Gary Shilling presents a pretty compelling argument that we're about to see home prices double dip and drop another 10-20% over the next three years. He says it's simply a matter of supply and demand, and the fact that people are beginning to wake up to the fact that a McMansion is usually a terrible investment:
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I think he's right. While it is understandable that house prices will remain high in Manhattan, London or Tokyo, I believe they must come down in less populated areas. Compare midwest house prices to those in similar areas elsewhere in the world (i.e. France) - the gap is just too big to be explained by anything else than lunacy, an insane belief that it is OK to fork out $1m for a house.
meredith whitney said the same thing on cnbc.
its highly probable. defaulted mortgages should be accelerating, both on the residential and commercial side of real estate. i think the more important implication is what this will mean for banks and bank lending.
'pretend and extend' can only go on for so long before a tidal wave of debt comes due.
more bad news
mortgage modifications are sucking big time:
http://ecreditdaily.com/2010/06/cancelled-mortgage-modifications-surge-…
I'm short, your house!
I have a vacation home I considered selling a few months back. After looking up the historical sales figures for the past 30 years, here's what I found:
-There are currently 500%, yeah you read that right...five-hundred-percent more homes for sale, then have sold in any given year. Naturally, all the idiots are not budging, figuring they can squeak out and extra $100K by building another garage or redoing their decks.
This is a microcosm of the housing market at large. PEOPLE REFUSE TO ACCEPT that prices MUST go down...way way down as a matter of fact.
The community I am mentioning is small, exclusive and has always (and still does in spite of the oversupply) had good demand. When I drive through certain areas riddled with what Edmundo here, refers to as "The McMansion" I cannot help but to think that we haven't really learned anything and that darker days are yet to come. Nobody wants some of these places and nobody will...
Hope I'm wrong, but at this point 10-20% might be great in some of the places I have seen.
We where actually talking about this this morning. Our consensus was that a double dip is unlikely barring the fact that there's an IR hike in the future. Remember that a lot of foreclosed homes are either already written off or under the supervision of Obama. There's also some data skew right now due to the fact that close dates for exsisting homes is immediate and new homes have delayed closing date (don't quote me on that). I think exsisting home sales are going to primarly be reflective of the employment numbers this year.
i disagree, and i will tell you why:
*the forclosure moratorium suspended the mkt from doing its job. this kind of just slowed down the momentum of forclusures, and gave the mkt a 'soft landing'. *bc/ ofthis slow landing effect, banks have been 'pretending and extending' loans, even to this day. *beleive it or not, there are vacant houses all over owned by banks that are NOT on the mkt (shadow inventory: the houses the banks own that are not on the mkt and houses where the owner is not making pmts but is still in the house for whatever reason). why are they not on the mkt? b/c it would force banks to take tangible write-offs when they are sold, so instead they are waiting for the mkt to turn (idiotic, i know). the same thing is happeneing for all sectors of commercial re. yes, banks have taken siginificant write offs. but only on the assets they could sell.
*the treasury's, the fdic's ,the federal reserve's, and the obama admin's stance on the issue is 'extend and pretend'. basically, a financial institution can make fairy-tale projections into the future. the large non-bank financial institutions and banks i have talked to are projectecting baseline gdp growth at around 3-3.5% with a worst case scenario of 0%; baseline unemployment at 9% flat and 11% worst case. why are our gov and banks steering us towards financial doom? theyre hoping unemployment will halt and the economy will grow b/c of increased productifvity, and then kittens and rainbows will rain down from the sky.
^^^this fiasco is perpetuated by the stupid idea that the economy will turn...that something will spur growth.
guys, this is why we are going through a slow recession and not a fast deppression. like it or not, the big banks have our economy by the balls. when they cant lend, you feel the pain...no matter how prudent you are in your buying decision. there are smart cre investors and homebuyers who did everything right but are fucked bc of the lack of financing.
bank lending:economy::motor oil:engine
when credit tightens, the economic engine sputters and siezes.
No one's for sure. Entry level home sale's are still strong and at the same time the large cap builders are looking down the barrel of a credit downgrade. Remember these guys have been running high and tight for the last year & a half and have an ass ton of cash they're sitting on top of and could push through development if they really wanted. But your right about they buyside's access to credit seeing they best anyone could get right now is 75% loan to cost.
Like I said, a lot of exsisting homes have already been written off by banks, builders, and whoever owns the notes and are viewing them as a sunk cost. Liken it to a tie game at half time: the points have been scored it just doesn't count for anything (very relatively). I feel like the powers at be are trying to concot some artificial housing market which will extend just long enough to get them relected.
We do have a serious problem though, I'm not denying that. This can is being kicked down the road for bueracratic reasons (sorry if my spellings atrocious??) and a lot of Americans are getting really fucked. These aren't web start ups, these are physical assets that are just sitting around depreciating that have been swept under the rug. They're going to be about as valuable as new law grad. It's really sad.
The bubble never completely deflated. It was propped up with another bubble. All of us know this. The best thing the government/financial elite can do is try and control the price drops so that they fall slowly, as opposed to one quick swoop.
Home prices are a function of personal income and interest rates. Consistently high unemployment will keep wages and salaries in check, thus keeping income flat. As for interest rates, the Fed cannot lower rates anymore to prop up demand. So if home prices do drop (as a result from banks actually beginning to start the foreclosure process, since they may now be realizing that the market might be getting worse), then the Fed won't be able to use interest rate policy to keep prices up. This price-spiral will look very, very ugly (Prices falling, no Fed reaction, banks foreclosing more to sell ahead of an even worse market, putting downward pressure on prices, repeat cycle).
Of course, none of this will be good for Fannie, Freddie, and the FHA.
saw this just right now:
http://www.zerohedge.com/article/new-home-sales-plunge-record-33-market…
"...the persistence of sales at such low levels (and the magnitude of the revisions) underscores the challenges facing homebuilders, whose projects must compete with a large overhang of unoccupied existing homes."
mkt is correcting itself.
look, i am no economist. i am not a real estate expert. i have been working in cre for less than 2 yrs. but to me, the writing is on the wall.
more great news:
http://noir.bloomberg.com/apps/news?pid=20601010&sid=aC0TeonWOPiI
“It’s gotten insane,” said Scott Simon, the head of mortgage-backed securities at Newport Beach, California-based Pacific Investment Management Co., manager of the world’s biggest bond fund. “This is rarefied air.”
Only about 37 percent of 30-year loans are “actually refinanceable” at current mortgage rates, about half of the level suggested by “traditional measures,” Credit Suisse Group AG analysts led by Mahesh Swaminathan wrote in a report. Rates would need to decline to about 4.5 percent for refinangings to begin to jump, the analysts and BNP Paribas’ Anish Lohokare wrote today.
here's a good one
Betting Who’s Right on Home Prices: Baker vs Maki
http://noir.bloomberg.com/apps/news?pid=20601109&sid=a4CeBXhe0U5A&pos=15
alright, i am done, no more bloomberg articles.
what stock plays can take advantage of this continued slump?
--> As we should all always be asking, how do we get rich off of this?
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