Monday, November 29, 2010
Tuesday, October 05, 2010
Saturday, September 18, 2010
Friday, September 17, 2010
Disinflation
So.
I started the previous blog subject under the impression that the real-estate apocalypse was just around the corner... that the very low interest rates we observed last fall were only the result of government intervention in the market, and as soon as the government stopped intervening, rates would increase.
I clearly was off the mark. Interest rates are lower than they have ever been.
So, I've shut my trap on that old topic. Mostly, I'm watching Krugman's blog and CalculatedRisk. I'm kinda impressed at two things about Krugman.
1) He's just been right so frequently over the past two years; like, dead on the money right.
2) People still seem to shoot for the mean between his suggestions and the people who have been wrong for so long who have been saying the opposite and are still saying the opposite. It's like, you have two crystal ball gazers, one saying "go west" and one saying "go east" and so you head south -- except, the guy saying "go east" wants you to ignore the fact he's been wrong in every prediction he's made up until this point.
It's wild.
I mean -- I was one of those crystal ball gazers saying "EAST" and damn if I didn't screw the pooch on that one.
So, for a long time, Krugman has been warning that we're in an environment that will produce deflation. And the symptom before deflation is "disinflation." That is, inflation expectation decreases. People have to predict what inflation will be, and when they predict lower and lower inflation, it actually turns in to lower and lower inflation, until you hit the 0 mark, and then it turns into greater and greater deflation in a pretty nasty vicious cycle.
So
CPI numbers came out this week and they look a lot like disinflation. It's been going on for a while, but the point of these numbers is simply that it's still going on. It's not a fluke. It's what Krugman predicted. Calculated risk has the graph.
disinflation graph
I started the previous blog subject under the impression that the real-estate apocalypse was just around the corner... that the very low interest rates we observed last fall were only the result of government intervention in the market, and as soon as the government stopped intervening, rates would increase.
I clearly was off the mark. Interest rates are lower than they have ever been.
So, I've shut my trap on that old topic. Mostly, I'm watching Krugman's blog and CalculatedRisk. I'm kinda impressed at two things about Krugman.
1) He's just been right so frequently over the past two years; like, dead on the money right.
2) People still seem to shoot for the mean between his suggestions and the people who have been wrong for so long who have been saying the opposite and are still saying the opposite. It's like, you have two crystal ball gazers, one saying "go west" and one saying "go east" and so you head south -- except, the guy saying "go east" wants you to ignore the fact he's been wrong in every prediction he's made up until this point.
It's wild.
I mean -- I was one of those crystal ball gazers saying "EAST" and damn if I didn't screw the pooch on that one.
So, for a long time, Krugman has been warning that we're in an environment that will produce deflation. And the symptom before deflation is "disinflation." That is, inflation expectation decreases. People have to predict what inflation will be, and when they predict lower and lower inflation, it actually turns in to lower and lower inflation, until you hit the 0 mark, and then it turns into greater and greater deflation in a pretty nasty vicious cycle.
So
CPI numbers came out this week and they look a lot like disinflation. It's been going on for a while, but the point of these numbers is simply that it's still going on. It's not a fluke. It's what Krugman predicted. Calculated risk has the graph.
disinflation graph
Wednesday, September 15, 2010
Thursday, May 20, 2010
Interest rates: still low, but CR was still right
CR predicted that the spread between the yield on the treasury's 10-year bonds and mortgage interest rates would widen by about 0.3% after the Fed ended its MBS purchasing program, and yes, the spread has widened. This is not because mortgage interest rates have started climbing, as I assumed they would. Apparently there were a lot of us out there pointing to the end of the Fed MBS purchase program and a 0.3% climb in the mortgage interest rates and making a big deal out of it.
Krugman and SeattleBubbleBlog both pointed out how these "the sky is falling" claims were in error. I was making them to convince sellers that they had waited too long if they wanted to sell while the selling was good. But there's a flip side: a lot of buyers seem to think lower interest rates are in their favor, and so the dire warnings that interest rates were headed up were propagated to scare home buyers into acting now.
I have maintained that interest rates are neutral. All buyers are able to get mortgages at the same rate, and so the lower the rate, the more a buyer has to bid in order to win the auction.
Now, my thinking does discount all-cash buyers who don't need loans and who are otherwise unaffected by interest rates. If you're comparing all-cash buyers to mortgage-taking buyers, then low interest rates do offer mortgage takes an advantage: the lower the interest rate, the more principle they can bid for the property. All-cash buyers are somewhat rare, however. As this bubble has deflated, though, there have been a number of reports that all-cash buyers are out in great numbers.
.. anyways, I just wanted to say CR was right.
Krugman and SeattleBubbleBlog both pointed out how these "the sky is falling" claims were in error. I was making them to convince sellers that they had waited too long if they wanted to sell while the selling was good. But there's a flip side: a lot of buyers seem to think lower interest rates are in their favor, and so the dire warnings that interest rates were headed up were propagated to scare home buyers into acting now.
I have maintained that interest rates are neutral. All buyers are able to get mortgages at the same rate, and so the lower the rate, the more a buyer has to bid in order to win the auction.
Now, my thinking does discount all-cash buyers who don't need loans and who are otherwise unaffected by interest rates. If you're comparing all-cash buyers to mortgage-taking buyers, then low interest rates do offer mortgage takes an advantage: the lower the interest rate, the more principle they can bid for the property. All-cash buyers are somewhat rare, however. As this bubble has deflated, though, there have been a number of reports that all-cash buyers are out in great numbers.
.. anyways, I just wanted to say CR was right.
Thursday, May 13, 2010
REOs up 45% YoY
There are three stages to foreclosure:
1) Notice of default. (NOD) The bank says "hey, you, you quit paying us three months ago!"
2) Notice of Trustee Sale. (NTS) The bank says "hey, you, you quit paying us nine months ago, we're going to have to take back your house"
Banks have been chugging along filing NODs and NTSs, but have stopped short of actually taking possession of houses. Instead, they have let non-performing assets sit on their books with both fingers crossed, hoping by some miracle that their borrowers would cure. It's easier than acknowledginga loss their own stupidity, I suppose.
3) Real Estate Owned (REO). The bank actually takes possession of the house and evicts the squatting defaulters who had been occupying it RENT FREE for the past 9 months at least. Turns out the delay between stage 1 and stage 3 has been several years in 25% of cases. Banks had been purposefully holding back inventory from hitting the market.
April REO activity is up 45% over last year. REO activity is at a record high, up only 1% from last month, but none the less, at unprecedentedly high levels. This increase in REO activity is occurring even as NOD and NTS activity is slowing.
This link, of course, comes from CalculatedRisk.
1) Notice of default. (NOD) The bank says "hey, you, you quit paying us three months ago!"
2) Notice of Trustee Sale. (NTS) The bank says "hey, you, you quit paying us nine months ago, we're going to have to take back your house"
Banks have been chugging along filing NODs and NTSs, but have stopped short of actually taking possession of houses. Instead, they have let non-performing assets sit on their books with both fingers crossed, hoping by some miracle that their borrowers would cure. It's easier than acknowledging
3) Real Estate Owned (REO). The bank actually takes possession of the house and evicts the squatting defaulters who had been occupying it RENT FREE for the past 9 months at least. Turns out the delay between stage 1 and stage 3 has been several years in 25% of cases. Banks had been purposefully holding back inventory from hitting the market.
April REO activity is up 45% over last year. REO activity is at a record high, up only 1% from last month, but none the less, at unprecedentedly high levels. This increase in REO activity is occurring even as NOD and NTS activity is slowing.
This link, of course, comes from CalculatedRisk.
Friday, April 30, 2010
It's over!
The government's $8K price support for houses is over. If houses did not go under contract by today, then their buyers will not qualify for the $8K tax credit. Didn't attract a buyer before the deadline passed? It's not entirely due to the fact that you overpriced your house. Orange county hasn't had very many buyers -- why? Overpricing, I suppose. I guess it is your fault. Too bad that the price the market was willing to bear for your house just dropped $8K today.
From the Triangle MLS for March:
This is down from last year's lows which were themselves 40% off peak volume.
From the Triangle MLS for March:
This is down from last year's lows which were themselves 40% off peak volume.
Wednesday, April 28, 2010
Consequences
The government has worked to keep house prices high. New entrants to the housing market are paying inflated prices; and they are defaulting at inflated rates.
IrvineRealtor has a great post today, which includes this graph.
Government insured loans for first-time home buyers (FHA loans) from 2008 -- from AFTER the bubble had begun to burst -- are performing as bad as the toxic loans made in the run-up of the bubble.
The government is keeping housing prices inflated so that new home owners can overpay for properties they cannot afford, default, and trash their credit. You want to buy a house? The government is setting you up for failure.
IrvineRealtor has a great post today, which includes this graph.
Government insured loans for first-time home buyers (FHA loans) from 2008 -- from AFTER the bubble had begun to burst -- are performing as bad as the toxic loans made in the run-up of the bubble.
The government is keeping housing prices inflated so that new home owners can overpay for properties they cannot afford, default, and trash their credit. You want to buy a house? The government is setting you up for failure.
Sunday, April 18, 2010
Forclosure Moratoria Muerte
Loan owners have been squatting in the houses they cannot afford for the past year. The HAMP program and various threats from the govt that the banks should "do more" to keep loan owners in their houses has produced a backlog in the foreclosure process.
Instead of being evicted for not paying their mortgages, loan owners have been squatting rent free living in a house they could not otherwise afford. This has kept the number of distressed properties on the market down to a minimum, and in turn, helps artificially support housing prices. Why? Foreclosures drive down housing prices 1st by soaking up buyers that might have otherwise purchased more expensive homes (more expensive, but not higher quality) and 2nd by lowing the "comps" for houses. Comps are important in setting the appraised value of a property; a bank will only loan 80% of the appraised value, not of the listing value. If someone wants to buy a house at 110% of its appraised price, they have to put down a larger sum... eventually, houses sell for what they are worth.
So: we had three programs directed at keeping housing prices high. 1) The home buyer's tax credit (which expires in 12 days). 2) the Fed's $1.25 Trillion MBS purchasing program to lower interest rates (which expired in March) and 3) the HAMP program designed to keep deadbeat loan owners in their homes and those homes off the market.
The third program seems to have done all it can. Now banks are beginning to foreclose.
IrvineRenter has been doing some spectacular reporting. First, a guest post from CalculatedRisk's haiku writer, Soylent Green Is People, about the end of HAMPs efficiacy: The Debt Star has cleared the planet. Then a quote from Bank of America's OREO department: BoA will increase its foreclosures this year by 600% over last year. (NOTE: this is really a 500% increase; 2010's rate will be 6x that of 2009's.) This tidbit was picked up by patrick.net and CalculatedRisk
Then March foreclosure data is released: RealtyTrac: March Foreclosure Activity Highest on Record
It's finally happening.
How does this relate to Chapel Hill?
Let's take a look at two google maps (both at the same zoom level). Homes in default/REO/foreclosure status in Chapel Hill, and Homes in default/REO/foreclosure status in Durham.
Above: distressed properties in Chapel Hill.
Above: distressed properties in Durham
When I first started looking at Google Map's foreclosure listings, I noticed right away that there were many more. From there I made the prediction that Durham prices would erode quickly, and that Chapel Hill prices would erode, too, but more slowly. That prediction was half right. What I wasn't counting on was the moratoria to keep all of Durham's delinquent loan owners in their homes for so long. I'm not following Durham very closely, so I can't say for certain that the distressed properties today are the same distressed properties from last year.
But I have been following the distressed properties in Chapel Hill. If you look at the properties in Chapel Hill that are distressed, you'll notice 19 of them are the the same properties from last year. (There are ~25 total; so there have not been very many more properties that have become distressed either). The loan owners have been squatting. Their homes have not been foreclosed and their properties have not come to market.
Instead of being evicted for not paying their mortgages, loan owners have been squatting rent free living in a house they could not otherwise afford. This has kept the number of distressed properties on the market down to a minimum, and in turn, helps artificially support housing prices. Why? Foreclosures drive down housing prices 1st by soaking up buyers that might have otherwise purchased more expensive homes (more expensive, but not higher quality) and 2nd by lowing the "comps" for houses. Comps are important in setting the appraised value of a property; a bank will only loan 80% of the appraised value, not of the listing value. If someone wants to buy a house at 110% of its appraised price, they have to put down a larger sum... eventually, houses sell for what they are worth.
So: we had three programs directed at keeping housing prices high. 1) The home buyer's tax credit (which expires in 12 days). 2) the Fed's $1.25 Trillion MBS purchasing program to lower interest rates (which expired in March) and 3) the HAMP program designed to keep deadbeat loan owners in their homes and those homes off the market.
The third program seems to have done all it can. Now banks are beginning to foreclose.
IrvineRenter has been doing some spectacular reporting. First, a guest post from CalculatedRisk's haiku writer, Soylent Green Is People, about the end of HAMPs efficiacy: The Debt Star has cleared the planet. Then a quote from Bank of America's OREO department: BoA will increase its foreclosures this year by 600% over last year. (NOTE: this is really a 500% increase; 2010's rate will be 6x that of 2009's.) This tidbit was picked up by patrick.net and CalculatedRisk
Then March foreclosure data is released: RealtyTrac: March Foreclosure Activity Highest on Record
It's finally happening.
How does this relate to Chapel Hill?
Let's take a look at two google maps (both at the same zoom level). Homes in default/REO/foreclosure status in Chapel Hill, and Homes in default/REO/foreclosure status in Durham.
Above: distressed properties in Chapel Hill.
Above: distressed properties in Durham
When I first started looking at Google Map's foreclosure listings, I noticed right away that there were many more. From there I made the prediction that Durham prices would erode quickly, and that Chapel Hill prices would erode, too, but more slowly. That prediction was half right. What I wasn't counting on was the moratoria to keep all of Durham's delinquent loan owners in their homes for so long. I'm not following Durham very closely, so I can't say for certain that the distressed properties today are the same distressed properties from last year.
But I have been following the distressed properties in Chapel Hill. If you look at the properties in Chapel Hill that are distressed, you'll notice 19 of them are the the same properties from last year. (There are ~25 total; so there have not been very many more properties that have become distressed either). The loan owners have been squatting. Their homes have not been foreclosed and their properties have not come to market.
Thursday, April 15, 2010
Creepy!
This listing features the POV of the escaped convict as he approaches the unsuspecting baby sitter inside...
Fortunately, it doesn't show us the interior. Who would want to see that?
Saturday, April 10, 2010
How'd he get that price?
Ever wonder where some house prices come from, like, how did they dream up that number?
XXX Hardwick Pl Asking $449,900, $155/sqft.
Purchased 2003 for $335K. First mortgage, $286K, with 20% down.
Then in 2007, the owner took out a $150K HELOC.
( $286K + $150K ) * 1.06 realtor's fees = $443K.
So they're asking $450K.
The owner to you, the buyer: "Look, I already spent $150K of the money I was going to make on the eventual sale of this property, so, yes, of course I'm going to ask for more than $150K worth of appreciation for having lived there a whopping 7 years."
XXX Hardwick Pl Asking $449,900, $155/sqft.
Purchased 2003 for $335K. First mortgage, $286K, with 20% down.
Then in 2007, the owner took out a $150K HELOC.
( $286K + $150K ) * 1.06 realtor's fees = $443K.
So they're asking $450K.
The owner to you, the buyer: "Look, I already spent $150K of the money I was going to make on the eventual sale of this property, so, yes, of course I'm going to ask for more than $150K worth of appreciation for having lived there a whopping 7 years."
Government Price Support Ending
The Fed's $1.25 Trillion MBS purchase program unceremoniously ended last week, and already, interest rates have risen. So far, their rise has been the modest 0.3% that CalculatedRisk has been predicting for a long time, but that doesn't mean they might not rise further; we'll have to wait and see.
Less than a month from now, at the end of April, the home buyer's tax credit will expire. On May 1st, the houses for sale that are not already under contract will see an immediate $6,500 drop in price, as their buyers will have exactly that much less buying power than they had the day before.
So the pressure is on for home owners wanting to sell to find a buyer ASAP. Your neighbors are your competition and there really aren't that many buyers, so you have to price aggressively if you want to sell.
Today, I'll feature two properties both in the Colony Woods neighborhood. The first has been aggressively dropping its price. The second has been keeping its price steady. Wanna guess which one I think will sell first?
XXX Knob Rd Asking $299,000. $95/sqft.
This house listed on February 12th for $349,900. They dropped the price to $339,000 twelve days later. Yesterday, they dropped the price to its current level. They reduced the price by 1/7th of its original asking.
XXX Spruce St Asking $294,500. $136/sqft.
This house listed February 11th at its current price, and it hasn't budged. Tomorrow, April 11th, from 2pm to 4pm, they are holding their third open house. I went to one of their prior open houses. It's a weird house; there is no door to the basement, just a stairwell leading down from the kitchen. The washer and dryer are on the opposite sides of the basement -- so odd. The bedrooms are pretty small. Nothing about this house stands out; it has not been remodeled or improved.
So why are the owners holding fast to their original asking price? If you've read my blog before, you know exactly where I'm going. The reason they can't drop their asking price is because they have radically increased their debt on the property in the time they owned it. They already spent the proceeds of their house sale. Let me say that again: they are looking to sell their house for 60% more than what they paid for it, and they will make no money on the sale.
Total outstanding debt: $412,200, assuming they've fully tapped their $128K HELOC and have not paid down either of their mortgages. I have a feeling their actual debt is right around $294,500.
Because they cannot lower their asking price to meet the price the market is willing to pay for their house, they will be unable to sell before April 30th, and they will likely end up with a short sale or a foreclosure, trashing their credit record.
Mortgage Equity Withdrawal is what caused these home owners to find themselves in their current bind. MEW caused the bubble to inflate and it will be the source of the pain as the bubble deflates. We need to outlaw MEW.
Less than a month from now, at the end of April, the home buyer's tax credit will expire. On May 1st, the houses for sale that are not already under contract will see an immediate $6,500 drop in price, as their buyers will have exactly that much less buying power than they had the day before.
So the pressure is on for home owners wanting to sell to find a buyer ASAP. Your neighbors are your competition and there really aren't that many buyers, so you have to price aggressively if you want to sell.
Today, I'll feature two properties both in the Colony Woods neighborhood. The first has been aggressively dropping its price. The second has been keeping its price steady. Wanna guess which one I think will sell first?
XXX Knob Rd Asking $299,000. $95/sqft.
This house listed on February 12th for $349,900. They dropped the price to $339,000 twelve days later. Yesterday, they dropped the price to its current level. They reduced the price by 1/7th of its original asking.
XXX Spruce St Asking $294,500. $136/sqft.
This house listed February 11th at its current price, and it hasn't budged. Tomorrow, April 11th, from 2pm to 4pm, they are holding their third open house. I went to one of their prior open houses. It's a weird house; there is no door to the basement, just a stairwell leading down from the kitchen. The washer and dryer are on the opposite sides of the basement -- so odd. The bedrooms are pretty small. Nothing about this house stands out; it has not been remodeled or improved.
So why are the owners holding fast to their original asking price? If you've read my blog before, you know exactly where I'm going. The reason they can't drop their asking price is because they have radically increased their debt on the property in the time they owned it. They already spent the proceeds of their house sale. Let me say that again: they are looking to sell their house for 60% more than what they paid for it, and they will make no money on the sale.
Total outstanding debt: $412,200, assuming they've fully tapped their $128K HELOC and have not paid down either of their mortgages. I have a feeling their actual debt is right around $294,500.
Because they cannot lower their asking price to meet the price the market is willing to pay for their house, they will be unable to sell before April 30th, and they will likely end up with a short sale or a foreclosure, trashing their credit record.
Mortgage Equity Withdrawal is what caused these home owners to find themselves in their current bind. MEW caused the bubble to inflate and it will be the source of the pain as the bubble deflates. We need to outlaw MEW.
Friday, March 26, 2010
CR Links for the day
Two good posts from CalculatedRisk this morning.
First: The Fed's Mortgage Backed Securities (MBS) purchase program is now 99.84% complete. Only $2 Billion (only!) remain to be spent on MBS of the original $1.25 Trillion that was printed for their purchase.
Remember, the reason this program exists is to drop the interest rate on mortgages. Low interest rates mean borrowers can bid higher prices for a house while keeping the same monthly payment. The end result is that home prices drop less. This was a very creative way for the Fed to put a floor under falling home prices.
Now that the program is over, mortgage interest rates will increase. The question is: how much will they rise? CR has consistently predicted a 0.35 to 0.5% increase (that is, from 5.0% to 5.35% or 5.5%).
Interestingly enough, mortgage demand is very low and has been since October. Low demand for mortgages is also helping to keep mortgage rates down. It also means that the government's other housing program, the first time home buyer's tax credit, has pulled forward as much demand as it can. There is no future demand to borrow. The anemic sales reported for January and February, while this program is still active, suggest* that when the program ends, there will be hardly any sales volume at all. Future demand has been tapped; it's dry. When we get to the future, there will be little demand waiting.
*(to me, CR has not made this assessment)
Second. February unemployment by state has been released. North Carolina is at a new historic high at 11.2%. That put's North Carolina as having the 10th worst unemployment currently. Again, bad news for a housing "recovery" if people out there are still holding their breaths for one.
First: The Fed's Mortgage Backed Securities (MBS) purchase program is now 99.84% complete. Only $2 Billion (only!) remain to be spent on MBS of the original $1.25 Trillion that was printed for their purchase.
Remember, the reason this program exists is to drop the interest rate on mortgages. Low interest rates mean borrowers can bid higher prices for a house while keeping the same monthly payment. The end result is that home prices drop less. This was a very creative way for the Fed to put a floor under falling home prices.
Now that the program is over, mortgage interest rates will increase. The question is: how much will they rise? CR has consistently predicted a 0.35 to 0.5% increase (that is, from 5.0% to 5.35% or 5.5%).
Interestingly enough, mortgage demand is very low and has been since October. Low demand for mortgages is also helping to keep mortgage rates down. It also means that the government's other housing program, the first time home buyer's tax credit, has pulled forward as much demand as it can. There is no future demand to borrow. The anemic sales reported for January and February, while this program is still active, suggest* that when the program ends, there will be hardly any sales volume at all. Future demand has been tapped; it's dry. When we get to the future, there will be little demand waiting.
*(to me, CR has not made this assessment)
Second. February unemployment by state has been released. North Carolina is at a new historic high at 11.2%. That put's North Carolina as having the 10th worst unemployment currently. Again, bad news for a housing "recovery" if people out there are still holding their breaths for one.
Saturday, March 06, 2010
a lost resource
A few months back, I mentioned a Realtor whose blog I had been following. I decided that I didn't want to link directly to that Realtor's blog so that, in case they were watching their incoming traffic, they wouldn't see the link from my web page and know that I -- a bear! -- was relying on their blog postings to get a sense of the market. Instead, I listed a few search terms that google would magically transform into a link to this guy's page.
That Realtor stopped posting on his blog at basically the same time. I no longer have access to his lists of home-sale closure prices. He listed for each neighborhood all the homes for sale in that neighborhood, their asking prices, and, when those homes sold, the date of their sale and how much money they finally sold for.
That's a bummer, because these lists were really handy. Crawling the Orange County website, I can get basically the same information, but it's on a 2 or 3 month delay (since the county is so slow to record sales events) and it's not as nicely organized by neighborhood. This data he posted was in the "For Buyers" section of his blog. I agree that such data would be useful for a perspective buyer.
The conspiracy theorist in me wonders whether my admitting that I liked his data on my blog caused him to stop posting it. Here is his last post from back in November, 3 days before I talked about his blog here. Since then, silence.
Now, I count how many people read my blog. There are like 5 of you. So I'd say the conspiracy theory has a 1/10,000 chance of being right. (50K residents in chapel hill). But in the off chance that one of my five readers is you, Joe Rogers, I would ask you kindly to resume posting sales data for Chapel Hill. If you stopped posting useful data for home buyers to keep one stupid anonymous blogger from getting access to it, then you're only doing yourself a disservice.
That Realtor stopped posting on his blog at basically the same time. I no longer have access to his lists of home-sale closure prices. He listed for each neighborhood all the homes for sale in that neighborhood, their asking prices, and, when those homes sold, the date of their sale and how much money they finally sold for.
That's a bummer, because these lists were really handy. Crawling the Orange County website, I can get basically the same information, but it's on a 2 or 3 month delay (since the county is so slow to record sales events) and it's not as nicely organized by neighborhood. This data he posted was in the "For Buyers" section of his blog. I agree that such data would be useful for a perspective buyer.
The conspiracy theorist in me wonders whether my admitting that I liked his data on my blog caused him to stop posting it. Here is his last post from back in November, 3 days before I talked about his blog here. Since then, silence.
Now, I count how many people read my blog. There are like 5 of you. So I'd say the conspiracy theory has a 1/10,000 chance of being right. (50K residents in chapel hill). But in the off chance that one of my five readers is you, Joe Rogers, I would ask you kindly to resume posting sales data for Chapel Hill. If you stopped posting useful data for home buyers to keep one stupid anonymous blogger from getting access to it, then you're only doing yourself a disservice.
Saturday, February 27, 2010
What a winter!
I've been really really busy this winter. Holy cow. Two posts since December.
As my readers already know, I am not a real estate professional. I'm not a Realtor. I'm not a lawyer involved in closing. I'm not an appraiser. So when my real job makes demands, there's not always time to research properties. IrvineRenter, on the other hand, is researching properties as part of his job. (Of course, his blog is in absolutely every way superior to my blog, so the comparison is gratuitous.)
So this winter has been interesting. Since the summer, Case-Schiller went flat and even increased in several cities. In the winter, there hasn't been as much of a seasonal downturn as there is in most winters. We just learned that, seasonally adjusted, Case-Schiller increased in December, Of course, that means it fell, but less than in most Decembers. But remember, Case-Schiller is pretty far behind. In late February, we're getting data from December. What will January Case-Schiller look like?
Early indicators are bearish. 1) New home sales have fallen to a record low; they had bounced back ~30% off their bottom that they hit last January, but are now back into their lowest levels since the Census Bureau started collecting data in the 60s. 2) Existing home sales fall sharply in January to right about their volume in September before the New Homebuyer's Tax Credit program threatened to end. October and November sales were up dramatically. People exclaimed "Real estate is alive again. We've hit bottom. Buy now or be priced out forever." Ahem...
Since the stimulus didn't end, people took their time finishing up closing properties in November and closed them in December. Then January rolls around and volume plummets.
This surge in volume will happen again in April. And the drop off in volume will happen again in May. That's what stimulus programs accomplish.
As I've pointed out before, this spring is panic time for today's sellers. If they want to sell their house, they'd better do it before April.
1) In March, the Fed's program to buy $1.3 Trillion in residential mortgage backed securities (RMBS) will conclude. The Fed has already purchased $1.2 Trillion. It's almost done. This will cause interest rates to rise ~0.5%. This will decrease borrower's bidding power, meaning that housing prices will have to drop to meet the prices buyers can bid.
2) The tax credit for new home buyers -- and for existing home buyers, too! -- will disappear. This tax credit increases the price of houses by $8K. Now, it doesn't hurt the buyer to pay an extra $8K for their house -- the government will pay them back that $8K. But it does mean that when the program disappears, all unsold houses will loose $8K overnight.
3) We are not nearing the end of the housing crisis. We haven't even hit the worst of it yet. Fredie Mac reported its delinquency rate for January; a new record high. The flow of distressed properties is not tapering off, it's picking up steam. The more distressed properties, the lower housing prices go. (You have to see the chart.)
So sellers: You better hurry up and get your house sold before April.
How do you do that? By making sure you don't price your house too high.
Today's sellers are listing their house for too much. They live in Southern Village where houses sold last summer at ~$200/sqft. That's more than I would pay, but that's another topic. Today's sellers think that they can get another $33/sqft. They are asking $398K for 1708 square feet of house -- on 4326 square feet of land!. That comes out to $233/sqft. They will not get this price. Their house will not sell before April. Their buyers will not get a 5% interest rate. Their buyers will not be given $8K from Uncle Sam to complete the transaction.
They will chase the market down.
How did they spend their years in their house? By financing greater and greater amounts of debt as often as they could.
$125K HELOC! What was BoA thinking? The bubble was bursting, why open up another $100K worth of debt to these junkies? They owe $401,178.88 on their house if they fully tapped out their HELOC. No wonder they are asking $398K. In the last 9 years, these owners invested $2,500 and saw a payout of $150K. Unfortunately, they have trapped themselves under a mountain of debt. These owners are headed for foreclosure.
As my readers already know, I am not a real estate professional. I'm not a Realtor. I'm not a lawyer involved in closing. I'm not an appraiser. So when my real job makes demands, there's not always time to research properties. IrvineRenter, on the other hand, is researching properties as part of his job. (Of course, his blog is in absolutely every way superior to my blog, so the comparison is gratuitous.)
So this winter has been interesting. Since the summer, Case-Schiller went flat and even increased in several cities. In the winter, there hasn't been as much of a seasonal downturn as there is in most winters. We just learned that, seasonally adjusted, Case-Schiller increased in December, Of course, that means it fell, but less than in most Decembers. But remember, Case-Schiller is pretty far behind. In late February, we're getting data from December. What will January Case-Schiller look like?
Early indicators are bearish. 1) New home sales have fallen to a record low; they had bounced back ~30% off their bottom that they hit last January, but are now back into their lowest levels since the Census Bureau started collecting data in the 60s. 2) Existing home sales fall sharply in January to right about their volume in September before the New Homebuyer's Tax Credit program threatened to end. October and November sales were up dramatically. People exclaimed "Real estate is alive again. We've hit bottom. Buy now or be priced out forever." Ahem...
Since the stimulus didn't end, people took their time finishing up closing properties in November and closed them in December. Then January rolls around and volume plummets.
This surge in volume will happen again in April. And the drop off in volume will happen again in May. That's what stimulus programs accomplish.
As I've pointed out before, this spring is panic time for today's sellers. If they want to sell their house, they'd better do it before April.
1) In March, the Fed's program to buy $1.3 Trillion in residential mortgage backed securities (RMBS) will conclude. The Fed has already purchased $1.2 Trillion. It's almost done. This will cause interest rates to rise ~0.5%. This will decrease borrower's bidding power, meaning that housing prices will have to drop to meet the prices buyers can bid.
2) The tax credit for new home buyers -- and for existing home buyers, too! -- will disappear. This tax credit increases the price of houses by $8K. Now, it doesn't hurt the buyer to pay an extra $8K for their house -- the government will pay them back that $8K. But it does mean that when the program disappears, all unsold houses will loose $8K overnight.
3) We are not nearing the end of the housing crisis. We haven't even hit the worst of it yet. Fredie Mac reported its delinquency rate for January; a new record high. The flow of distressed properties is not tapering off, it's picking up steam. The more distressed properties, the lower housing prices go. (You have to see the chart.)
So sellers: You better hurry up and get your house sold before April.
How do you do that? By making sure you don't price your house too high.
Today's sellers are listing their house for too much. They live in Southern Village where houses sold last summer at ~$200/sqft. That's more than I would pay, but that's another topic. Today's sellers think that they can get another $33/sqft. They are asking $398K for 1708 square feet of house -- on 4326 square feet of land!. That comes out to $233/sqft. They will not get this price. Their house will not sell before April. Their buyers will not get a 5% interest rate. Their buyers will not be given $8K from Uncle Sam to complete the transaction.
They will chase the market down.
How did they spend their years in their house? By financing greater and greater amounts of debt as often as they could.
$125K HELOC! What was BoA thinking? The bubble was bursting, why open up another $100K worth of debt to these junkies? They owe $401,178.88 on their house if they fully tapped out their HELOC. No wonder they are asking $398K. In the last 9 years, these owners invested $2,500 and saw a payout of $150K. Unfortunately, they have trapped themselves under a mountain of debt. These owners are headed for foreclosure.
Wednesday, January 20, 2010
Wednesday, January 06, 2010
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