Oct232013
With costs up 40%, California home sales plummet to 1988 levels
It’s been called “sticker shock,” but perhaps a more apt term would be “price revulsion.” The cost of ownership rose so high so fast that buyers simply stopped buying. Between rising prices and rising interest rates, houses have reached the limit of affordability in many markets, and buyers are either unwilling or unable to push them any higher — and which of those factors it is will determine what happens going forward.
Housing bulls postulate buyers are merely adjusting to the new price levels, and probably next spring, they will be out in force to push the market even higher. In other words, they believe it’s buyer choice that causing prices to flatten and sales volumes to plummet. Housing bears posit buyers are simply unable to push prices higher because they cannot get financing to reach current asking prices. Right now, whether by choice or by incapacity, buyers have walked away from the market rather abruptly, and sales are falling rapidly.
Sales of Existing U.S. Homes Fall as Affordability Drops
By Lorraine Woellert – Oct 21, 2013 10:11 AM PT
Sales (ETSLTOTL) of existing U.S. homes fell in September for the first time in three months as higher prices and mortgage rates curbed demand in an industry that helped boost the expansion last year.
Purchases dropped 1.9 percent to a 5.29 million annual rate from a revised 5.39 million pace in August that was the strongest since 2009, the National Association of Realtors reported today in Washington. The median price of a house climbed 11.7 percent from 2012, pushing affordability to an almost five-year low, the group said.
“We see a little bit of a bumpy ride,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, who correctly projected the drop in sales. “The jury is still out on home sales and how much of a pullback we might see due to higher mortgage rates.” …
The verdict is still out, and it will be until next April or May when we see the change in activity for the upcoming prime sales season.
Rising prices and stagnant incomes combined with higher mortgage rates are making it more expensive to purchase a property, Yun said at the news conference.
“Affordability is getting hit quite sharply,” he said. “Lower affordability will hamper home sales going forward.” The group’s affordability index fell to 156.1 in August, the lowest since November 2008, from 160.7 the prior month. It reached a record 213.6 in January in data going back to 1989. A reading of 100 means a household making the median income can afford the median-priced house at current mortgage rates.
For Lawrence Yun, that is positively bearish. He hasn’t been spinning the data (polishing turds) nearly as much lately.
California home sales fall to 1988 levels
Low inventory stifles demand as market recovers from bust
Christina Mlynski — October 18, 2013 3:46PM
The home sales volume in California is on a downward trajectory as the state deals with a limited supply of desirable inventory …
Roughly 36,000 new and resale houses sold statewide in September, down 15.3% from August, but up 5.9% from a year ago, according to DataQuick.
The September sales count is hovering at one of the lowest levels recorded in years, considering more than 40,000 homes sold in 2009 during the midst of the economic downturn.
If the pace of sales is below 2009 levels, what does that say about the strength of the current recovery? I think we all know the answer to that one.
The typical monthly mortgage payment that California home buyers committed to in September hit $1,429 per month, down slightly from $1,456 in August, but up from $1,027 a year ago.
The reason the rally is abruptly stopping should be apparent from the math. You can’t increase the price of anything 40% in one year and expect sales to increase. The rise in cost of ownership is truly devastating.
Southern California housing market slows after torrid rebound
The median home price stays flat for the third straight month
Southern California home buyers have apparently had their fill of bidding wars, home shortages and double-digit price hikes.
For the third straight month, the median home price across the Southland stayed essentially flat, at $382,000. The September data confirmed expert predictions that waning demand would throw a wet blanket over the white-hot market. The stall is owed to multiple factors: buyer fatigue over skyrocketing prices, higher mortgage rates, an expanding supply of homes and a pullback by investors who had swarmed the market.
The implication from the reporters statements is that the decision is psychological. If that proves true, kool-aid intoxication may return in the spring, and buyers may try to push prices higher again.
I welcome a more realistic attitude toward higher prices. In 2004 when prices went up to ridiculous heights, rather than turning buyers off, it turned them on. Everyone wanted to cash in on the housing boom. If buyers are truly having the opposite reaction, I think that’s a huge step forward, and it gives me hope that some people really learned the hard lessons of the housing bubble.
“They don’t feel the need to pull the trigger if it’s not a perfect house,” said Broker Derek Oie, owner of Century 21 the Oie Group in the Inland Empire.
Nancy Taylor and her ex-husband placed their Chino Hills house on the market in August. They put in roughly $20,000 to spruce up the five-bedroom home, getting it ready for what they expected to be a mad rush, filled with “tons of people knocking on our door.”
Not so much. To sell the home, they had to cut their asking price and purchase a new stove top, dishwasher, microwave and oven for the eventual buyers, who closed this month — at a $20,000 discount off the asking price.
Those sellers that missed the window of opportunity through June found a much different market thereafter.
“It’s sticker shock,” said John Burns, a housing industry consultant in Irvine. “The market is stepping back and pausing for a moment and absorbing the new price increases and higher interest rates.”
John Burns has been in competition with other housing market analysts to see who can be more bullish. The implication of his statement is clear. He believes buyers will come back in force next spring once they accept the new realities of the market. Perhaps he is right, or perhaps they won’t because no matter their inclinations, they simply can’t afford to bid any higher.
If the current rebound is similar to previous Southern California housing booms, prices will rise substantially during next year’s spring buying season, said Lee Ziff, an agent who covers L.A.’s Westside. “Next year will be even bigger,” he said.
Ask a realtor, and that’s the kind of answer you’ll get.
Now prices and mortgage rates have climbed to the point where many buyers have checked out.
Sellers tempted by this year’s price appreciation are increasingly testing the market at the same time that demand is waning. That has caused some sellers to reduce their asking prices — a dose of reality, agents say.
Buyers are also demanding more repairs from sellers — and getting them.
“In April and in March, buyers pretty much took it as is,” said Carole Vicens, an agent who works in the Conejo Valley.
The number of listings rose in September from a month earlier in the Inland Empire, as well as Los Angeles, San Diego, Orange and Ventura counties, according to Realtor.com.
Declining demand and increasing supply is usually a recipe for lower prices, but not this time. Since the new inventory is almost entirely cloud inventory priced to get an underwater loanowners out of a jam, there will be no supply pressure on prices. The new supply will sit there and rot because buyers are unwilling or unable to afford them. The Mexican standoff continues.
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[idx-listing mlsnumber=”OC13213275″ showpricehistory=”true”]
76 VALMONT Way Ladera Ranch, CA 92694
$459,900 …….. Asking Price
$479,000 ………. Purchase Price
8/22/2005 ………. Purchase Date
($19,100) ………. Gross Gain (Loss)
($36,792) ………… Commissions and Costs at 8%
============================================
($55,892) ………. Net Gain (Loss)
============================================
-4.0% ………. Gross Percent Change
-11.7% ………. Net Percent Change
-0.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$459,900 …….. Asking Price
$16,097 ………… 3.5% Down FHA Financing
4.24% …………. Mortgage Interest Rate
30 ……………… Number of Years
$443,804 …….. Mortgage
$143,316 ………. Income Requirement
$2,181 ………… Monthly Mortgage Payment
$399 ………… Property Tax at 1.04%
$225 ………… Mello Roos & Special Taxes
$96 ………… Homeowners Insurance at 0.25%
$499 ………… Private Mortgage Insurance
$303 ………… Homeowners Association Fees
============================================
$3,702 ………. Monthly Cash Outlays
($576) ………. Tax Savings
($613) ………. Principal Amortization
$25 ………….. Opportunity Cost of Down Payment
$77 ………….. Maintenance and Replacement Reserves
============================================
$2,616 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,099 ………… Furnishing and Move-In Costs at 1% + $1,500
$6,099 ………… Closing Costs at 1% + $1,500
$4,438 ………… Interest Points at 1%
$16,097 ………… Down Payment
============================================
$32,733 ………. Total Cash Costs
$40,100 ………. Emergency Cash Reserves
============================================
$72,833 ………. Total Savings Needed
[raw_html_snippet id=”property”]
Higher prices, higher rates, more inventory, fewer foreclosures….
Sounds like the quadruple whammy to me.
Remember all the people who said that “housing was NOT interest rate sensitive” just a few weeks ago?
Remember all the pundits who said that rates were not a problem because “rates were still low by historic standards”?
Where are they now? Maybe they got a job with McBride, eh??
After watching how poorly economists and the so-called experts perform over the last several years, I’ve come to the conclusion that as along as economists tell people what they want to hear, nobody calls them out when they make a disastrously wrong call. Look at Mark Zandi. He never predicts anything outside the consensus, and he is wrong most of the time, yet he is popular, considered credible, and quoted all the time.
It’s a good thing all these economists aren’t car mechanics. Otherwise, wheels would fall off and engines would seize daily. I have no respect for this profession. How can everyone be wrong all the time and still have anyone listen to them?
we are a subsidized pool of stupidity
Rare economists admitting they were wrong
Rising Rates Pose Greater Threat Than Initial Indications
While maintaining that tight credit conditions and rapid price gains present the greatest threats to the housing recovery, Capital Economics is ready to acknowledge that rising mortgage rates may provide more drag than the firm’s analysts first thought.
Tracking mortgage applications (as reported by the Mortgage Bankers Association) from May through September, Capital Economics determined that refinancing activity has taken the biggest hit from the 120-basis point climb in rates with a decline of 70 percent.
While the decrease in refinance activity isn’t necessarily reflective of changes in housing market demand, the 17 percent drop in purchase applications over the same period is another story.
“[T]hat was enough to undo all of the improvement in home purchase applications that previously appeared to be underway,” property economist Paul Diggle wrote in the
company’s latest US Housing Market Focus. “This has put a dent in hopes that mortgage-dependent buyers are playing a bigger role in the housing recovery.”
Tracking sales, Diggle noted numbers were up initially—an expected result as buyers rushed to avoid further hikes—and then down as the pipeline cleared. The most recent data has been more encouraging, though he says those improvements have largely been driven by investors and cash buyers, groups that are immune to higher mortgage interest rates.
As far as prices are concerned, the lag between sales and price changes makes it hard to tell what the effects have been. However, “[p]rice gains appear to be slowing anyway and, in time, the rise in mortgage interest rates may, at the margins, add to this slowdown.”
There is some good news, though. Heightened rates will raise lenders’ return on new loans, helping to fill the gap left by the decline in refinancing and potentially leading to looser credit conditions.
“The bottom line is that, three years after activity began picking up and two years into the upturn in house prices, the US housing recovery still faces a number of hurdles,” Diggle concluded. “But to our minds, tight credit conditions, an over-reliance on investment buyers and overly-rapid price gains are all potentially more serious challenges than higher mortgage interest rates.
“Nevertheless, the steady rise in rates to date, and the likelihood that rates will rise further still, is another reason to expect the pace of the U.S. housing recovery to slow from here.”
Mortgage lenders begin to shrink
CashCall, one of the larger mortgage firms in Orange County, Calif., is about to get a lot smaller, as lenders across the nation scale back on falling refinance activity. Bloomberg has more on the situation:
Lenders “have the mindset to be able to downsize quickly,” said Jeffrey Ingham, an Irvine-based senior managing director at brokerage Jones Lang LaSalle Inc. “If you churn out a thousand refis a month and suddenly you go to a hundred, you have the ability to scale down. Some lenders in 2006 and 2007 had the mindset that the good times would never end. Not so today.”
Im sorry, but Cash Call seling mortgadges is like McDonalds selling salads.
That must be putting a lot of OC people out of work.
Many of them are high paying too..
CashCall to Cut 769 Jobs
US 10 year Treasury yield 2.50% and dropping
Is a group of lawyers getting ready to file lawsuits? This sounds like a housing entitlement expansion if the lawsuits are filed.
Regulators See No Fair Lending Risk in QM
Five federal agencies issued a statement Tuesday assuring creditors that they do not run the risk of being found in violation of fair lending laws should they choose to only originate “qualified mortgages” (QM) as defined earlier in the year.
The Consumer Financial Protection Bureau (CFPB), one of the five issuers of Tuesday’s release, handed down in January a number of guidelines for lenders to follow in order for their loans to be classified as QM (and thus “safe” should legal action arise). A major provision of those guidelines is the Ability-to-Repay (ATR) rule, which requires creditors “to make a reasonable, good faith determination that a consumer has the ability to repay a mortgage loan before extending the consumer credit.”
In response to CFPB’s rulemaking, some bankers have indicated they might limit their offerings to only QM products as the transition is made—and many are concerned as a result that their operations may run counter to the guidelines outlined in the Equal Credit and Opportunity Act (ECOA), implemented by the Federal Reserve’s Regulation B.
However, those fears are unfounded, regulators say.
“In the agencies’ view, the requirements of the Ability-to-Repay rule and ECOA are compatible. ECOA an
It’ll will soon be time to consider doing plaintiffs’ work…
The SFR is the most inefficient and least profitable rental. An SFR is really just shelter. The only reason this “model” exist is to ZIRP and QE.
Blackstone Funding Largest U.S. Single-Family Rentals
Steve Schwarzman’s Blackstone Group LP (BX) has spent $7.5 billion acquiring 40,000 houses in the past two years to create the largest single-family rental business in the U.S. The private-equity firm is now planning to sell bonds backed by lease payments, the latest step in turning a small business into a mature industry.
Deutsche Bank AG (DBK) may start marketing almost $500 million of the securities as soon as this week, according to a person with knowledge of the transaction. The debt will include a portion with an investment grade from at least one ratings company, according to two separate people, who asked not to be identified because the deal isn’t public.
Blackstone has led hedge funds, private-equity firms and real estate investment trusts raising about $20 billion to purchase as many as 200,000 homes to rent after prices plunged 35 percent from the 2006 peak. The largest investors, seeking to profit from rebounding prices and rising demand for rentals among millions of Americans who went through foreclosure or can’t qualify for a mortgage, are looking to the bond market for capital to buy more properties and increase returns with borrowed money.
“Securitization is the next step in the evolution of the single-family rental business,” said Rob Bloemker, chief executive officer of investment firm Five Ten Capital LLC, which got a $100 million credit facility from Deutsche Bank in April to buy homes. “It brings consistent and conforming standards to lending, which will help bring larger pools of capital in and get comfortable investing in these types of loans.”
Even an inefficient rental can be a good investment is the price is low enough. But you’re right that this investment opportunity would not exist if we didn’t have ZIRP and QE. The cheep debt floating around has inflated the prices of every other asset class to where residential homes became attractive for their cashflow. Ordinarily, residential homes don’t have a cashflow, and other investments pay far greater returns. We live in interesting times.
Since an aspect of ‘securitization’ equates to offloading risk, question is, will caveat emptor be front/center boxed and bolded in the uber-fine print part of the contract?
These are many of the so called all cash sales. Yeah, they may pay cash initially, but as soon as enough deeds have recorded, it is off to leverage land. And some agency will rate bonds backed by rent payments, not the property itself, as investment grade.
securitization will draw in all the really dumb money for the final stages of the echo bubble.
these securitized products will be closely watched by your friendly government who, with prudent regulations, will keep the dumb money safe from fraud and losses. Warm and fuzzy inside! What could go wrong?!
I think you’re spot on. The dumb money will buy up these securitizations, and when they blow up, they will petition for a bailout. Asking for bailouts is now the American way.
Since the desideratum of the economic model is to cut the real value of peoples incomes and savings as time passes, while making everything you pay for more expensive, it comes as no surprise that transaction volumes are plummeting.
PS: price is a lagging component.
Do you think the lack of volume will cause prices to drop? Ordinarily, I would say it would, but with all the manipulations of the market, I think we will just see volume keep dropping until interest rates go way down again.
It is no longer possible to forecast the residential real estate market with any degree of certainty. Farmland on the other hand …
lol I hope you’re not serious. That said, Blithe does have good farmland and owners make money on water subsidies too, but land there is closely held and hard to get unless someone dies, and the farmers are fat and have bad teeth but they seem to live pretty long. One of them told me the city folk couldn’t survive w/o him but they keep putting up silly regs to hurt profits like trucking produce all over the state before its sold.
I am dead serious. And I have no problem with LOL and people laughing at me or my prognostications. I am used to it. It is only when the majority start agreeing with me that I realize something has changed and I need to figure out what it is.
Presently, I do not understand why there has been a 180 on the taper sentiment. All of a sudden, everyone seems to agree with me that the Fed will not taper. I have telling IR this for years, (although I did not use the term taper), so why now the switcheroo? Has something changed that I need to recognize? If so, what has changed? Is the change a basic fundamental that requires a change in my view, or is it just a herd change in sentiment, which by itself is irrelevant.
And please do not mistake my forecast on farmland to be kind of doomsday scenario. For me, it is a 2+2=4. I forecast the rise in the price in farmland a couple or few years ago on my blog, and I see no change that would require me to change my mind, and in fact, see only validation.
But, if you have any other views, please share.
Isn’t it just possible that this is just another “manufactured” problem? The financial community did everything and anything they could to try to avoid the foreclosure disaster. And in so doing, they managed to also avoid the total restructuring of prices for housing overall. Then they invited in investors to buy up the starter condos, which will mean there’s not likely to be any “move-up” market for a very long time. And guys like D. Bren who added to the problem by keeping rents artificially high in order to keep the prices of his land from cratering, thereby creating unsustainable prices for new homes in all parts of Irvine…..and that spread to surrounding communities as well. Interest rates are only a very minor part of the problem. CFD’s now are so high, they make property taxes in CA look like New York City. Rental Parity is a myth. We’ve sucked all the possible buyers out of the marketplace who could possibly qualify for a loan.
@QE $85bil per month, prices are going to drop. @QE $100bpm, not so much. @QE125bpm, prices will rise again, but WGAS, considering living standards will be in dramatic decline 😉
Also, what’s NOT currently priced-in is the fact that RE can still suffer during inflation because the ability to raise rents comes into play.
Lull in employment may extend Fed tapering until Eternity
The unemployment rate fell a bit from August to September, but not enough to make economists confident in the Fed’s willingness to taper monthly asset purchases by the end of this year.
Instead, Capital Economics predicts no tapering before 2014.
Unemployment did fall to a five-year low in September, but it’s unlikely to reach the 6.5% benchmark that’s considered a trigger for a substantive pullback in Fed intervention.
The nation’s unemployment rate dropped slightly to 7.2% in September, down from 7.3% in August. Job gains were unimpressive, with non-farm payrolls increasing by only 148,000 jobs.
“The unemployment rate keeps edging lower, but the Fed seems to be more focused on the drop-off in the pace of monthly payroll gains,” explained Paul Ashworth, chief U.S. economist for Capital Economics.
He added, “Given the government shutdown, October’s payrolls are likely to be week too. That means unless November’s gain turns out to be over 250,000 jobs, it now looks like the Fed could delay tapering until early next year.”
Although residential construction jobs are outpacing overall jobs growth, the most recent quarters posted lower construction job gains.
What’s worse, the job market isn’t improving in areas where it would most help housing demand: young adults and within clobbered metropolitan areas, explained Trulia (TRLA) chief economist Jed Kolko.
Residential construction employment was up 5% year-over-year – ahead of overall national employment growth of 1.7%.
Furthermore, construction employment is growing at a slower pace even when compared against construction activity growth. The number of housing units under construction grew 32% year-over-year in August, Trulia reported this week.
“That’s because construction employment is higher than normal relative to the level of construction activity,” Kolko said. “There are now 3.3 employed residential construction workers for every unit under construction, as of August, compared with 2.6 before the bubble.”
Gen Y is still not working. Employment among 25-to 34-year-olds is still well below pre-bubble levels.
For instance, only 75% of millennials are employed, no change from a year ago.
“Without a job, young people are much more likely to live with their parents instead of becoming renters or homebuyers,” Kolko stated.
Meanwhile, job growth in the hardest-hit metros dropped 1.6% year-over-year in August, which compares to national job growth of 1.7% for the same period.
The ‘clobbered metros’ are the areas that experienced the biggest price declines during the housing bust. They also have the highest vacancy rates right now, given the fact that job growth is critically important to producing housing demand.
Cities in Florida posted impressive year-over-year job growth, especially in Tampa and Fort Lauderdale, but employment remained flat in Miami, Kolko concluded.
Thats what Im banking on. We are all Japanese.
except japan did it while interest rates fell for 2 decades…
Freddie Mac darkens housing economy outlook
Housing construction sustained positive momentum over the summer, but Freddie Mac predicts only moderate fourth-quarter growth, as homebuilders struggle through uncertain economic times.
The enteprise released its October 2013 U.S. Economic and Housing Market Outlook Tuesday. The report suggests the government shutdown combined with a lackluster economy and falling home construction levels may weaken or slow the overall housing market.
In fact, many analysts are pessimistic with employment numbers showing very little promise in September, and the government still facing another debt ceiling debate. …
Overall, $340 million was spent on private residential construction in August 2013, up 1.2% from $336 million in July 2013, and an 18.7% increase from $287 million in August 2012, the Census Bureau said.
“The housing recovery keeps chugging along despite a constant barrage of disruptions to the broader economy,” explained Frank Nothaft, Freddie Mac’s vice president and chief economist, consumed by fears of a slowdown.
“We’re likely going to see the housing recovery slow down, but not shut down, as we close out the rest of this year due to tight inventories in many markets, rising mortgage rates and slumping consumer confidence.”
Admittedly, new home construction has a few odds against it, Freddie Mac suggested. For starters, the economy is expected to add less than one million housing units in 2013, and only 1.15 million units in 2014. While these figures are solid, they’re well below normal market levels, Freddie Mac said.
“We are finalizing all of the curing that needed to take place to get households and the housing industry back to normal,” Crowe added. “Households have fixed their balance sheets and builders are attempting to garner all of the needed resources.”
Freddie’s overall outlook is that housing can absorb more economic shocks heading into 2014, while still growing at a modest pace.
Irvine renter says: “Do you think the lack of volume will cause prices to drop? Ordinarily, I would say it would, but with all the manipulations of the market, I think we will just see volume keep dropping until interest rates go way down again.”
Good question. Prices should drop slightly in the short term, because the banks got ahead of themselves and released too much inventory. But we already know their larger strategy, which is to control inventory to keep prices high. I don’t expect to see that change, mainly because the banks can’t absorb the losses on their huge stockpile of backlog homes.
So what choice do the banks have except “extend and pretend”?
The Fed will have to accommodate them by keeping rates fixed at zero for years and years. That means–despite deflationary pressures–the dollar will weaken and inflation will become an issue at some point.
If the Fed has to chose between defending the dollar or helping the banks, it’s going to choose the banks. Bet on it.
I think you are spot on.
Rash,
On inflation, dollar menu no longer a dollar
These prices increase are occurring with no wage increases. Second look at the 43% back end DTI? Does the DTI needs to be lowered?
When does the $.99 store become a $1.99?
Its called STAGFLATION baby!! We will look like the rest of the world in no time.
This time it will work out exactly as they planned.
Except by choosing the banks over the dollar, they choose neither.
There’s already pressure on the dollar. Check this out:
Treasuries Lose Cachet on Lowest Foreign Demand Since ’01
http://www.bloomberg.com/news/2013-10-20/treasuries-losing-cachet-with-weakest-foreign-demand-since-2001.html
This is really scary stuff. The Fed is going to ruin us all just to avoid restructuring the debt of a handful of underwater banks. What a sick world we live in.
These guys only think about themselves.
Home affordability sinks as housing slows
Rising home prices and higher mortgage rates are a toxic cocktail for homebuyers, pushing affordability down dramatically.
Prices are up more than 12 percent from a year ago, according to several reports, and the average rate on the 30-year fixed is a full percentage point higher than it was last spring. It is now far harder for the average U.S. household to afford a home.
“The simple fact is that the very small improvement Americans have seen in their paychecks hasn’t kept pace with a jump in home prices and mortgage rates,” said Mike Sante, managing editor of Interest.com.
Of the top 25 housing markets, just eight are considered “affordable” for a median-income household, according to a new report from Interest.com. That is down from 14 affordable markets last year. The reason is largely that incomes, which are up just about 3 percent from a year ago, are not keeping pace with home prices.
To determine which markets are still most affordable, Interest.com calculated median home prices, median incomes, property taxes, insurance and household debt. It found Atlanta, Minneapolis, St. Louis, Detroit and Pittsburgh to be most affordable. Miami, Los Angeles, New York, San Diego and San Francisco are currently the least affordable markets.
Existing home sales fell nearly 2 percent in September from the previous month, and Lawrence Yun, chief economist for the National Association of Realtors, said he expected sales to decline further through the rest of 2013.
I remember seeing a daily rate sheet in the lead up to ‘Septaper’ hitting 5% for the 30 Yr FRM. Now it’s down to 4.125% and falling…
Even if Larry’s theory about the affordability limit being reached is true, the cost of financing has dropped by almost 20% over the past 6 weeks, and home prices have moderated or fallen slightly as well. The realtor in today’s blog predicting a strong Spring could easily be proven correct based on these two factors. Throw in the irrational panic buyers that don’t want to get priced out forever, and 2014 could easily be another year of double digit price increases.
If interest rates remain low, affordability will improve, and prices will move higher. I have no doubts buyers will push prices up if they can. The big question is whether or not they can.
I suspect we will start to see appreciation get localized to those markets where prices are still undervalued. Everyone flocks to the prime neighborhoods when prices are cheap everywhere, but once affordability becomes a problem, they substitute to marginal properties in marginal neighborhoods.
2014 may be the year of the marginal neighborhood as prime neighborhood prices stagnate due to affordability limits.
2014 may be the year of the marginal neighborhood as prime neighborhood prices stagnate due to affordability limits.
It’s starting to sound like last bubble.
Good point on 2014 – ramp up QE. Further suppress interest rates. securitize the REO to Rental business model so every public pension fund worldwide joins in, etc.
I can see double digit 2014 increases.
Looking further, the fallout from the last bubble was systemic. What are we setting ourselves up for down the road?
Anyone really shocked?
FHA sounds alarm on CBO data
The Federal Housing Administration sounded the alarm on a new Congressional Budget Office report, disputing some of its findings on the mutual mortgage insurance fund and the FHA single-familiy mortgage guarantee program.
On Monday, the CBO reported that the FHA’s single-family mortgage guarantee program moved dramatically from a net savings to a situation where it’s costing taxpayers money as borrower defaults move beyond forecasted expectations.
Specifically, the mortgages guaranteed over the past two decades have an expected federal budgetary cost of roughly $15 billion even though the initial cost estimate for those loans suggested $45 billion in savings, CBO suggested.
FHA reached out to HousingWire Wednesday and informed us that these findings are invalid because the data does not consider funds for the 2013 fiscal year.
The CBO declined to comment on the matter when HousingWire followed up with the agency.
The single-family mortgage guarantee books for 2013 posted $17 billion in net value, which would swing the originally reported $15 billion cost to taxpayers to an actual $2 billion taxpayer savings, FHA senior executives explained.
“If you were to look back at the FHA program over the past 21 years, the agency would have a positive net value versus the negative $15 billion loss reported,” an executive with the agency told HousingWire.
On a similar note, CBO analysts reported on Tuesday that the increase in the estimated cost of the FHA’s single-family mortgage guarantee and Home Equity Conversion Mortgage (HECM) programs “raised federal spending and the deficit by $22.4 billion the fiscal year just ended.”
Mellow Ruse is correct in saying that ” the cost of financing has dropped by almost 20% over the past 6 weeks”.
Now ask yourself why the cost of financing has dropped?
It is because the demand for credit is weak, because the recovery is fake, because people are not borrowing, because there is no credit expansion, because the data is in the toilet, and because we are in a long term slump.
You seem to see that as reason for optimism, as though there’s going to be a big buying spree because the country’s in a Depression.
That’s wrong.
Long term interest rates are falling, because the demand for funds is weak.
QE and zirp are also signs that the economy is on life support. These are emergency programs that have been extended for 5 years and into infinity because the economy is so mismanaged that the people in charge cannot figure out how to generate growth.
“You seem to see that as reason for optimism, …”
There is always a bull market somewhere.
You both may be right, there is a bull market is in ammo and MRIs.
They opened up a Army/Navy surplus store in my neighborhood. I wonder if that is a Omen?
Again is anybody really shocked?
Bank of America loses fraud trial over mortgages
Bank of America was found liable for fraud on Wednesday on claims related to defective mortgages sold by its Countrywide unit, a major win for the U.S. government in one of the few big trials stemming from the financial crisis.
Following a four-week trial, a federal jury in Manhattan found the Charlotte, North Carolina bank liable on one civil fraud charge in connection with shoddy home loans that the former Countrywide Financial Corp sold to Fannie Mae and Freddie Mac and originated in a process called “Hustle.”
The four men and six women on the jury also found a one-time Countrywide executive, Rebecca Mairone, liable on the one fraud charge facing her.
A decision on how much to penalize the bank would be left to U.S. District Judge Jed Rakoff. The U.S. Department of Justice has said it would ask Rakoff to award up to $848.2 million, the gross loss it said Fannie and Freddie suffered on the loans.
There are still SFRs in the IE that cashflow nicely with 20% downpayment
Yes. Prices were beaten down so far there that even a 40% bump in price doesn’t make them a bad deal. Very soon I will be upgrading the site to help people find those deals. Stay tuned.
[…] With costs up 40%, California home sales plummet to 1988 levels – OC Housing News Don't cancel your lease agreement quite yet? The verdict is still out, and it will be until next April or May when we see the change in activity for the upcoming prime sales season. Rising prices and stagnant incomes combined with higher mortgage rates are making it more expensive to purchase a property, Yun said at the news conference. […]