.
All methods of predicting future price action rely on the same basic premise: prices are tethered to some fundamental value, and although prices may deviate from this value for extended periods of time, prices eventually return to fundamental valuations. This premise has been reinforced by market observation; in fact, many estimates of fundamental value are based on market action. Since many market participants believe in buying and selling based on fundamental values, there is also an element of self-fulfilling prophecy contained therein. The efficient markets theory is based on this idea, and although the behavioral finance theory is needed to explain the wide deviations from fundamentals real-world prices exhibit, both theories share the same notion of an underlying fundamental valuation to which prices are ultimately based. The challenge to market prognosticators is to select a fundamental valuation to which prices will return, and then extrapolate a period of time in which the return of prices to fundamental valuation will take place.
Notice of Defaults and Trustee Sales as a Percentage of Total Sales, San Diego, CA 1990-2007
The timing of the decline is the most difficult parameter to evaluate and estimate. House prices are notoriously “sticky” during price declines because sellers are loath to sell at a loss. The timing of a decline is impacted both psychological and technical factors. The motivations of sellers based on their personal circumstances and emotional states will determine if there is a heightened sense of urgency to sell which would push prices down quickly. During the price correction of the coastal bubble of the early 90s, prices declined very slowly as unmotivated sellers held on and waited for prices to come back. The market experienced denial and fear, but there was not a stage of capitulatory selling that drove prices down quickly as is typical in the deflation of a speculative bubble. The primary technical factor impacting the rate of price decline is the presence of foreclosures and real estate owned (REO.) REOs are a form of must-sell inventory (as are new homes.) If there is more inventory of the must-sell variety than the market can absorb, prices are pushed lower. The more of this must-sell inventory there is on the market, the faster prices decline. If the pattern of the early 90s is repeated, the price decline of the Great Housing Bubble may drag out slowly while fundamentals catch up to market pricing. In fact, this probably what will occur on the national market unless the foreclosure numbers and resultant REOs overwhelm market buyers. In the extreme bubble markets like Irvine, California, the combination of high foreclosure rates and general market panic will likely push prices lower much more quickly. Even though the percentage decline in house prices is projected to be double the decline witnessed in the bubble of the early 90s, the duration of the decline may be similar as capitulatory selling pushes prices lower at a faster rate.
Projected NODs and Trustee Sales as a Percentage of Total Sales, San Diego, CA 1990-2012
The importance of the foreclosures cannot be overstated: sellers will not lower their prices voluntarily. Prices will not drop quickly without massive numbers of foreclosures to push them down. The entire “soft landing” argument boils down to one supposition: the number of buyers in the market will be able to absorb the must-sell inventory on the market. If this is true, prices will not drop. If this is not true, prices will drop until enough buyers are found to purchase the foreclosures. There will be a number of buyers on the way down, some will be long-term homeowners who are present in any market, but many will be speculators betting on the return of appreciation. These people will be few in number, but there may be enough to them to buoy the market if there are not many foreclosures. If foreclosure numbers really spike, prices will fall until Rent Savers and Cashflow Investors enter the market and absorb the excess. If current trends continue, the number of foreclosures will be too great for long-term owners and speculators to absorb. Foreclosures also control the depth of the decline to some degree. Once prices fall down to their fundamental values, new buyers enter the market and begin to absorb the inventory. If there are not enough buyers at this price level to absorb all the foreclosures, prices could overshoot fundamentals to the downside; in fact, this does tend to happen at the bottom of the real estate cycle.
.
.
Asking Price: $760,000
Income Requirement: $190,000
Downpayment Needed: $152,000
Monthly Equity Burn: $6,333
Purchase Price: $922,500
Purchase Date: 11/10/2004
Address: 51 Bombay, Irvine, CA 92620
| Beds: | 3 |
| Baths: | 3 |
| Sq. Ft.: | 2,299 |
| $/Sq. Ft.: | $331 |
| Lot Size: | – |
| Type: | Condominium |
| Style: | Contemporary |
| Year Built: | 2004 |
| Stories: | Two Levels |
| Area: | Northwood |
| County: | Orange |
| MLS#: | S521336 |
| Status: | Active |
| On Redfin: | 34 days |
WELL-APPOINTED BELLA ROSA HOME IN THE EXCLUSIVE GATED COMMUNITY OF NORTHWOOD II. PRIME INTERIOR LOT LOCATION OFFERS GREAT CURB APPEAL, CUSTOM LANDSCAPING, UPGRADED TEXTURED CARPETS, DARK WOOD FLOORING, CUSTOM PAINTS, CUSTOM WINDOW TREATMENTS, STAINLESS APPLIANCES, WINDOW CASINGS, UPGRADED CABINETRY, RECESSED LIGHTING, HUGE MASTER SUITE W/ SITTING AREA, WALK-IN CLOSET, AND DUAL VANITIES. MAIN FLOOR BONUS ROOM MAY BE CONVERTED INTO 4TH BEDROOM. UNIQUE FLOORPLAN. ONLY 2 HOMES IN DEVELOPMENT WITH THIS FLOORPLAN. CONVENIENTLY LOCATED NEAR THE IRVINE SPECTRUM, SHOPPING & DINING. AWARD WINNING IRVINE UNIFIED SCHOOL DISTRICT.
TURN OFF THE CAPS LOCK.
UNIQUE FLOORPLAN. ONLY 2 HOMES IN DEVELOPMENT WITH THIS FLOORPLAN. I thought “unique” meant one-of-a-kind? I guess 2 copies is as unique as an Irvine tract home gets.
.
.
This property is priced 17.6% below its 2004 purchase price. This isn’t 17.6% off the peak, it is 17.6% off a 2004 price. As properties like this one set the comps in Northwood II, it is becoming apparent that the entire neighborhood is now selling for less than its purchase price.
The seller of this property originally purchased with 5% down utilizing a $737,935 first mortgage, a $138,363 second mortgage, and a $46,202 downpayment. In September of 2006, they refinanced $800,000 in a 1% Option ARM and simultaneously opened a $100,000 HELOC with Greenpoint Mortgage Company. I don’t know if they have tapped the HELOC, but what would you guess? If this property sells for asking price, the total loss on the property will be $208,100 after a 6% commission. It is difficult to determine how the parties are going to split this loss as it depends on how much of the HELOC has been taken out. I would surmise that nobody will be happy with the outcome.
In all likelihood, this will not sell as a short sale because of the inherent difficulties that process entails. This will probably end up as a foreclosure and become REO adding another story to the statistics shown in the graphs of this post. Each one was the shattering of someone’s dreams and hopes for the future.The huge numbers of foreclosures all have a story, and we will tell those stories here: one property at a time…
.
.
Hear the sound of the falling rain
Coming down like an Armageddon flame (Hey!)
The shame
The ones who died without a name
Hear the dogs howling out of key
To a hymn called “Faith and Misery” (Hey!)
And bleed, the company lost the war today
I beg to dream and differ from the hollow lies
This is the dawning of the rest of our lives
On holiday
Holiday — Green Day
.
.
IR, Another great post, going right to the heart of the matter!
I noticed the charts you have on the NOD and NOS data are for San Diego County recorder’s office. Does the OC publish similar data, or is consolidated data on OC NODs adn NOS’ available on this from another source?
—–
The faster this goes up the fewer the snobs. Up, up, up, and away!
Nice looking detached condo. I would pay 500k for it.
Wait a minute – I was under the impression that most peeps in Irvine were well off. Are you telling me that many used close to the same type of financing that we find for subprime and alt-a borrowers?
As Rick Blaine from Casablanca said when told there is no water in the desert – “I was mis-informed”.
I have not been able to find a good source of historical data for OC. Foreclosureforum.com has great data for San Diego county, and since both SD and OC participated in both bubbles, it is a good comparable. OC has been about a year behind SD in this bubble.
I voted No, for some other reason.
I think affordability will be the leading driver to price declines. No free mortgage money, no bubble home prices.
“I guess 2 copies is as unique as an Irvine tract home gets.” Haha, nice. Reminds me of the “Irvine Roll,” a sushi roll that is just a ball of rice and nothing else.
IR – Be sure to check out The Big Picture today. Barry has some charts comparing Japan’s housing bubble to that in the US. I think you will like those charts very, very much.
46K PFFFF!
Enough to make me cry!
I think they wildly overpaid for that house in 2004. Over 900k for THAT? In 2004?!?!
I wonder if this accurate reflects the whole neighborhood.
IR
Yesterday I saw that Ipop had started calculating Case Shiller indices specific for Irvine. Q1.. could you start a graph like you did for inventory and Q2 with Ipop’s indices, you could calculate a projected sale price for this property by multiplying the previous sale price by the ratio of the current Case Shiller index for Irvine to the index at the time of the last sale. That way we would know if these sellers seem rational, in denial or ahead of the market.
I think that owning will always carry some premium to renting. How much that premium will be is the question. However, this could change dramatically if down payment and income requirements get too tight. In that case, it may cause the pool of buyers who can qualify for financing to remain far below the available inventory, which would push pricing down BELOW rent parity.
No doubt things got WAY out of hand and are now correcting. The bottom will be, in my humble opinion, when the prices drop to such level that the number of buyers with 10%-20% down and 28% DTI approximates the number of properties for sale. At this point capitalism will work its equilibrium magic and prices will stabilize.
I totally agree, $900,000 for a 2200 SF condo (and I don’t care if its detached or not) was never a wise purchase.
you are completely trippin on your projected NOD/NOT values… please tell me you didn’t just “eyeball” the rest of the graph! You generally do pretty good research — there has to be some basis for the extrapolation, you can’t just draw values in.
The projections on the graph were based on the rate of increase we have seen over the last 18 months. Assuming the rates of increase in NODs and NOTs do not make abrupt changes, one can make a projection based on decreasing the rates at the same rate at which they increased. That is how the curve was formed. However, that projection also assumes we are at the inflection point where the rate of increase stops increasing. So far, there is no evidence of that. If the rate of increase keeps increasing, the curve gets steeper and rises higher. We could see a dramatic drop in NODs and NOTs if there is capitulation in the market as we would get a huge spike like a parabolic blowoff, but we will have to wait and see.
I see nothing wrong with eye-balling graphs in order to make predications. Forecasters do it ALL THE TIME.
I usually find myself on the less-bear side of these polls, but after reading IR’s analysis combined with current events, I concluded that there was a good chance prices will overshoot fundamentals. I’m not 100% sure about that, but the shakier the economy gets, the more I think buyers are going to sit on the sidelines. There just won’t be enough buyers to gobble up all the REOs.
Here are others sold in 2004:
60 BOMBAY IRVINE 92620-4807 $837,000 11/29/2004
32 BOMBAY IRVINE 92620-4807 $725,000 08/27/2004
30 BOMBAY IRVINE 92620-4807 $737,000 08/26/2004
three quarters of a million dollars for a freaking condo?
unbelievable
Another twist on a solution to some foreclosures from the American Banker (03/18/08):
“Property professionals are advising financially strapped residential borrowers to let lenders take fractional ownership of their homes in return for reducing the balance and their monthly payments. The general idea is for lenders to avoid loan write-downs by converting the reduced portion of the principal into equity. The lender’s “tenant-in-common” ownership interest could then be listed as an asset on its balance sheet, depending on the structure of the agreement; and the lender could cash out when the housing market recovers. Palisades Financial LLC founder William Procida reasons, ‘A bank faced with taking a property back through foreclosure has the option of taking back half the property and providing enormous benefits to both sides.'”
Your point that foreclosures will be the primary engine driving prices down is well taken. Most people can’t write a check for $200k to get out of their property, so the bank gets stuck with the loss.
But banks have their own reasons for slowing the price correction process. A foreclosure, from first missed payment to sale on the courthouse steps, takes about a year. And banks generally won’t discount aggressively, as they must show the loss on their books. Better to maintain the property on the books (and on the market) at a fictitious higher value for a while. The shareholders get screwed. So what. All that shareholder whining helps make a bail out more likely.
So while foreclosures are currently driving the price correction process, they are by no means the best possible way to correct prices. Amending the bankruptcy laws to allow lien stripping of mortgages is the best approach. The banks hate this idea, because they will take the losses. But the banks will take these losses anyway. And when the banks take losses their shareholders, solvent customers and possibly US tax payers wind up paying for it. This will happen regardless of whether those losses come from bankruptcy or foreclosure sales.
Amending the bankruptcy laws also gives owners a choice. They can still walk away and in the process lose their house and their credit. They can cut back on other expenditures to try and save their home and their credit. Or they can declare bankruptcy, lose their credit and save the house. None of these options are ideal, but if the choice must be made it’s better for the individual to make it, not the bank and not politicians.
For those who view bankruptcy as an easy way out which insufficiently punishes the profligate and teaches poor personal financial management, keep in mind that lien stripping would only occur during a Chapter 13. In a Chapter 13 bankruptcy you must submit a plan to repay a portion of your unsecured debts over a period of 3 to 5 years. If you don’t pay, you don’t get the discharge. The alternative is a Chapter 7, in which you don’t get to keep the house.
Bankruptcy is never a good thing, but it is sometimes better than the alternatives. The real estate market is dead. It will only revive once prices have corrected consistent with fundamental values. The faster that happens, the better it will be for everyone, banks, owners and savers included.
I don’t know if everyone would be happy going down that road:
https://www.irvinehousingblog.com/2007/04/16/how-homedebtors-could-avoid-foreclosure/
Irvine roll is a CA roll with smelt egg on the outside. I think you got scammed.
“Fractional Lender Ownership” – that is just great comedy. Did the corrupt Fed think of that one too? The greedy “predatory borrowers” are the ones that got us into this mess, so I think it sweet justice that the “plans” all revolve around stringing the kool aid drinkers out in hopes of a smooth descent by the politicians desperate to be re-elected and the Fed who thinks its their job to manage the economy like a puppet.
Isn’t it amazing that the only good economic news in the U.S. right now is that the dollar is at record lows?
IR – I hope your book makes you a millionaire. I am a long-time reader and this is my first contribution. I think I probably speak for a lot of people who read this blog but don’t actively participate when I say your blog gives my wife and I a glimmer of hope in these irrational financial times we live in. I just keep telling her we are doing the right thing…, just keep renting, and just keep saving
Why the Fed’s rate cuts won’t help you
http://articles.moneycentral.msn.com/Investing/SuperModels/WhyTheFedCutsWontHelpYou.aspx?GT1=33002
The problem is that the banks don’t hold the paper. A bunch of investors hold a security based on a pool of mortgages. How do restructure those investments? You can’t simply swap equity for debt. You might be able to swap debt for a different type of debt (i.e. the zero coupon idea). But if housing prices are going to drop 40-60% off the peak, there simply no way to structure that unless you rev up the inflation machine.
Furthermore, corporations will always prefer to take the write off immediately. That is create one bad quarter/year, because bonuses are based on performance for the quarter/year…and they can’t be negative. Also, once you start doing write-offs, the market is going to capture what they expect write-offs to be in the future. So basically management says, screw my bonus/stock price for the year and I’ll be able to get a much better one in the future. (Also note, that Corporations can carry forward a loss against future taxes, so the big loss up front means after tax profits in the future will be higher.)
“Well Bob, I’ll bid $1.00.”
Mr Vincent, why don’t you just set up an auto-reply that every time IR posts a new property, you can share your “I woud pay wisdom” with us?
If you are going to buy, then buy. Otherwise, I for one could do without your “I would pay for it” comments that you feel compelled to list for every single property posted.
Your other comments are always right on – just drop the self-pontifcation. Please.
http://www.ipoplaya.com/iposhiller.mht
Thank you for posting. It is always nice to hear from the lurkers, and I appreciate the kind words.
Ignore beerdude.
He has nothing to say other people say they would pay 1 million for a house.
After the FED cut 75 basis point, Bill Gross is pitching big time on CNBC that the government and Fed need to forget general inflation and really worry about asset (housing) deflation, Gross insists that housing prices decline must be controlled or else deep recession is assured.
From now on, the new rule is that nobody is allowed to post a price unless it conforms to artificially inflated “market value”.
You would miss my predictions of current market sales price if I stopped making them…
I think this place will go, assuming bank approves it, for between $725-750K. Very recent comp on similar square footage, although in an SFR, was $840K.
While Mr. Vincent might only pay $500K, that sum will get you a 1500sf 3/2 today, not 2300sf on newer construction served by IUSD.
There won’t be enough money either.
The prices can not be sustained on a wide scale without mortgage hustling (aka “Creative Financing”).
First time buyer should be able to sock away 25K to 50K to put down as a good down payment on a house. At today’s prices, 50K is a DROP IN THE BUCKET as the entire mortgage Ponzi is dependent on ever-expanding credit lines to feed itself.
I don’t think they want to be absentee fractional owners in millions of properties. Think of the massive liabilities.
Neighbor kid falls down stairs – sue deep pocket bank because they’re part owner.
Co-owner / tenant dumps used motor oil (or something even nastier) in back yard – Superfund comes a calling to the bank.
Co-owner / tenant decides the next best think to equity line for extra cash is a meth lab. Neighbor kids die from fumes while playing in their yard – thank you bank/co-owner for the millions.
Yeah, if I were the bank I’d pass on that one.
Is anyone keeping track of how many of these buyers commit suicide in the next 3 years?
I wonder if the mortgage agreement includes clauses about sharp objects or firearms in the homes until the mortgage is paid off in full.
Housing price deflation must be controlled or responsible people will be able to afford to buy decent housing without become indebtured servents for the rest of their lives…..I forget, how is that bad?
By the time this works itself out, it will be cheaper to own than rent.
“There just won’t be enough buyers to gobble up all the REOs.”
They appear to be gobbling them up just fine in Irvine. Irvine has 23 less units on the market today vs. a year ago today…
Lots of discretionary sellers in Irvine that are just standing pat while their equity burns. They are waiting for the government to fix this mess and stabilize the market…
I never tell others what they should post here. So eff off!
Its ok to disagree with me, I have no prob with that, but NEVER tell anyone what the content of their post should be. Understand?
Sounds like a recession is assured…
I’d like to know how many admit failure then move to AZ only to comment on this blog as if they really understand what the market is doing.
Wrong
If you look at what the fed is actually doing, they are obviously not worried as much about commodity inflation as they are about controlling the pace of the housing deflation. It also gives people a chance to unwind out of their option arms, assuming they are not already underwater.
I’m all for house prices to decline, but I can also see the reality that if the market simply collapsed overnight then you’d have widespread panic that would trickle into other parts of the economy more than it already has.
Little off topic. I’m just wondering what the mind set if of folks who are actively looking to purchase in this market. In a stable or appreciating market it would seem that as long as your purchase price is close to the recent comps then you would be relatively safe. But with today’s conditions do comps really mean anything? How can buyers have any confidence that they are not over paying? I’m just wondering how buyers are calculating what a good price is in this market.
May I just say that REO is the worst acronym ever? Even when the term is spelled out it is meaningless. Real estate owned? What? How about bank owned? Lender owned? Repossessed? I guess real estate professionals have to have their specialized jargon like doctors and lawyers.
You’d better have a glossary in the front of your book, IR.
Another lesson in how to NOT make an argument kids.
you are completely trippin on your projected NOD/NOT values…
Horse laughter.
please tell me you didn’t just “eyeball” the rest of the graph
Horse laughter.
You generally do pretty good research
Flattery.
— there has to be some basis for the extrapolation, you can’t just draw values in.
Appealing to ignorance. Challenges the correctness of original author’s claim and places burden of proof on opposite side prove the challenger wrong rather than attempt to prove original author’s assumptions wrong with facts or evidence
Stay in school childrens.
“While Mr. Vincent might only pay $500K, that sum will get you a 1500sf 3/2 today, not 2300sf on newer construction served by IUSD.”
Keyword: today
They appear to be gobbling them up just fine in Irvine. Irvine has 23 less units on the market today vs. a year ago today
I am not sure what this proves other than to say that people are less inclined to put their house up for sale today than they were 1 year ago which does not surprise me.
I’ll hedge my bet that a lot of them are waiting for the music to come back on. It seems the conventional “wisdom” would be to not sell for a loss, but instead wait until prices start coming back up (as everyone knows they ALWAYS do) AND THEN sell!
The market has already collapsed overnight. The only question now is how to rebuild it and how long will it take.
I’d pay $300k for it.
Cool, let’s play the who lives in the better state game.
Well, I was born in AZ so that one isn’t gonna stick.
Nevertheless, many of your former failure neighbors cashed in their CA mediocre homes and traded up for a way better house in AZ.
Many of them even paid cash and don’t have to make a mortgage payment ever again.
If I were in that category and someone called me a “failure” – I think that I could live with that one.
But it’s DETACHED and in IRVINE.
Property professionals are advising financially strapped residential borrowers to let lenders take fractional ownership of their homes in return for reducing the balance and their monthly payments.
This is a fantastic idea. It’s like the new American Dream. Go to school, work hard, buy 80% of a house.
Maybe the bank can work it like a time share or rent one of the rooms out to some carnies to make some extra cash.
I’m not sure anyone buying in today’s market is educated enough to know the difference. Ipop excluded, of course : ) There’s still a long way to the bottom, and I have yet to see any “good deals.”
Check out the Santa Monica market sometime if you want a laugh. We still have people asking over $1mil for 2/1 SFRs up here.
The Bombs Away video is da bomb. Love it!
It has to do with the line on the balance sheet, I believe. I agree it’s typical of MBA vocab.
So while foreclosures are currently driving the price correction process, they are by no means the best possible way to correct prices
Foreclosures are not driving the price correction. They only help to quicken the pace by cleansing the wishful thinking of the sellers who are still living in 2006.
Foreclosures are nothing more than a force multiplier.
The driving force behind declining house prices is a lack of money and negative market psychology. Without a constant pool of participants to take out bigger and bigger lines of credit, it is bound to become exhausted.
Foreclosures were never a problem until house values plateaued as the pool buyers evaporated and the mortgage hustlers could not find more creative ways to rape and pillage the system to keep the charade up.
Now that the market psychology is in the tank, the participants are heading for the exits. Now foreclosures provide a negative force multiplier to a market that is already imploding.
The exact same easy-money force multiplier that allowed prices to bubble up in such a short period of time is now working in reverse.
Even if the foreclosures all stopped today – it would not change the fact that people still cannot afford the current market prices. With creative financing out the door, either salaries go up or prices come down.
This is just about the perfect house for me and Mr. TRidgeRenter. I love the courtyard, and the square footage is spacious for 2 people. It’s too far away from work is the only thing.
Because of its bad location, I think it’s too expensive. If living that far away, I’d rather have a brand new house in Portola Springs. The one I like there is $602,000 and still falling in price.
Who cares! Economic stimulus package checks are about to hit the streets!
People have bigger problems to think about right now like what kind of chrome rim they are going to buy for their Escalade.
The government always rewards the most worthy among us.
I don’t know about you, but I sure am glad that I worked so hard last year and paid all those income taxes, donated to charity without even claiming it on the tax return and now get to to pay off a chunk of someone elses credit card bill under an offensive redistribution of wealth euphemism called “economic stimulus”.
Have a cold one on me.
It’s OK to post how much you would pay for something as long as it matches what BeerDude would pay for it. Anything south of that is grounds for immediate ridicule as mandated by housing god.
Did you check with BeerDude before posting that?
In a deflationary environment you won’t be able to borrow any money. Why? Several reasons.
(1) The asset you are hoping to finance will be dropping in price. Banks will demand increasingly higher downpayments.
(2) Your real wages will decline. In a true deflationary spiral you will make less money degrading you ability to service debt.
(3) Given one and two, a rational person will choose not to buy, creating a self-reinforcing downward spiral. (Minsky).
The net result of deflation is economic paralysis. The Fed is desperately working to head-off this eventuality, and rightfully so. I hope they succeed.
Posting that was one of the few things I’ve done in my life out of spite.
“Is anyone keeping track of how many of these buyers commit suicide in the next 3 years?”
That’s in poor taste, David, even for you.
I haven’t run across any “good deals” either or I’d be busy laying my new floors in my newly purchased house vs. contributing to this board…
Jim – you need to consider differences in buyer pools. For renters, buying into this market makes zero sense. For move-up buyers like me, since I am already burning equity, price declines have less positive impact on me, so the buying dynamics are different.
I have to balance my daily need for more square footage with only relatively small improvements to the monthly bottomline if I bought a bigger place. Another 20% drop from today’s price levels across the board would mean my future mortgage would be only $75K or so less, producing a few hundred in after-tax savings per month. Will I wait around 2-3 years to save a few hundred per month? Likely not…
If a “good deal” crossed my path in one of our target neighborhoods, we’d make the jump, lock a long-term mortgage, and start putting down some serious roots in our 20-year home.
“They appear to be gobbling them up just fine in Irvine.”
I think we’re seeing a short-lived rally as some pent-up demand gets released into a market that is offering 10-15% discounts off peak pricing. I think that demand is finite. And I think that demand is going to get swamped by the REOs coming on to the market. And I think there are a lot of folks who need to sell in the next 6-12 months, but who are waiting for the spring/summer selling season to list/relist in hopes that things are going to get better.
My assumption is also based on a feeling that the general economy is going to get worse before it gets better, both in “real” terms, but also in the perspective and confidence of the homebuying public.
Like I said, I’m less bearish than most here (save you, ipop), and I may well be one of those knife-catchers this year, but it does seem like there is a pretty good argument to be made that we may overshoot fundamentals before it’s all said and done.
In a deflationary environment, you won’t want to borrow any money because the money you pay back will be more valuable than the money you borrowed. Deflation is Armageddon to the indebted.
I’d buy today if the right house came along at a price that was comfortable based on standard underwriting guidelines. We’ve outgrown our current home, and waiting 2-3 years is not an option. These are going to be important years to my family and I’m not going to sacrifice them for a few bucks a month in savings. Others may disagree, and that’s fine. At the end of the day, this is going to be my primary residence for a decade or two. I want the right house, I don’t need to maximize ROI. If I was buying an investment property, it would be a different calculus.
As for what a good price is — it’s like the Supreme Court definition of obscenity. I’ll know it when I see it. Seriously, IHB has been invaluable in this regard. I look at past sales and am targeting something priced in the 2002-2004 range. I also apply an admittedly subjective “does this house feel like something a person in my age and income bracket should live in” test. How’s that for a scientific method? But at the end of the day, I’m fine with overpaying a little bit if I get the right house.
Exactly right.
The corollary of IR’s point is that you don’t want to borrow money to buy a house today because you will only need 86% of that money to buy the same house next year and 73% of that same amount of money to buy the same house two years from now; ergo buying is irrational in peroids of asset deflation.
Of course cars drop 20% just driving off the lot but that hasn’t stopped people from buying cars.
Screw it skek. Let’s just go buy some mansions in Redlands and open up a Rosa Maria’s with the extra cash…
I’m serious!
Amen, brother. We could live LARGE in Redlands…
Here’s what I’m buying with my jumbo conforming: http://www.moreymansion.com/
If foreclosures stopped today that would not make current prices valid. I agree with that.
But what is the mechanism by which sale prices go down? Are owners selling their homes for less and writing the bank a check? Of course not. They are losing their homes, the second is getting wiped out and the bank forecloses and tries to sell for enough to cover the first.
So while foreclosures have nothing to do with fundamental values, they have everything to do with moving actual market prices toward fundamental values.
They just aren’t very good at it.
Ya that makes sense Ipop. If both buyer and seller are currently in the market then whether the market goes up or down doesn’t really matter. I wonder how many owners have taken the plunge and gone from homeowners to temporary renters in order to take advantage of the price declines.
None that are married to my wife JJ… She’d rather watch the equity burn than join the renter rank and file.
Once you get some roots planted, I guess sometimes only a transplant will do…
The problem is you will probably be making 86% of current income next year, and 74% the year after, or worse depending on your chosen profession.
Because a deflationary spiral effectively freezes the financial systems than underpin the economy (especially a finance based economy like the U.S.) the bottom line is negative or at best flat GDP growth. In a period of falling GDP one would naturally expect increasing unemployment, which leads to a decrease in aggregate demand, which leads naturally to less growth and further deflation.
Just picture toilet flushing… that pretty much encapsulates an economy faced with widespread and persistent deflation.
No collapsed overnight would be … no mortgages for any borrowers, no matter how creditworthy. Complete financial paralysis and no loans for anyone.
It’s hard to say what’s going on in Bernanke’s mind, but I suspect his motivations are simply to keep the banks solvent. Damn everything else. The Fed is enabling banks to pull in more money through an increased spread between what rate the banks borrow at and what rate they lend at. Fine, as long as the banks keep writing down the bad debt so we can get out of this crappy situation as soon as possible.
It looks to me like the Fed is willing to go to a zero rate policy. Unbelievable. Hope they don’t stay there long if they do it. The question is: Which is worse? Risking the flight of investors (by lowering rates) or having wide spread bank failures (by holding rates)? Or how about both: Investor flight pushes down prices on the securities the banks are holding and they end up failing anyway.
The Fed is in a very very bad spot. There is no correct move. Or rather, the correct move would have been to prevent this fiasco in the first place.
Thanks Bush supporters!!! You really screwed us heathens over one good! Hope your rapture bet pays off.
Urban Word of the Day
http://www.urbandictionary.com
March 18, 2008: jingle mail
http://www.urbandictionary.com/define.php?term=jingle+mail&defid=1953487
Jingle mail is the package containing the keys to your house that you send back to the bank when the interest rate on your adjustable-rate or IO/neg-am mortgage resets, or the property tax bill gets reassessed at double what it was two years ago, or you find out that heating and AC and repairs cost a ton of freaking money, or you lose your job because of the recession that’s coming with the housing crash, and you can’t make the payments any more.
My neighbor put up the Escalade and the Beemer that he bought with his third HELOC for sale, and has been having garage sales every week for the last month to raise cash … I give it about 90 days till he sends in the jingle mail.
Considering we have witnessed an 80% decline in sales volume, we are as close to a complete collapse as one can get.
Are you implying that us renters in our double wide be white trash;-)
(probably a dead thread by now but I’ll submit anyway)
I complain about the lack of mathematical / statistical rigor in this particular article and I get attacked? This seat-of-the-pants type estimation is how many companies got into the problems they have now (I assume). The burden of proof falls to the asserter, right? I asserted that the graph on this page is a complete estimation, based on the response, I think my assertion is accurate.
If this is going into a book, I want it to be as accurate as possible… I like this body of work overall. You should employ a statistical measure of quality-of-fit and then cite that value.
Also– I think it is ‘hoarse’ not ‘horse’ laughter; not complete sure but ‘hoarse’ makes more sense (throat).
TRRenter — my wife and I like P.Springs too but just couldn’t stomach the HOA and Mello Roos. I have a favorite model there too, it’s in the Paloma tract so if you don’t mind sharing, which tract are you interested in? (We also rather like some of the Sendero models but the available phase is too close to the IAC apartments for our tastes. Nothing against renters, I’m currently one but I worry about what effect the proximity might have on future resale value if and when I’m ready to sell it 20 years from now.)
I ask because I haven’t seen that much in the way of substantive price drops @ Paloma so I wonder if the others are getting more aggressive lately? Frankly, i’ve ceased stopping by the sales offices periodically to see what’s up so any info on the area is welcome.
I doubt we’ll buy there as I mentioned, HOA’s were obscene and I tend to view mello roos as lost value.
“Livin’ in Eugene there is not a lot of happenin’
There’s a lot of dreds,
but not a lot of Africans…”
LOL!!!!!!! The song is a riot!
Amen. Bernanke going to think Odysseus had it easy.
Different places call an “Irvine Roll” different things. This was just a joke that I had heard many years ago.
LOL surf. I begged the wife to embrace her WT side but she wouldn’t have none of it. We’ll have to sip our boxed wine from an owned vs. rented home!
Amen, skek.
Where do you get your HELOC and mortgage info on the properties? Is it public information?