Monday, April 14, 2008

Canary in the Global Coal Mine?

From the Associated Press:

A growing majority say they won't buy a home anytime soon, the latest sign of increasing pessimism about the nation's housing crisis, a poll showed Monday...Sixty percent said they definitely won't buy a home in the next two years, up from 53 percent who said so in an AP-AOL poll in September 2006. At the same time, just 11 percent are certain or very likely to buy soon, down from 15 percent two years ago.
The growing reluctance to dip into the housing market seems to stem partly from worry that housing prices will continue falling....Expectations for rising prices are highest in the South, with Westerners likeliest to predict they will drop.
Daniel Gallego, a warehouse worker in Stockton, Calif., said he may have to sell his home at a big loss. He said rising gasoline and other costs have made his adjustable rate mortgage unaffordable. Because he doesn't expect his home's value to recover soon, he said he may be better off moving now, before his rates rise. "We may have to move in with my wife's parents or my parents," said Gallego, 30, who has two young children. "I could pay off some debt, then we could rent, and maybe buy another house in a few years."
From the International Herald Tribune (hat tip smf):
The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices down from the Irish countryside and the Spanish coast to Baltic seaports and even in parts of India. This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes, but also jobs.

In Ireland, Spain, Britain and elsewhere, housing markets that soared over the past decade are falling back to earth. Experts predict that some countries, like Ireland, will face an even more wrenching adjustment than the United States, with the possibility that the downturn could turn into wholesale collapse.

To some extent, the world's problems are a result of American contagion. As home financing and credit tighten in response to the crisis that began in the U.S. subprime market, analysts worry that other countries could suffer the mortgage defaults and foreclosures that have afflicted California, Florida and other states.
Flashback: California's New Canary in the Coal Mine
Flashback: "Loans to Sacramento Trailer-Home Buyers...Trigger a Global Credit Crisis"

From the Sacramento Bee:
Folsom home builder consultant Greg Paquin reported last week that area builders opened 2008 with their fewest sales since possibly the early 1990s. That's nothing to sing about in a region that has seen sales and prices slide for the better part of 33 months. But here's the bright spot: Paquin sees in the new numbers some signals of a market approaching bottom.

Throughout the housing downturn, his predictions about the number of homes that will be built in a given year in the region have tracked pretty close to reality.
Maybe next time Wasserman can ask Paquin about how his sales predictions have held up.


Patient Renter said...

Maybe next time Wasserman can ask Paquin about how his sales predictions have held up.

Ouch. Journalists don't get paid to ask the tough questions, do they?

smf said...

Cool, my reference got posted...

...then again...

...does it mean that those foreigners can no longer save us from the crash slump?

bubblemachine said...

Maybe next time Wasserman can ask Paquin about how his sales predictions have held up.

It will never happen. Wasserman is paid by the Bee to write favorable articles about the RE industry. Just look at all the RE display ads in the Bee and on their website. They are not going to bite the hand that feeds them! LOL

luca said...

I am ready to invest in the sacramento market- plenty of homes that you can buy and rent out with positive cash flow.

What do you think about this home- $183k in Elk Grove

8952 Rocky Creek Ct, elk grove, ca
built in '94 1250 square feet. You can probably rent for $1200-$1400

interest to hear what you guys think

luca said...

I have been reading this blog for 3 years - I used to think Perfect Storm was crazy- calling for 50% declines. Never in my mind thought such a thing could happen. You went against most popular belief and boldly stated your opinion,,,,. and you were right.

So now that we have gotten 50% down in foreclosure pricing and the inventory in housing tracker seems to be stabilizing (as in not increasing as of late) do you think we are at bottom or close to bottom?

Also another question for perfect storm: since you have street credentials now- what do you think the value of this property will be in 5 years, 10years, and 15 years:

8952 Rocky Creek Ct, elk grove, ca
built in '94 1250 square feet. You can probably rent for $1200-$1400

since you have predicted the housing market getting here I am interested to see your next 3, 5, 10, and 15 year outlook.

Is the central valley screwed? Or is there hope in the long run?

I am hoping you see hope in the long run (even if it is very long)

Perfect Storm said...

The only reason other individuals think a 50% decline is beyond belief is that they feel they are somehow entitled to their gains. For the most part individuals who buy real estate are morons and the realtors are the only ones that win.

I believe residential real estate is only worth three times annual median income for that area, that is how I come up with a 50% decline, maybe I should have said 60%, that may have been more accurate. What happened between the year 2000 and 2005 was just pure fraud.

I could care less how real estate performs in the long run, ask Ben Jones Bloggers what they think, they will have a good answer for you. Just don't sound like a Troll. Ben Jones in my book is a genuis.

I like the comment about how 60% of potential buyers do not plan on buying within the next two years.

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

Jacob said...

60% dont want to buy and of the other 40%, how many actually qualify now that you need to pay back the loan, lol.

No down payment? Well find a bank that will loan you the 20% knowing that the properly will likely eat up that and they wont see a dime if you do into foreclosure.

Flippers are still slowing the decline, but they can only hold it back for so long.

50% off and you still have $300k homes in a 60k average income area.

So assuming (big assumption) that people have the 60k (20%) down, then they still should only buy a home for $240k (60*3 + 60 down).

At least another 20% to go in most areas.

I am still hopeful to be able to buy next year. Im in it for the long haul so if prices slide more I will be ok. Just waiting for the 60% hit to happen to someone else. :)

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

Foreclosures jump 57 percent in last 12 months

"more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender," he said. "This deed-in-lieu-of-foreclosure process allows the lender to take possession of a property without putting it up for public foreclosure auction."

And the banks just keep adding more inventory to their coffers...Alt-A plus consumer debt should add to these numbers this year as well...

Producer Price Index up 1.1% for March. Strip out food and energy and we only get core inflation rise of 2%...Uh, I gotta pay those costs so any core number is meaningless to me. Leave it to the boneheads to spin it differently.

Can you say stagflation? The consumer is taking blows from all sides. Housing and paper asset deflation is met by rising hard asset inflation. Some of us have been here before, the difference being a key component, housing, is deflating. Consumer spending rose .2 percent yesterday. Factor in real inflation and that number goes sub-zero.

A slower economy will slow the rate of inflation according to the Fed Heads...Ya think?

What a mess!

siflsockpuppet said...

luca - regarding your potential rental property. The rule of thumb is to rent for 1% of the purchase price. In your case, roughly $1,850/mo. Obviously that isn't going to happen. But even your range of $1,200 to $1,400 may be a bit optimistic. I rent a 2,090sf 4/2.5 in Franklin Reserve for under $1,450, and sewer/water/garbage are included at that price. If that house isn't special in some way - exceptional neighborhood, build quality, lot size, etc. - you're looking at the low end of your range, possibly even lower. And you have to add in the cost of property management, vacancy periods, repairs, utilities, non-paying tenants, etc. It could be VERY expensive.

Now, if you asked me about buying a $40,000 row home in Lancaster, PA (rental rate of $500-$600), I might be tempted...

Deflationary Jane said...


Doesn't pencil out for EG. That price might work if placed farther in town where people will pay more for rents.

Rents are cheap and getting cheaper. Don't go by the CL prices because those are usually wishing prices.

I was looking moving to a different rental last year and I had my pick of the litter because the minute the LL realized you weren't 'paying squatters', the discounts came rolling out. The competition for decent tenants who won't do more damage then what they pay in lease costs each month is fierce.

We decided to stay put because our LL in Davis offered us a reduction to renew for 2 yrs and we realized those LLs who made those offers couldn't afford the carry even at full price. I'd let someone else catch that knife and take your pick of market later they go bust and are off the playing field.

Deflationary Jane said...

Speaking of rental investments that make zero sense: MLS #: 80037340. Now there is a not so slow bleed for you - rofl

Those units lease for $1300 if they are lucky and that will have a high turnover rate. Not to mention the maintainence costs on them are crazy as they are really poorly built.

Patient Renter said...

I could care less how real estate performs in the long run, ask Ben Jones Bloggers what they think, they will have a good answer for you

I'll answer :)

Averaged out, over the long haul, home values increase ONLY at the rate of inflation (Shiller). All of those homeowners dreaming of a return to 10, 20, 50 or 100 annual appreciation can keep on dreaming. Those kind of value increases were purely a feature of the largest bubble in our nation's history, and aren't going to be seen again in any of our lifetimes.