge funds will fail due to lack of credit and lack of money flow.

As "prices soared beyond reason", this real estate debacle has created debt products that are now seizing up even the most basic short term credit services.

Bernanke this evening acknowleged that there's a serious threat to the credit market's ability to finance short term debt obligations.

Friends, this is a very serious issue in that businesses must be able to finance short term obligations in order continue daily operation. If this short term vehicle dries up without an appreciable and lasting fix, people aren't going to get paychecks, layoffs will rise, and business could grind to a complete halt in this country. It's that serious.

Case in point, General Electric Asset Management bond fund, which is a money market bond fund, cannot fund redemptions at par. They are offering their subscribers .96 for every dollar they have invested in this MONEY MARKET FUND.

When you can't get your money at full value out of your bank, something's gotta give... or we're revisiting one of the darker financial periods in the
20th century.

This is not doom and gloom, this is very real and its gathering steam...and something's got to get done very soon.

Diggin Deeper said...

Schiller speaks....

"He says the current market is "out of the range of historical data" because the boom was far beyond any previous one for which reliable data exist. In response to one question on the conference call, he said declines of home prices of 50% were certainly feasible (, 11/27/07). "I'm not going to forecast that, but I think it's a real possibility," he says."

Tyrone said...

50% declines mentioned as a "real possibility" by Schiller.

Would somebody please alert realrant. He needs to explain to Schiller that he doesn't know what he's talking about.

Patient Renter said...

I love how in that Forbes article, they acknowledge that experts were SHOCKED, SURPRISED, at the unexpected depth of the downturn... then they continue on to quote someone calling a bottom.

HOUSE2008 said...

diggin deeper..

Thanks. Answers some questions. Well, I guess if truck loads of money aren't enought we have the new Boeing "Dreamliner" we can start packing with money...