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July 30, 2006 Sunday Housing News The Real Estate Journal has a really cool anatomy of a real estate investment from the 28th. This is the kind of thing we need to see more of--nuts and bolts, in-depth calculations of exactly what it will take to make a profit off investing in property. I particularly like this one because it illustrates both the downers and uppers of the modern market. Downer: His main reason for trying to sell the property, Mr. Klein says, is that the interest rate on his mortgage eats into his profit... His mortgage rate might increase in late December 2007 -- to 13%. Even if he raises the rents, he might not be able to make an operating profit on the property. Upper: Mr. Klein does not anticipate paying listing fees, as he is marketing the home as for sale by owner. I can't stress enough how important that "upper" is...Klein is potentially saving himself a good chunk of change simply by applying his own hard-earned knowledge (including the mistake of using an ARM) and bypassing the realtor protection racket. Actually, there's an interesting debate going on over at Inman's blog about the virtues and vices of an open MLS system. Money quote: Consumers have options now. This open MLS is like doing a ballor initiutive to have Mercedes build a $9800 car. If you want one buy a KIA. If you want FSBO go to one of the thousands of FSBO sites. If you want to be on the MLS pay for it. This is not negative, this is commerce. That's really the key right there. The data has to be accurate, and MLS sites still have the stranglehold in terms of most accurate valuations. Having FSBO, discount lender, and other such listing services nip at their heels works more from a transparency and openness perspective than it does accuracy...for now, anyway. But the best of all three is the way to go. This seems to be the model that Zillow is favoring, and it's certainly one we here at Housing support. Posted at 05:28 PM | TrackBack July 28, 2006 Buying And Selling: Hindsight
I never thought I'd see the day when Reverend Moon's personal newsletter would know its head from its arse when it came to the bubble: "It was like the greater fool theory -- there has got to be a fool out there who's willing to pay even more than me for this house. At some point, you run out of fools," he said. Mr. Cruise, a former television reporter, credits a nationwide rash of publicity a year ago warning of a housing bubble for prompting people to stop and think more carefully before buying. Every bubble blogger in the world should be getting cramps from all the back-patting right now. It's interesting to note, living in D.C., that the condos are still going up, the office development is still coming hot and heavy, and there's a massive parking lot downtown to accomodate all the new business we'll be getting...and yet, there are signs of a sort of "anti-bubble" market on the rise as well. Take this interesting ad from a "renovated" apartment-building-turned-condo called The Grant. $189,000 for condos in D.C.? Sounds amazing. But note, that's for the studio. You could probably have a closet, maybe a kitchen, and a hammock if you're lucky. Not to mention that there's NOTHING interactive about the site. No property views, no pictures, no nothing. Having seen the building in question, I think it's safe to say there's a reason for that. There will be a time when $189k is considered high-end for D.C. again...it's inevitable. Too much inventory, too little sales, too much fear of the entire economy crumbling. The cycle will come around again. Hindsight is 20-20, but it only works if you can actually SEE, and too many people nestle their brains in the wrong part of the anatomy to pay attention to what's really going on. Posted at 05:11 PM | TrackBack July 27, 2006 Mortgage and Loan: Confidence, Man
"No, really, this is a good deal. They ain't makin' any more land, after all. Look at me! I'm on a freakin' island!" So, about those new home sales: WASHINGTON - Sales of new homes fell in June by the largest amount in four months while the inventory of unsold homes climbed to a record high, providing further evidence that the once-booming housing sector is slowing. The Commerce Department reported Thursday that new home sales dropped by 3 percent last month to a seasonally adjusted annual sales pace of 1.131 million units. It marked the first drop since an 11.5 percent plunge in February. What's particularly interesting about this article is that the highest performing sector of business is manufacturing. Wasn't globalization supposed to eliminate manufacturing as an industry? Weren't we all "glocal," or "flat," or whatever the hell Tom Friedman was saying? And meanwhile, mortgage rates are taking a slight dip, with even the faintest hope that Bernanke will stop fighting the last war and cut the Fed's rate-increase campaign. As my man Marinite ably points out, people will not believe a crisis is happening until it affects them personally. As long as there's even a shred of hope that the market won't crash hard, they will continue believing that it's ok to go for that creative mortgage, leverage their home equity for granite countertops, and so on. And the Sawyers of the world just keep getting away with it.... Posted at 05:25 PM | TrackBack July 25, 2006 Buying and Selling: Cats Don't Bounce
The June numbers for existing home sales are out, and as you might expect, they are nothing to crow--or meow--about: The 1.3 percent decline, which was in line with expectations, represented the third drop in a row and the eighth in the past 10 months as the nation's once-booming housing market has shifted to a slower pace in the face of rising mortgage rates. By region of the country, sales fell 3.5 percent in the Northeast and 2.3 percent in the South last month. Sales were unchanged in the West and the Midwest. I'll be very interested to see the new home and building order data for Midwest markets. It's interesting that consumer confidence continues to hold steady, even in the face of a literal mountain of economic data that points to some really bad news in the offing. Money quote: We have no choice. That fact that we are selling off the US piece by piece because we have to (not because we want to) is further proof that our current consumption binge is not sustainable. For now foreigners have been willing to finance our deficits for a mere 5% interest rate. While I suspect this can continue for a while it is a big mistake to assume this arrangement will last forever. The only solution will be to sell off more US assets, stop spending, or hope to god the rest of the world gets as crazy as we are about buying stuff on debt. The latter will only help us if we have a manufacturing base in the US. Amen! Oh, if you ever wondered what the term dead cat bounce meant... :) (Note: Mish's article is really long, but watching him dismember the Motley Fool is akin to the "Best of Ridley Scott" fast-forwarded--just awesome. All killer, no filler.) Posted at 04:05 PM | TrackBack July 20, 2006 Credit & Debt: Disorderly Fashion
"Okay, everyone, ARM holders to the left, fixed to the right, and neg-am folks all the way in the back! Watch out for those resets!" Ben Bernanke testified before the House Financial Services Committee today, and the meat of his comments was pretty much what you'd expect...inflation is the GREAT SATAN, and only a slowing economy complete with no wage gains can stop it. Oh, and we don't need regulation on how this affects the housing bubble. No sir. At this point, I'm asking myself why I even bother reading Bernanke's statements or gaining insight from them. And if I'm doing that, you can bet market players are wondering the same thing. Everyone needs to read this post from Mike Morgan on the "ghost market" to give you an idea of what may really be happening. Kudos to Mish for reprinting it in its entirety. This is as succinct a blueprint for the end of the housing market as we know it as I've ever seen. It looks to me like that whole Yahoo-Zillow love fest is going to have more to worry about than price estimations being not exactly perfect to the last percentile. Posted at 02:33 PM | TrackBack July 19, 2006 Credit & Debt: Bernanke And The Last War
Federal Reserve Chairman Ben Bernanke before the Senate Banking Committee today. The full text of his remarks can be found here. I have to take a moment and quote Jim Bunning's comments to Bernanke: Sen. Jim Bunning (news, bio, voting record), R-Ky., who has expressed opposition to Bernanke's elevation to Fed chairman, raised concerns that the Fed will push up rates too high and hurt the economy. Bunning, saying he was disappointed in Bernanke's leadership, maintained that "inflation is not out of control. The Fed is chasing an inflation monster that is just not there." A commenter on Economist's View nails the white elephant in this particular room: NYUK "I find it disturbing that there is any inflationary pressure at all in the absence of rising (real) wages." An incisive comment, to which we should consider adding seemingly limited or no benefit increases, even falling benefits for all too many workers. Absolutely. The reason why Bernanke is so afraid of the housing sector doing anything more than a moderate slide is because consumer spending is not being financed with real wage growth. For even the slightest uptick in wage growth, there's a chorus of investors blubbering about how it will drive down stock prices. Couple that with the most volatile forms of price increases--food and energy--not being included in the nearly-useless CPI, and the overstretched reliance on home equity to fund any spending beyond the necessities, and you've got a recipe for immolation. Here's a review of a book Bernanke co-authored on inflation targeting that accurately sums up the Helicopter Ben mindset: In other words, America's present affair with full employment is sure to end badly, with an acceleration of inflation leading finally to recession and unemployment. In contrast, the right strategy to fight inflation is to keep unemployment high enough all the time at its "natural" rate, or as low as joblessness can go without sparking inflation. A central bank distracted by the pursuit of economic growth and full employment is to be condemned, while a central bank that achieves price stability at the cost of chronic high unemployment -- as in Germany -- has done its duty. The European Central Bank, charter-bound to price stability whatever the cost, represents the pinnacle achievement for this school of thought. Meanwhile, the Federal Reserve -- unmentioned in the U.S. Constitution, obliged to report on unemployment -- must seem emasculated in comparison..... Central bankers, like generals, are often accused of refighting the last war. But as the motives above suggest, this case is somewhat different. First, inflation targeting commits itself in principle to fight the last war -- the war against inflation -- as a way to avoid addressing the present threat -- unemployment. Second, inflation targeting allows central bankers to change tactics of the last war even though it has already ended. And third, it permits central bankers to assert that the inflation war is still raging, even when they are really planning to fight unemployment. These mechanisms are useful from a narrow public relations standpoint, but it is hard to see how they actually relate to economic performance, including the pursuit of low inflation. The more I look at it, the more I think Bernanke is fighting the last war, and using the spectre of inflation to cover up the anemic gains in employment, the astounding reliance on false (i.e. non-wage) money to power consumer spending, and the excesses of price increases with no corresponding wage gains. And it seems we saw this coming, and chose to ignore it. Posted at 02:44 PM | TrackBack July 18, 2006 Architecture & Design: There's Green In Them Thar Hills
The boom in environmentally-friendly living has spread from residential desires to the commercial market, as evinced by the new desire of private-equity investors to go for the green: Whereas Rose hopes to raise funds from private and nonprofit investors, Fitzpatrick (an architect by training who hopes to make a bigger impact) hopes to gain substantial funding from public pension funds. If these funds successfully quantify the financial benefits of investing in green development, they could attract more investment, thereby mainstreaming now-unconventional forms of development. I've been saying for years that environmentally friendly designs and sustainable building plans are good business AND good for the environment as well. It doesn't have to be a win-lose scenario. Here's a building supplier from the other side of the pond that also gets the message. Housing Finance has a full-scale special section devoted to the principles of green living, including the still-slow pace of the green lending market. These are all positive developments, and good reminders that in the long term, past bubbles, blowouts, and crashes, the shape of real estate is going to be affected as much by Mama Earth as it will by irrational exuberance, froth, and speculation. Posted at 05:43 PM | TrackBack July 17, 2006 Housing Market: The Best Place To Live...
Interestingly, though all the major destinations are exurbian/Midwestern/rural heaven, CNN also claims that cities are hot again, Here's an interesting article from the Fresno Bee on what's being done to maintain affordable housing. When's the last time you saw $120,000 for a condo anywhere outside of the flattest flyover state, eh? Money quote: "Historically, condos have done very poorly in this market. There was plenty of affordable housing," said Mike Harter, senior vice president with Grubb & Ellis Pearson Commercial in Fresno. "Clearly, that's not the case today. Affordability is a real issue today for people trying to buy homes, and condominiums are a good alternative." It's a devil's bargain--pay through the nose for privacy and ownership, or end up at the whims of a tyrannical homeowners' association fief for affordability. Excellence of execution, indeed. Posted at 05:41 PM | TrackBack July 13, 2006 Mortgage and Loan: Pause and Effect
In anticipation of the next Federal Reserve meeting (which isn't until August 8th, mind), mortgage rates have already taken a slight tumble. The gamble here is that the Fed will make one--and only one--more hike in rates for the year. Bankrate's Greg McBride concurs, with this interesting nugget in the middle of his musings: It's one of the unfortunate truths that a big increase in employee earnings is seen as a negative signal economically. Believe me, I'm no happier about it than you are. But look at the bright side, as an investor you like to see wage increases come at a modest pace. So again, it pays to diversify. There's a big increase in employee earnings? Has my obssessive Fed-watching blinded me to this unforeseen development? Is that what's accounting for the sudden pall of despair over corporate CEOs?: Not only is capital investment critical at this stage to compensate for a fall-off in the growth of consumer spending, it may also determine profit growth in 2007 and beyond. The economy, and the stock market, may ultimately prove the real victims of that declining confidence level. Strangely, I am unmoved. Posted at 04:51 PM | TrackBack July 12, 2006 Residential Housing Market Outlook Larry Smith of Third Wave Global Investors inteviewed by Bloomberg news. Negative view on residential housing market. (Watch Video. Note: Ad Supported).Posted at 08:08 PM | TrackBack Wednesday Housing News: Back To Business
First, thanks to everyone for the wonderful comments we've been getting lately. Keep 'em coming! :) Yesterday's Washington Post had coverage of the abrupt halt in Northern Virginia property tax increases. For those who don't know, the NVA area is one of the richest in the nation, and Fairfax County in particular is a major source of housing bubbliciousness. The fact that those homes are so expensive--$540,876 on average--is frightening enough, but that the counties were banking so heavily on increased assessments for revenue that their budgets are collapsing without them is even more so. The large-scale move from investment in residential properties to commercial properties is continuing, as this story from Sarasota indicates. But even here, the sentiment seems to be that real estate is dying as an investment for the short-term, so the name of the game is "Cash out fast." Don't tell anyone in Nashville that the housing market is failing, though--It seems to be working fine for them. This is another example of how people are turning inward, away from coastal markets, in the increasingly desperate crusade to find new homes and buy them. I have nothing against Nashville--it's a lovely city--but I wonder how many of those properties were financed with "creative" mortgage products. Up in Charm City, it seems that one savvy buyer has become aware of how much real estate is like pr0n. It's bad enough that people are fetishzing food blogs like it was a "Best of Kaylani Lei" compilation, but getting all hot and bothered over home prices? Money Even at my end of the market, real estate proved endlessly fascinating. People I barely knew would ask me how much my new house cost or how much, finally, my old house went for. It was all fun and scandalous, up to a certain point. Then it just became expensive, as vices generally are. When it comes to mortgages, I recommend monogamy. Remember, kids, the time to pull out is before you shoot your wad. Financially speaking, of course. Posted at 11:25 AM | TrackBack July 09, 2006 Housing Market: A Note To Robert Cote If there's one thing we here at Housing.com do not support, it's Robert Cote of Exurban Nation has claimed we are attacking him As far as personal attacks, the worst thing I said was that I found I heartily recommend reading Robert's blog, actually, as I champion Posted at 08:54 PM | TrackBack July 08, 2006 Housing Market: Two interesting bits of news.... It seems that the milk of human kindness poured for evacuees in the wake of Hurricane Katrina is starting to run dry: "I cannot help to wonder if (the unemployment) has anything to do with the uniqueness of the community," Ogunye said. "It seems like some have never had to make choices or decide for themselves...." Fellow counselor Melodie Lee was more blunt: "(Katrina) was awful, but let's move on. It is time you had a Plan B." I'm gonna have to apologise to Robert Cote, because this display of heartlessness makes him seem like Mohandas Gandhi. If these are the JOB COUNSELORS talking, it's no wonder half of the Katrina evacuees living in Houston are still out of work. Imagine having your home, your job, and possibly your family swept away through no fault of your own, because of a vast natural disaster. The government and local authorities completely drop the ball on helping you out. Your insurance refuses to pay for the damages done to your home, even though you've paid your bills through the nose for years. You're expected to keep paying a mortgage on a wrecked home while finding a new one, while ALSO finding a job that pays enough to take care of your family, but no one will hire you for anything better than flipping burgers because you're carrying the social stigma of being a Katrina victim. That isn't something you just "recover from." Soldiers who go to war and come back physically whole still have the mental and emotional anguish to contend with. How is this different? Disgusting. Across the globe, the Bank of Japan is getting ready for its first interest rate hike in almost six years. The scandal and frenzied opinionating is interesting enough, but take a look at this particular quote: In March, it ended its five-year policy of "quantitative easing," under which it flooded the banking system with excess funds to offer easy credit and stimulate the economy. (Emphasis added.) Fifteen years ago, Japan was hailed as the economic model to beat and the one we could all learn from. In a roundabout way, that's still happening, and the fact that they are just NOW making this move after ten years in a perpetual recession brought on partially by an overextended housing market, and it would appear that Santayana was indeed correct. Let's hope history doesn't repeat itself nearly as badly this time. Posted at 07:56 PM | TrackBack July 06, 2006 Mortgage & Loan: The Blog War Is On
Robert Cote posted something on Exurban Nation that I can only assume is a response to my thoughts on helping people caught in bad mortgages. (Please correct me if I'm wrong, Robert.) To say that I disagree with his view is akin to saying that invading Iraq based on falsified and inaccurate reports of WMD's was maybe, kinda, sorta, possibly a bad idea--in other words, a vast understatement. I won't even bother quoting the entry itself, since it boils down to "these people cost me time and money, therefore they are evil." You're all heart there, Robert. This is what I'm saying: We can spend months or years assigning blame for the crumbling housing market, but that is pointless. EVERYONE is to blame. Uninformed homebuyers. Unscrupulous lenders. Alan Greenspan. Shifty homebuilders that employ illegal labor. Ben Bernanke's obssession with inflation. I could go on forever here. We need to focus on solutions. The market will go through enormous short-term pain, but it will recover. You will always find a way to make more money. But people who lose these homes because they got screwed out of what they thought was a great deal--what happens to them? Foreclosure, wrecked credit reports, loss of personal savings, etc. This damages the economy AND weakens the fabric of our country on every level. Education is key. Transparency is key. Oversight of the lending industry is key. Information sharing is key. Ironically, one of Bob's commenters gets it nearly exactly right: In my opinion, 'new' technologies and theories often lead to very loose money and almost no accountability. Misguided funding and research, swindled investors, scams, bad policy, and little advancement. Certainly, research should be funded and promoted, but politicians/funding agencies seem to put all their eggs in one basket - risky future research - rather than implement upgrades along the way. Not only is this sound advice for technology investment, but change a few words around and it's the smartest path for real estate investment as well. Research, study, analysis, and above all else, patience are essential to buying the best home for the best price. But the lending industry preys on emotional impulse buys. Why do you think they so strongly oppose credit freezes? This is why I can't excoriate and dismiss screwed homeowners. They made their choices, but their choices were constrained and tilted by a market and a system designed to play them for fools. They--we--deserve better. Posted at 12:03 PM | TrackBack July 05, 2006 Architecture & Design: Rebuilding NOLA
Today Ray "The Comeback Kid" Nagin introduced his guidelines for the New Orleans reconstruction effort. As the article adroitly notes, there was no actual timetable set as to what was going to happen when. I guess the bad times roll with the good in equal measure, ne c'est pas? Architecture Week has a fantastic article that covers the obstacles faced in the massive effort to rebuild the Gulf Coast. The whole article is worth a read, but this leaped out at me: A major problem is that some builders in the South are not accustomed to working with codes — or even with engineers, Lockwood explains, and implementing building codes is not easy. Maybe I'm missing something terribly obvious, but why would this be? In any event, I don't know what of the recent developments regarding the rebuilding effort are more frightening...the fact that KB Home is getting involved, or that Alphonse Jackson didn't think that some NOLA residents might be a little pissed off over the idea that their homes are being destroyed without any input or control from them. There's a great discussion about this at Housing Finance as well. And just to make the subject gloomier, here's another visual reminder of what the recovery forces are up against:
The latter image is courtesy of Photos from Katrina, which I highly recommend for those who think this is just an issue of people whining about handouts. Posted at 05:04 PM | TrackBack July 03, 2006 Buying And Selling: A Helping Hand
Patrick.net pointed me to this article from the San Jose Mercury News on the increasing pain of homeowners as mortgage rates rise. While this is depressing in and of itself, I wanted to address the attitude a good number of housing blog commenters (and some writers) take towards people who find themselves in this position. The consensus often seems to be that they deserve what they get for taking such a risk, and that they should have educated themselves financially. They get called "FBs" (as in "F$%ed borrowers"), "homedebtors," and all manner of fun things. The tone is often dismissive, condescending, and downright mean. I don't think this is fair. Does America's savings rate suck? Absolutely. Do we lack basic financial education? Absolutely? Should parents, schools, and the workplace teach people the necessary knowledge to buy homes, invest smartly, etc.? No doubt. What you have to remember is that the system is gamed to play on people's ignorance. Credit cards, "creative mortgage," unscrupulous auto lenders, etc.--these are all built to screw you if you don't know what to do. And many people simply don't have the time to find the knowledge they need to make smart decisions. They have families to raise, bills to pay, etc. And--let's be blunt--not everyone is an MBA or financial wizard. Should we then say that you don't deserve to own a home if you don't pay micro-level attention to gold futures or derivatives? I know that I, as a neophyte housing blogger, learned much of the game from reading the works of everyone from David to Ben Jones to Tim Iacono. The knowledge is out there for everyone to take advantage of, but it's still an uphill battle against a complacent media and the publicity machine of the realtor and financial industries. Shocker of shockers, the blogosphere is not the be-all and end-all. You shouldn't buy a home if you don't have all the facts at hand and haven't done all your research. By the same token, you shouldn't scorn and dismiss people who got scammed by flippers, shady lenders, etc. Save your condemnation for those who truly deserve it in this game, and stay focused on spreading the knowledge to help those in need, and level the real estate playing field. (Image courtesy of Rescue Mission.) Posted at 03:41 PM | TrackBack July 02, 2006 Buying and Selling: Copy Wrongs
I usually leave the Craigslist price hunting and bubble examinations to folks like Bubble Meter, but I couldn't let this hilarious ad posted by the National Association of Home Builders go unscathed: Do you write copy that gets noticed? The National Association of Home Builders seeks a creative Marketing Copywriter. Candidate will be developing copy themes and writing compelling copy for marketing collateral including direct mail, advertisements, emails, and exhibitor and sponsorship prospectuses... Let me give this a whirl... "Remember, real estate prices always go up!" "It's always a good time to buy!" "If you don't buy now, you may be locked out forever!" C'mon, you guys have been great with the comments lately! Give it a whirl. The NAHB needs YOU! Posted at 08:36 PM | TrackBack Go back |
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