Oct222012
The housing bears are right, but prices will go up anyway
Spring of 2012 saw a chorus of housing bulls loudly proclaim the arrival of the recovery. All dissent was squelched as the conversation of housing evolved from debating whether or not the market had bottomed to what form the recovery would take. I’ve never seen such a coordinated effort among journalists to influence public opinion and bolster consumer confidence. Perhaps they think they have a duty to the market. I feel I have a duty to the truth.
The bears have not completely gone away. Zero Hedge, Barry Ritholtz, Keith Jurow, and Mark Hansen have remained bearish, and they provide some of the most compelling bearish arguments in the national conversation today. Some of the bulls (like the NAr) dismiss the bears and their arguments without debating their facts or their bearish interpretations. Obviously, those bulls don’t warrant much respect or consideration. Of those who do address their arguments, a consistent theme emerges: The bears facts are mostly correct, and house prices should fall as a result, but prices won’t fall because other factors will intervene.
So what are these other factors that will intervene and prevent a price collapse? It boils down to supply management. There is still an enormous amount of distressed supply in the market. The numbers are debatable, but few of the bulls debate the supply is there and that if it were released in an uncontrolled manner, prices would crash — hard. Therefore, the bulls point to supply management conditions and techniques as the reason prices will go up despite the huge overhang of distressed supply.
Four reasons house prices won’t crash
First, lenders are not being forced to liquidate. The suspension of mark-to-market accounting relieved any pressure on lenders to clean up their balance sheets. Lenders can continue to show loans on their books at any value they want, and they can even book phantom income on the interest payments they are supposed to receive but don’t. Lenders don’t have to recognize these losses until they foreclose on a property, and that provides them a huge disincentive to foreclose. So with no compelling reason to foreclose and some strong incentives not to, lenders are allowing millions of delinquent mortgage squatters to stay in their homes making no payments at all.
Second, lenders face almost no costs to carry non-performing loans on their books. Usually, lenders go bankrupt if they have a large number of non-performing assets because the cost of capital eats them up. Lenders have to borrow money from depositors and bondholders in addition to its equity capital in order to make loans. If lenders had to pay interest on these loans they take out, the cost would wipe them out. However, since the federal reserve lowered interest rates to zero, banks can borrow as much as they want for nothing from the federal reserve, and as a result, interest paid to depositors has fallen to near zero. Without financial pressure to remove non-performing loans from their balance sheets, lenders can carry the squatters indefinitely.
Third, mortgage interest rates are low and likely to stay that way. Low mortgage rates makes for excellent affordability, and it gives more people the ability to buy homes. As long as interest rates remain this low, the buyer pool should grow larger. Right now, most of the growth in the buyer pool is coming from hedge funds, but eventually more owner-occupants will return to the housing market. Some will emerge as people go back to work, and some will be recycled as they regain good credit after a foreclosure or short sale. The key here is that interest rates must remain at near record-low levels while the distressed inventory is liquidated. This was a big sticking point for me until Ben Bernanke came out and pledged to buy $40 billion of mortgage-backed securities every month for as long as it takes to turn around the housing market and reduce unemployment. With an open-ended stimulus guarantee in place, the risk of crumbling affordability reversing prices is taken off the table.
Fourth, withholding inventory is working. In a normal market, thousands of individual owners control the supply. However, once prices crashed and borrowers owed more than their mortgage balances, they required lender approval for a sale — an approval the lender can and does deny. Also, crashing prices and toxic mortgages caused so many borrowers to default that lenders began foreclosing and acquiring a large inventory of REO. Between the sales they must approve and the properties they directly own, lenders and government entities own or control a huge portion of the housing stock. With such control comes the ability to act as a cartel and manipulate price — and they have. In fact, in 2012, they have been quite successful at withholding inventory as evidenced by 40% or more reductions in for-sale inventories across most of the Southwest. A small uptick in demand, mostly caused by investors, coupled with a huge decline in supply has forced prices to move higher. It worked. And most bulls believe it will continue to work. That’s why despite the fact that the bears are right, prices will go up anyway.
Calculated Risk recently wrote a post, Zillow Housing Forum and The Bearish View, examining the bearish view more carefully. Although he quibbles with some of the numbers Mark Hansen arrives at, he doesn’t dismiss the validity of his basic arguments.
Two months ago I wrote: House Prices and a Foreclosure Supply Shock. In that post I argued the peak of the foreclosure supply shock is behind us, and that suggests prices have probably bottomed. I think the coming modification redefaults and current delinquencies will keep prices from rising quickly, but I don’t think this will push house prices to new lows. There are still large problems to work through, but nothing in Hanson’s discussion changed my views on housing.
Realistically, the only thing that will change Bill’s mind would be a dramatic and unexpected influx of supply that pushes prices down. In other words, he will believe he’s right until he’s proven wrong. So be it. At this point, I agree with him. If the conditions I outlined above persist, it doesn’t matter how dire the numbers are or how correct the bearish view is; prices will not go down as long as inventory is released to the market in a controlled manner. Perhaps in a few years the lending cartel might lose control of the market, but by then, sufficient owner-occupant demand will likely be present in the market to absorb more inventory. It’s a difficult time to be a housing bear.
10-9 Housing…”Recovery” Theme Inconsistencies Abound
by Mark on October 9, 2012
Each month we tear apart the monthly housing resale and new home sales data in search of items consistent or inconsistent with the consensus view that US housing is experiencing a “full blown, durable recovery with escape velocity and v-bottom that will last for years”. …
I question whether or not even the bulls believe we have hit a V-bottom with escape velocity. The escape velocity part certainly isn’t happening. California home sales fell 16.5% in September, and U.S. Weekly Mortgage Application Volume Drops 14% last week. The market apologists will dismiss this as a normal seasonal drop, but I think we all know it isn’t. Seasonal declines are not near that large.
While the August Existing Sales headline print released last month looked great the internals say something more sanguine. As such, I believe a demand hiccup (stimulus payback) is here; right as the rates stimulus, weather, and supply headwinds hit full force and last for a year.As follows I will quickly review the data that has me looking looking elsewhere than “recovery” for answers and should have perma housing bulls overweight this sector looking at a hedge or three.
Data Overview
- Housing Demand by Buyer Cohort…very forward looking. Points to significant demand slowing here and now
- A Serious Negative...Investors volume NEGATIVE YoY
- A closer look at the Demand equation…First Timers and Investors Flat to Lower / Repeats driving this market until they go away as well in the off season
- Builder Sales – Not as “Robust as Headlines would have you believe
- Santa Clara County…past 7-years pending sales. Closing in on record lows
This one caught my attention because it demonstrates that withholding supply may cause prices to go up, but it also causes sales volumes to plummet.
- Phoenix Home Sales Demand Paralysis…the Epitome of a “stimulus hangover”
- “Lost” Vegas single family and condo sales at record lows for September
- Gas prices have been at record highs for weeks now. In CA they broke to $5 in recent days.
- Record Low Supply…a function of never ending foreclosure process delays and 6 million mortgage mods created in the past 2.5 years, which in structure, are worse than Subprime loans ever were; and 50% of all mortgage’d homeowners being zombies.
- House price gains…a function of the Fed Twist Ops plunge in rates of 150bps YoY increasing “purchasing power” by 15%
- The one bright spot…but it’s transitory – Organic Repeat Buyers will go away as quickly as they came
Item 1) Housing Demand by Buyer Cohort…very forward looking. Points to significant demand slowing here and now
a) First-Timer demand went flat in May and have remained there for months. Shows house prices already out of whack with flat incomes of first timers
This is not necessarily true. Affordability is actually quite high. The lack of first-timer demand is largely a result of high unemployment and a seriously diminished buyer pool. If employment picks up, so will the first-time buyer demand.
b) Investor demand DOWN YoY in August. This cohort won’t come back until Foreclosures start churning back up. Remember, if Foreclosures triple I will be bullish housing.
This is a big deal. The big hedge funds pulled out of Phoenix as they’ve already driven prices up about 30% off the bottom, and the returns don’t make sense any more. They will return if prices drop, but I foresee a big decline in Phoenix area sales until the first-time homebuyer demand comes back. I expect to see a strong increase in prices in Las Vegas over the next year or two until prices there reach the same investor return thresholds where the hedge funds lose interest.
c) Repeat Buyers carrying this market…a temporary phenomenon. Low rates and ample supply at mid-to-high end has drawn out years of pent-up supply. But this cohort is thin and weak relative to any time before in history, as over 50% do not have the equity in their present house to sell and rebuy or the credit to get a loan.
Ordinarily, the buyers from three to fifteen years ago would be taking the equity from their starter homes and buying a move-up property. That demand is almost entirely absent from the market. Many of these buyers are underwater and have no equity through a combination of bad timing and rampant HELOC abuse. Any strength we see in this market today is entirely due to low rates and restricted supply. Even the smallest supply shock will create air pockets. If there are good deals to be found in the market over the next few years, it will be at the first level move-up price points ($650,000 to $1,000,000 in Orange County).
d) Repeat buyers driving the market bodes ill for the off-season when they go away. That’s because last year’s off-season was strong on Twist, lack of rain and snowfall, and inventory. These all become headwinds in Q4.
“August Existing Home Sales” — that resulted from purchase and pricing decisions made in June and July — were stronger than expected. One could call the report a “breakout” if this exact thing didn’t happen last August to an even greater extent. Then in September 2011 sales dumped 15% MoM even as rates plunged 150bps from the Fed’s Twist ops. If sales drop 21% this month then they go negative YoY and remain negative for the next 12 months at least.
Sales didn’t drop the 21% he feared, but 16.5% is still pretty bad.
Bottom line, the August Existing Home Sales consensus ‘beat’ came exclusively from a late season surge in “repeat” buyer ‘closings’. This is unsustainable…they are a seasonal cohort. Moreover, I think much of this has to do with short sales closing not only ahead of the school year but the Bush 2007 Mortgage Relief Act fiscal cliff.
I strongly suggest reading Mark’s post in full. He has some great charts and makes a strong case for a decline this fall and winter stretching into next year.
Mark makes a very strong case as to why house prices should fall. However, unless inventory gets on to the MLS, prices will not fall. It’s really that simple. Right now, it looks like lenders will continue to successfully limit the available inventory and keep prices up. How long that lasts is anyone’s guess. Banks show no signs of changing their policies.
Couple of wildcards
1) What would happen if general public awareness was raised (via reading blogs such as this one) that they [potential buyers] were being played? Could not sales drop to essential zero?
2) What would happen if current rate of sales decline further? What is the inflection pain point at which individuals who depend on R/E transactions to make a living band together and demand the lending cartel release more inventory, regardless of pricing consequences. In other words from a Realtors point of view, a reduced sales commission is better than no commission at all.
I think general awareness of the situation will help calm buyer’s nerves, but I doubt it will keep anyone out of the market. Over the last five years of writing about real estate, I’ve come to the conclusion people buy homes when their ready to buy irrespective of the market conditions. Very few people postpone their purchases for market reasons. Many of my regular readers are the noted exceptions.
I don’t think the NAr has the pull to force any action on inventory. Agents are not happy right now, and they are complaining loudly, but their numbers are greatly diminished after five years of very low sales volumes, and the current drop in sales is just another bump in the road. I wish they were successful in getting some inventory to the market, but right now, inventory levels are the lowest I have every seen.
BTW, here is another wildcard for you:
The Burden of Transportation Costs on Housing Affordability: Report
Oftentimes, when the idea of home affordability is calculated, the focus is on the monthly mortgage payment, and how to bring that particular number down through a modification or refinancing.
One report, Losing Ground: The Struggle of Moderate-Income Households to Afford the Rising Costs of Housing and Transportation, assessed the burden of housing expenses combined with transportation costs to offer a more comprehensive view of what defines housing affordability.
The report was the result of a partnership between the Center for Housing Policy and Center for Neighborhood Technology and measured housing and transportation costs of moderate income households living in the 25 largest metro areas.
Overall, research results found moderate-income households, or households earning 50 to 100 percent of the median income of their metropolitan area, spent 59 percent of their income on housing and transportation costs in 2010. Housing costs generally included mortgage payments, property taxes, home insurance, utilities, while transportation encompassed car payments, insurance, maintenance, and gas. The overall figure also consisted of renters, homeowners with a mortgage, and mortgage-free homeowners.
When assessing moderate-income homeowners who still have a mortgage, housing and transportation costs accounted for nearly 72 percent of income on average. A typical moderate-income renter had a lesser burden of 55 percent.
The study also revealed that places with cheaper housing aren’t necessarily the most affordable.
Houston, for example, ranked 8 out of the 25 areas examined when looking at housing costs as a share of income. But, when transportation costs were included, Houston ranked 17. On the other hand, least affordable places for housing such as San Francisco, Boston, and New York became among the most affordable when housing and transportation costs were considered together.
When combining housing costs and transportation for moderate-income households, Washington D.C. was ranked as the most affordable, followed by Philadelphia, Baltimore, Minneapolis, Boston, San Francisco, Pittsburgh, St. Louis, Denver, and New York.
The study also revealed housing and transportation costs rose faster than income during the 2000s. For example, from 2000-2010, housing costs rose 52 percent and transportation 33 percent, while household income rose 25 percent.
The study made several suggestions for state and local governments to make the cost of housing more bearable.
One suggestion was to preserve existing and affordable homes near job centers, public
transit stations, and “location-efficient areas,” or places where transportation costs are low.
Other suggestions were to have regulatory reforms that reduce the cost of creating new housing in
location-efficient areas, create incentives or requirements to include affordable housing within new development in location-efficient areas; and improve transit service and walkability for compact areas where housing prices are already relatively affordable.
Transportation may become more expensive then people would have ever guess.
Valero refineries for sale in California
Valero, a petroleum refiner, is looking to sell its Benicia and Wilmington, California, refineries, according to the Wall St. Journal. Citicorp will seek a buyer for the refining operations on behalf of Valero.
The energy company, based in San Antonio, wants to exit the California market before air quality restrictions required by the Global Warming Solutions Act of 2006 and the 2010 passage of AB32 ramp up to full swing.
Benecia refinery belonged to ExxonMobil before Valero bought it in 2000. Perhaps perceiving the writing on the wall, ExxonMobil shed its California asset before air quality regulations made profitable operations impossible. Recently, ExxonMobil turned its sights to Canadian operations, having had enough of punitive practices aimed at the company from state and federal governments.
Gas prices in California already topped $5 a gallon. Boutique fuel requirements add significant costs to the blend. Jet fuel is being imported from Japan. Alternative energy companies go bankrupt like cascading California dominoes. And, pipelines have been banned from spanning California terrain. The state is bent on banishing energy production within its boundaries.
California’s economy stands on the brink of bankruptcy, due, in large part, to usurious taxes and restrictive legislation that drive important businesses like Valero out of the state. Such crippling laws combined with overstuffed government contribute to California’s continuing decline. Now, energy is exiting in a major way, taking jobs with it and the fuel that fires the foundations of prosperity.
Californians apparently like it that way, as they continue to vote in the politicians that keep California running on empty. The question is whether any brave takers will buy up Valero’s refineries or whether they will end up in the foreign interests of China or Japan.
..
You don’t wait to buy a depreciating consumable you want to enjoy now. You buy it when you want it and can easily afford it.
One factor you do not mention is buyers will simply move to cheaper states. The middle class is abandoning california for higher standards of living elsewhere. You can drag a donkey to water but you cannot make it drink.
The high cost of living, particularly for housing, will serve to curb demand, but the current price increases aren’t due to strong demand, they come from restricted supply. No matter how weak the demand gets, if supply is restricted even more, prices can be forced to move higher.
Prices will end-up going down anyway, because:
1) US wages are not indexed to inflation
2) While a home may be shelter for the end-user, it has become first and foremost a tradable financial instrument
3) Toxic paper is being replaced with toxic paper
4) as the Fed continues to force rates lower, banks and speculators seeking greater yields (driven solely by self-interests) are pushed-out further and further onto the risk curve.
With relatively weak demand, lenders have to make a choice: lower prices or lower sales volumes. They are choosing the latter.
Banks may be able to exist (for now) in the land of unicorns and fairy-dust, but consumers have to live in the real world– aka within their means.
The bankers purchased the government with counterfeit money and now they are purchasing the land with more counterfeit money after driving the price of it out of reach of the citizens.
Home Prices Forecast to Make Slow Progress from Floor Reached in Q1
Home prices reached a sustainable bottom during the first quarter of this year, according to Barclays’ U.S. residential credit strategy team. In many markets, longer-term affordability measures point to equilibrium, the firm’s analysts contend.
While the floor appears to have materialized, they stress that home prices are likely to recover slowly over the next 4 to 5 years.
“We expect on average a 3-4 percent annual increase in home prices [nationally] in coming years,” they said in an updated market outlook.
At that rate, Barclays’ analysts explained, home prices will be slightly below their 2006 peaks even in 2020, finally returning to pre-crisis peak levels in June 2021.
Barclays credits government and private modification programs with delaying foreclosures and preventing an overcorrection, allowing the home price floor to form earlier this year by keeping a glut of distressed homes from hitting the market.
The research firm noted that it is seeing significant variation by state in terms of home price appreciation, tied directly to foreclosure processing timelines.
States with the fastest timelines—California (7.0 months), Colorado (7.3 months), Arizona (7.7 months)—are also home to the biggest annual increases in home prices. Data provided in Barclays report illustrates that foreclosure timelines in these states are on average at least 12 months shorter than in states with the slowest procedures—New Jersey (21.3 months), New York (21.0 months), Florida (20.7 months)—where price gains are smaller.
Delayed foreclosures mean distressed inventory will remain elevated, according to Barclays. The firm’s analysts estimate there are currently close to 3.3 million homes seriously delinquent or in foreclosure which will eventually need to be sold as REOs or short sales. Over the next three years, they expect to see around 4 million liquidations.
“We expect 110,000 distressed sales per month for several years, which should keep [the] distressed share [of homes sales] elevated,” the analysts wrote. For each 1 percent lower distressed share, home prices improve 1.1 percent, according to Barclays.
The firm’s analysts noted in their report, however, that shadow inventory is not the same thing as excess supply, and stressed, “[W]e believe that in the longer term, housing is driven by excess supply.” In fact, Barclays’ data show that the industry’s shadow inventory has been declining steadily for more than a year, and the excess supply is manageable over a two- to three-year period.
“What matters is total excess supply, including owner and rental units,” the analysts wrote, adding that foreclosed borrowers still need a housing unit; they’re simply transitioning from owner to rental units. By Barclays’ assessment, excess supply stood at about 2.6 million housing units in June 2012.
“Our estimate for clearing excess supply is 2-3 years; but recent household formation has outpaced completions substantially, which could point to faster absorption of the excess supply,” Barclays’ analysts stated in their report.
With supply and demand aligning more closely, Barclays says long-run measures suggest home prices are close to equilibrium, and that means the risk that home prices landed on a false bottom earlier this year and will fall dramatically from their current levels remains low. “The government will intervene if prices fall further, [and] other factors will keep timelines long,” the research firm noted in its analysis.
Risks that could upset Barclays’ updated outlook for the housing and residential credit markets stem mostly from extra-market shocks, the company’s analysts explained. Such shocks could take the form of the fiscal cliff awaiting U.S. lawmakers at year-end, the reverberating effects of ongoing sovereign debt crises in Europe, and the fate of the mortgage interest deduction, though Barclays notes the risk that comes with capping the deduction is associated primarily with higher-priced homes.
RealtyTrac: 65% of housing markets worse off than in 2008
By Kerri Ann Panchuk October 22, 2012 • 8:30am
Sixty-five percent of U.S. housing markets studied by RealtyTrac are worse off than they were four years ago, according to the Irvine, Calif.-based real estate research firm. The results of the survey arrive the same day as the final presidential debate and just weeks before the general election.
RealtyTrac measured five key housing metrics in 919 U.S. counties and discovered the majority are still suffering from falling average home prices, unemployment, and higher foreclosure inventories, foreclosure starts and distressed sales.
Of those counties studied, 580, or 65%, showed results in three of the five metrics as being worse off when compared to 2008 levels. Only 315, or 35%, of the counties had three of five housing metrics with improved performance over four years time.
“The U.S. housing market has shown strong signs of life in recent months, but many local markets continue to struggle with high levels of negative equity as the result of home prices that are well off their peaks. In addition, persistently high unemployment rates are hobbling a robust real estate recovery in most areas,” said Daren Blomquist, vice president at RealtyTrac.
“While the worst of the foreclosure problem is in the rearview mirror for a narrow majority of counties, others are still working through rising levels of foreclosure activity, inventory and distressed sales as they continue to clear the wreckage left behind by a bursting housing bubble.”
In the majority of the counties studied, home prices are down and unemployment rates are up in more than 90% of the areas. More than half have smaller foreclosure inventories and fewer foreclosure starts than in 2008, while distressed properties make up a smaller share of overall residential sales when compared to four years ago.
Is RealtyTrac trying to influence the election? Good luck with that.
The important psychological question is whether or not people perceive that things are getting better or worse today. That’s what will sway votes.
Obama can make the argument that in 2008, we were declining due to the policies of Bush and the Republicans. After things hit bottom, his policies brought us back out. It’s all bullshit as politicians are merely spinning the business cycle, but that’s how Obama will play it.
Tons of inflation already out there….. how much more can people take?
http://confoundedinterest.files.wordpress.com/2012/10/prices2008.jpg
Those are bad numbers, and those are the consumer staples everyone buys. I wonder how the government managed to avoid picking that up in their official inflation measures?
Jeez. When do the bread riots start?
1)You would think since inflation is taking off.
2)Then wages are shrunk.
3)But the DTI ratio qualification hasn’t been decreased?
Eventually, it will take a greater percentage of your income to buy the basics. Housing is a basic need, but a $300K backyard isn’t. This will really hit the middle housing market.
Did they collect the data at stater bros the first time and whole foods the second?
i bought a 5lb sack of potatoes two weeks ago for $2, so I question the methods used to generate that sheet…
el O is known for cherry picking his data points, and ignoring reasonable evidence to the contrary. Expect a cute answer to your question.
IR – Your link to the 14% decline in mortgage apps is actually a piece of bullish news. The decline was entirely due to a 15% drop in refinances. Purchase applications INCREASED by 1% on a seasonally adjusted basis. That’s not overwhelmingly good news, but it doesn’t support your case that the bears are winning (despite losing).
Taken a step further, the 1% rise was seasonally adjusted, so the raw numbers were down, correct?
Your point is well taken. Any increase in owner-occupant demand would be bullish. It’s one of the key indicators I am watching for improvement. Until purchase applications begin to rise on a substantial and sustainable basis, I won’t believe in this recovery.
Uh…….. the bears are winning; ie.,
CaseShiller LA/OC
Apr 2006: 273.10 ‘peak’
Jul 2012: 168.98
LMAO!
Here – let me fix that for you.
CaseShiller LA/OC
Apr 2006: 273.10 ‘peak’
May 2009: 160.01 “BOTTOM”
Jul 2012: 168.98
So glad I spent 75k in rent over the last 3 years just to pay slightly more than I would have in 2009
Reminder: C/S index metric contains cherry-picked data; ie., only captures owner occupied, single family and detached/semi-detached homes; does NOT capture: investment properties, condos, OR SHORT SALES, all of which if included, would bring the index down much lower.
I don’t get it… why is $75k in rent so much worse than paying $100k in interest?
Correct, but it would have been “much lower” now, and back in 2009 when it also did not capture investment properties, condos or short sales.
In any event, if you dont like the index, why did you bring it up to show that we bears were winning?
I only brought it up because the index is mello ruse’s (who I was initially replying to) favorite go-to source re price.
I don’t get it… why is $75k in rent so much worse than paying $100k in interest?
Its not – especially if one is inclined to rent as a permanent lifestyle choice. However, for those who were truly “ready” to buy in 2009 the choice was this.
A. Buy in 2009 @160, paying the 100K (or more) in interest
OR
B. Wait 3 years, spend 75K in rent in the interim, AND THEN buy @168 paying the 100K (or more) in interest.
Jul 2012: 168.98 ‘bear market rally’
Well said Jamie and nice job carving el O’s argument into shreds. His spin is worse than Obomney’s and less believable.
Let’s face it… The perma bears did well in ’08 and haven’t had much to cheer about since.
“A. Buy in 2009 @160, paying the 100K (or more) in interest
OR
B. Wait 3 years, spend 75K in rent in the interim, AND THEN buy @168 paying the 100K (or more) in interest.”
People who chose option B saved $25,000. That isn’t all bad.
Plus with interest rates much lower today, the cost of owning is closer to the cost of renting, but 2009 buyers can take advantage of that too if they refinance.
“El O said…
I only brought it up because the index is mello ruse’s (who I was initially replying to) favorite go-to source re price.”
So, basically you brought it up to confirm he was correct and the bears are (per that measure) losing since early 2009. Thanks for clearing that up.
Takua, Wrong!
Once again: ”I only brought it up because the index is mello ruse’s (who I was initially replying to) favorite go-to source re price”.
btw…. even despite the fact that we’re 6 long years out from the previous peak + $trillions in gov housing welfare + accounting fraud + bank/lender fraud + 3 buyer tax credits + principle reductions +14 different loan mod schemes + an REO to rental scheme-(FHA denied LOL) + a rent to buy scheme and finally… a massive supply squeeze…. the C/S index (a price index that excludes condo’s, investment properties, vacant properties and short sales price data- LOL) LA/OC is still down -38.5%.
Cheers.
The housing bulls gleefully come out of the woodwork, completely ignoring all the duct tape keeping prices afloat.
This is a headfake rally. This is an illusion of housing recovery. Realtors are full of BS because they point to snapshot statistics without ever understanding the monetary and fiscal machinations driving the numbers.
The housing bulls have been counter-educated into believing monetization is a solution. Deep down, they place trust in their politicians and believe in subsidies, bailouts, and fantasy. They believe rising food and oil prices are due to the weather and middle east volatility. They believe consumer spending legitimately grows an economy. They believe centrally planned interest rates are best for us.
Never before have so many properties been bought with so much freshly printed fiat money by so few ‘bankers’. It is hard to say what the outcome will be but it looks like the ‘fed’ are useing the hoarded property to back their currency.
I expect to see a strong increase in prices in Las Vegas
I think you are completely wrong on this and as you have investment properties in that area you seem to have a self serving interest for prices to rise there.
This home is 100k below 1994 pricing
http://www.redfin.com/NV/Las-Vegas/2681-E-Hacienda-Ave-89120/home/29510381
I am following the Vegas market and prices seem to be tanking at present due to sellers trying to get out before the debt forgivness act ends.
I’ve purchased homes at 1980s prices over the last two years. The property you linked to is overpriced at $76/SF. The neighborhood is selling for less.
I don’t think you understand my investment strategy. I don’t want to see prices go up in Las Vegas, at least not for a few more years. I want prices to drop so I can pay less for the same rental income stream. If I had my druthers, prices would drop there for two or three more years until I have purchased every home I could, then if prices go up, that’s a bonus. Even then, I really don’t care because I will not sell those properties any time soon. I will hold them for my own retirement, then my son will inherit them so he can have the rental cashflow during his life.
Don’t assume everyone is buying for appreciation. I’m not.
IR says: Don’t assume everyone is buying for appreciation. I’m not.
————————————————————————
Bingo! Thus, a strong dollar regime would be optimal because the purchasing power of your rental income streams will increase.
Rents would go down, so it would cancel out. It would also lead to higher turnover as renters move more often chasing the lower rents. Isn’t that every landlords dream IR? Lower rents and higher turnover?
Lower rents equate to higher turnover? LOL
the way it works is renters chase lower rents as rents rise, not when they fall. In fact, when a landlord tells a renter they’re going to receive a reduction in rent, they’re more inclined to stay-put…..not only because of the savings, but people simply hate to move.
Sorry, your dog don’t hunt 😉
Landlords won’t voluntarily lower rents unless tenant turnover forces them to. Thus, higher turnover ensues as tenants force the issue. Renters are not adverse to moving if it means saving money.
Rents won’t go down just because prices do. Las Vegas proved that much. Rents declined about 20% in 2007 and stabilized by 2008. Rent’s have been stable ever since. During that same period, prices declined 70% or more in some areas. That’s why rental cashflows became so attractive. The same thing happened in Phoenix.
I think the difference is that Vegas rents fell due to a decline in demand, not due to a strengthening dollar. Notice el O didn’t disagree with that part of my argument. He’s expecting Japan 2.0 where prices for all goods will be in long term decline.
I nominate IR.
MBA’s Stevens: Washington needs a housing traffic cop
By Kerri Ann Panchuk October 22, 2012 • 11:33am
The Mortgage Bankers Association must push Washington lawmakers for greater transparency and coordination of the myriad of lending rules coming from regulators, said MBA CEO and president David Stevens.
“We are calling on leadership in Washington — whichever administration is in the White House come January — to create a role for housing policy coordination, a traffic cop for all new rules,” Stevens said Monday, speaking at the MBA’s annual conference in Chicago. “This new liaison for policy would ensure that regulations compliment one another rather than conflict,” he said.
The liaison the MBA envisions would coordinate rules coming from the U.S. Housing and Urban Development Department, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corp., the Office of the Comptroller of Currency, the government-sponsored enterprises and other federal housing agencies to make sure guidelines are not redundant or cumbersome on all lenders, especially smaller firms, Stevens said.
The ultimate risk, he said, is the exit of reliable and safe lenders resulting in less competition in the marketplace.
“It might not reduce the number of masters we serve — but it would at least make them talk to one another,” Stevens said of the proposed liaison. The MBA CEO noted that a fundamental feeling of uncertainty remains in Washington over the role of mortgage lenders and he believes now is the time for the MBA to step up its interaction with lawmakers on how to lay out the future of housing.
As for what type of transparency is needed, Stevens said it’s time for housing agencies, including the Federal Housing Finance Agency, to comply with public notice and comment rules before launching critical rules that impact the mortgage industry. Fannie Mae and Freddie Mac change policy without complying with notice and comment periods that other regulators follow, he said.
“Consider some of the recent major announcements of planned policy changes from the GSEs — all done without public review and comment,” he said. “They include changes to the minimum net worth requirements, arbitrary G-fee changes, volume limits for some existing sellers, new servicing rules, a new framework for reps and warrants, and changes to their securitization platform.”
With quantitative easing in effect, Stevens suggested the housing market already has the medicine it needs to fuel a recovery with excessively low mortgage rates. Yet, he says, the market is being choked by excessive rules and regulations.
“QE3 is being blunted by restrictive credit conditions when it should be fueling a booming recovery,” Stevens said. “And this reflects our market conditions before the coming onslaught of new rules.”
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IR brought up a lot of points on how the RE market and banks have been prop’ed up by near zero borrow cost by the Fed, marketing loan asset to fantasy prices and booking squatter’s non-payment as income (receivables).
What would the John Q. Public do if they know about all these tricks? Most people have no idea this is happening. Republicans blame Carter, the Democrats and anti-redlining laws (never the corporate leaders). Democrats blame bad Republican deregulation (by the way that happen in mass during the Clinton years and bad CEO’s, while giving them retention bonus, near zero percent interest, subsidizes, and get out of jail free cards for wrong doing. Do people not know because they don’t want to know to maintain the status quo?