Tuesday, June 24, 2008

Case Shiller April Results just out

The MSM started the morning with articles stating how the rate of decline was improving. Then I noticed they changed their headlines.


Do you see a recovery here? Do you see, along with record seasonal inventory, sales below decade lows, and tightening credit a reason to go out and buy? The next 15 months should see the most rapid price declines. I still do not see an emotional change until the Fall (again, probably late Fall). But I'm paying more attention. I still see a convergence of factors that will transition us another emotional state in April 2009.

Capitualation is the emotion with the greatest price drops. I predict that will happen in 2009 not 2008. For home sellers, I believe you have until the end of July to get out. Sell now or be priced in forever (or until you walk away).

Oh... there will always be sales. I do not predict the Realtor commisions to drop below .25% of GNP (a normal recession bottom). Last I saw on CalculatedRisk, we're down in the 0.5% of GNP range (a pretty accelerated rate of real estate sales by normal measures). That's right, what we see now is the results of STILL ACCELERATED REAL ESTATE SALES. When we go to recession levels of sales...

Of course the NAR is still predicting a recover in the 2nd half of 2008. That's a joke. Leading indicators from San Diego (thanks to Jim the Realtor, there are good Realtors out there) show that the credit tightening above $800k is accelerating. No one should be buying above $600k without 25%+ down. Soon we'll be back so sane lending practices. Somehow we're still at loose lending standards. (How? Oh yea... the Fed is pumping money which is killing the value of the dollar.)

Its all a question of when the Fed switches to a strong dollar policy. If you have a large down payment saved up, you should be looking forward to that event (for it will lower the montly costs of home ownership).

Got Popcorn?


The Anonymous said...

NEIL - CALM DOWN MAN!!! There is a palpable change in the tone of this post you just threw up there. Most of what you have said recently was more or less thoughtful and reasoned. However, if I may, I think this last post of yours almost appears a bit defensive or hostile, or perhaps even a bit desparate. Again - CALM DOWN!!!

Case shiller says prices are declining slower - it is what it is - but the point is it is still DECLINING.

Now, maybe this means you are incorrect about the most rapid declines being just up ahead. It could be (notice I said "could" not "is") that as I noted in my last post to you, we saw the big declines, it just isnt as big as some want, or exactly where geographically some want to see it.

On the flip side, it may also mean that the declines from here on out are much SLOWER but much LONGER. You yourself noted last month "I doubt we'll keep seeing home prices decline like now" - maybe it turns out YOU WERE RIGHT.

It could also mean that one month is not a trend - it could mean, there was a lull between subprime winding down, and ALT A winding up - it really could mean anything at this point!!!! Either way however, it is as you note something you and really all of us should pay more attention to.

In any event, you might want to review what you posted above. Give your readers a bit more constructive comments about (a) why this might be a false sign of lessing declines or (b) why this might be a true sign of lessining declines and either event (c) what we should look for from here on out to confirm either (a) or (b) is correct.

No one is saying its over, but I think its definitely something to pay attention to in the weeks and months to come. Again, as I said before, someone will be the last one in the room screaming "knife catchers" and "dead cat bounce" when everyone else has left - dont be that guy.

Rosalie said...

I am not an expert on this subject by any means at all. But, I agree with Neil in the fact that we will see greater price drops in 2009. As an inactive Realtor I see on a daily basis how many more and more homes have foreclosure activity. Many of the homes with this activity have still not entered the market.Also, cost of living has increased so much that I do not understand how some people are managing their mortgages at all. Maybe I feel this way because most of the searching I have done has been in the San Gabriel Valley and Inland Valley (not your Beverly Hills). I also believe we are still loose lending, because lenders are still not "requiring" your old 20%+ down payment. When this time comes as it will come, inventory levels will only increase and push house prices lower. I could very well be wrong. For example with my parents...in their neighborhood about 6 months ago they mentioned they highly doubt they will see their neighborhood prices drop below 300K. Today there are two houses that are listed on their street, one for 260K and the other 220K. Some of these sold in 2001 for about 110-130K. Will they drop that much? maybe not...but I know we are still not close to afford ability at least in our area. Keep in mind these 200K+ homes are listed at such because they are already foreclosed on. But, you still have your sellers in denial trying to list homes in the area for 380K. This is not to say how much other debt these homeowners are in. About a year ago...we drove by some ranch homes that I fell in love with. My husband would say wow these people are well off...with nice homes and new Hummers and Mercedes parked in the driveways. When in reality these people did not "OWN" anything. About a week ago I found 3 of these homes on the market. They did not have any pictures on their listing...so I Googled their address and found it comical to see the cars parked in the driveway . I can go on forever. I am young and have much more to see and learn in my lifetime. There is a possibility that I will be that

"someone who will be the last one in the room screaming "knife catchers" and "dead cat bounce" when everyone else has left - dont be that guy"..

but some many other "FACTS" deter me from thinking that will happen.

Rosalie said...
This comment has been removed by the author.
Rosalie said...

BTW heres an interesting link..


"notice the last line"

“It will vary place to place,” he said. “You are more likely to see an earlier bottoming out in areas that didn't see overbuilding, like the Northeast. It will probably be in 2009 there. In other places, like Southern California, I think you are looking at 2010.”

Rosalie said...


wannabuy said...

The Anon,

I'm tired about the MSM trying to claim the turn around is about here. If they can still state that... I'm going to let my readers interpret what they want from the graph. Its scary. Anyone not ready to wake up to that had better pay attention soon.

But right now, with prices dropping as fast as they are, the buyers right now are knife catchers. Let's not pretend otherwise.


Thanks for your input. Oh, I won't be the last one in the room screaming "Knife catcher." ;) I fully plan to buy in when I still see some downside risk. Why? Selection (e.g., view). But we're no where near the normal market paralysis we see every downturn.

It is all about afford ablity. Until we approach the range of affordability... there is no floor.

Maybe my tone is from the frustration of having to spend too much time dealing with subordinates who are giving up and leaving the bubble markets. (For engineers, the job opportunities are amazing. But for engineers, the salaries are pretty much the same nationally. Region does not play into compensation.) Do engineers get priced out of markets? Of course (e.g., non-tech out of Silicon Valley and Grumman's huge facility on Long Island is now a shopping mall!)

I'm going to wait and watch. The whole time learning. :)

I do recommend:

The updated article today on median price to median income says a lot. We could be looking at a 30% price decline in 2008 (for LA). I still expect worse in 2009.

None of the markets that still have a Case-Shiller above 200 won't be hard hit.

Got Popcorn?

The Anonymous said...

Rosalie - I think Neil is fully capable of defending himself. Oh and as to your assessment, it is clearly colored by your focus on the LA exurban market (as mine is on the DC core market).

As it turns out, there are vast differences depending on (1) the market, and (2) the location of housing within the market. Early on it was assumed that some markets simply lag the harder hit ones - now there is increasing evidence that they simply are different - the hard hit ones will continue to be hit hard, and the less hit ones will start to recover.

Just today, First American Title issued a report rating the risk of mortgages in the top 100 markets by size. 5 of the top ten risky markets are in California. The amazing thing is DC is now listed as one of the 10 LEAST RISKY mortgage markets in the country!

Even worse for me (and better for you) there is increaing evidence that the core areas of cities will continue to do fine. You say inventory is rising where you are eh? Well around here, inventory peaked 2 years ago and is now falling when it should be seasonally rising. In the core DC markets, there is about 4 months of inventory in houses priced between 800K and 2.5 million. This is a staggering rate considering I was told, people really arent rich as they appear when the funny money goes away. Now it is beginning to look as if there really are some rich people after all. Even worse, there is increasing evidence the price of gas is causing renters to leave the exurbs and move in, causing rents to rise in the core areas. Thus not only am I looing to buy in one of the least risky markets in the US, I am also looking at the one of the core areas where rents are rising!!! By contrast, you are looking at one of the 10 worst markets in the US, and in an area where gas prices are absolutely destroying the whole of LA outside the core.

Thats the thing about this downturn that is so DIFFERENT than the ones before it. Core DC didnt have much speculation, exurban DC had a decent amount and exurban CA had a ton of it. Core DC had one of the lowest rates of Cash outs, Option Arms, etc., exurban VA had a decent amount, and LA had a ton of them. DC itself is still producing jobs at a respectable clip. The jury is out on what LA job market is doing.

Bottom line is this is all good news for you, and very very bad news for me. Early on, I looked to these blogs as a source of knowledge and something to hang my hat on. Now I am beginning to feel I was hoodwinked.

Oh and this isnt a jab at Neil. He was doing the best he could with the info available to him. Thing is, when conditions change, I think its important to make distinctions between markets and locations within markets.

Rosalie said...

I am not trying to pick sides at all.And I know Neil is very capable of defending himself. I am just commenting on what I am seeing overall. I have friends in others areas of the nation and I hear the same things everywhere else. Like I have said I am young(23) and have much to learn and see. I was still a child in the last downturn. But based on history, stats and conversations with all "walks of life" people; rich, poor, middle class, entrepreneurs, etc this it is only getting worse.

wannabuy said...

The Anon

I agree there are different markets. But we're watching a tightening of credit. Ignoring that... is silly. I've posted before how the declining values roll in from the outside.

If there really are only 4 months between $800k and $2.5M congrats. That happens to be the hardest hit market in California. I haven't seen that. I'm watching engineers from DC apply to get out. Just like LA. Why? It appreciated too quickly. Its one of the last three at a CS > 200. In other words, one of the super bubble markets with LA and Miami. think about that...


Nothing wrong with being young but observant. ;)

In general:
Its too early to differentiate. I still recall the prestige zip codes claiming they were immune and then they fell *more* than the low end in the last downturn. Ouch... Friends of mine were bankrupted. I'm not typing out of spite. Its out of honest concern.

This downturn has years to go. Multiple coworkers just announced their relocation to Colorado (seems to be more popular than our Texas opportunities...). Only one from DC. But "standard of living" conversations are here. Remember those from the 1990's?

Got Popcorn?

The Anonymous said...

Neil - Please dont give me congrats that the high end close in market is so tight. It is killing me! Far out high end McMansions have cratered and are going for fire sale prices. To bad I (and apparently no one else) want to live there.

Ive looked a bit at the Cal downturn in the early 90s that you love to reference, and I think you are missing a few things. From what I have seen on Calculated Risk, the high end started falling first, and then the low end after, and the high end fell more. Here the reverse is happening - why is that?

The answer to me is two fold. 1 the funny money. As has been well documented by you and others, the junk loans were offered to new segments of society that really werent equipped to handle it. Again, you have covered this adequately, but you should acknowledge that this really is a big differnce from the 90's downturn. How and why that matters, im not sure, but its just food for thought.

Secondly and somethning IMHO you almost completely ignore is that the 90's downturn was LED by job loss! From everything i have read, when there is job loss, the downturn starts in the high end, and then trickles down from there. That seems consistent with how the 90s downturn shook out for CA (high end fell first and harder). Here, that is not happening! Job loss is actually now a LAGGARD as housing is now pulling down broader segments of the economy. How is that going to affect this downturn from here on out? Will it cause high end to fall last? Maybe. Fall least? Maybe.

What about gas prices - we are seeing tons of high end stuff falling in far out prestige neighborhoods. I dont think that happened last time around. Further, since it has happened does that mean that THIS and ONLY THIS is the high end fall we are going to see? I hope not, but maybe?

In sum, I just think you are focusing too much on the last downturn to give you indications of how this one will turn out. Clearly there are huge differences in what caused this one versus the 90's downturn. How this will affect things going forward is something I think you really need to focus on.

The Anonymous said...

Incidentally, DC (Virginia) inventory that Harriet uses was just updated - not only is it below 2006 and 2007 levels, it is declining during a time it should be rising. Hidden inventory? Sellers holding back? REO's not listed? Unlikely - its declining in every county at the same rate - even in areas that havent been hit hard and where sales are still brisk. At the current rate, some areas could see inventory fall below 2005 levels at the end of the year - unbelievable.


Back in February you said:

"Now DC is lagging other areas in this downturn; but this inventory buildup will cause the wheels to fall off by July."

We have a few more days to go til July, so this prediction isnt totally dead yet - I suppose inventory could explode in the next 4 days (yeah right).

I dont blame you on that. I saw the high january start the same way you did - a new peak is building! Instead we were just seeing a flattening trend that has continued and now starting to decline. Yet another example of how this is NOT playing out the way we would like.

Rosalie said...

In my opinion there is a lot of hidden inventory. For example there are a group of 6 people that I know personally(family & friends). All of them have foreclosure activity on their homes, but NOT ONE is listed in the MLS. Also, 3 of those are actually up for sale with a sign and all, but are not showing up in the MLS. The other three are not for sale yet at all, but will be eventually.

Anon- I suggest you go to your local county and take the opportunity to look through property records (most counties services are offered online also)and you can more or less see whats going on in your area and neighborhood if you would like.

The Anonymous said...

"Rosalie said...

Anon- I suggest you go to your local county and take the opportunity to look through property records (most counties services are offered online also)and you can more or less see whats going on in your area and neighborhood if you would like."

Rosalie - done and done. As luck so has it I am an attorney and some of my associates do a fair amount of commercial real property transactions so I have access to all the county databases (subscription and free). I have looked at land records extensively for residential listings. For the last 12 months, foreclosures (i.e. inclusing tustees sales and deeds in lieu) for the ENTIRE COUNTY I am interested in are 167. Short sales are a bit harder to compile but as far as I can tell there were 198 last year.

Of these 122 of the foreclosures and 181 of the short sales, are in a part of the county charitably called the "ghetto". Thus, for the 40,000 or so respectable residences in the county there were 45 foreclosures and 17 short sales last year - essentially 1 in 1,000 homes.

Oh and this is wayyy up. In years past the ratio was alot closer to 1 in 4,000 homes so we are certainly "hurtin". Its just our definition of "hurtin" is obviously alot different than some areas!

Oh and as to hidden inventory, I just checked - Jan 07 there were 7 REO's and yes only 1 appeared on the MLS in the next 3 months (our "mark to market" is pretty fast here in Virginia).

This Jan there were 11 REO's and of them 8 are now on the MLS. So yes, as all the gloom and doom prognosticators have said, the hidden inventory has "unleashed" its "full fury" on our market. Yet as with so many of the anticipated things that could cause our market to fall apart, this one was a real dud.

wannabuy said...

Is DC the only market without Shadow inventory? Where I want to buy, at least a quarter of the inventory is Shadow inventory. Its been well documented on way too many blogs.

Note: I'm only looking at very nice areas.

Why are the work conversations only about commuting costs? Why are my coworkers not planning their normal trips? We have overtime and an industry leading compensation package.

I have coworkers from DC. A number are moving to more affordable areas. Now far less than from Southern California...

Do read CR's article on bond "No bids." If that doesn't make you worry... I don't know what will. Always look at the bond market for how the economy is going (not stocks... too prone to manias).

Let's put it this way, when Indymac goes under... you'll feel it out there in DC.

Got Popcorn?

The Anonymous said...

"Is DC the only market without Shadow inventory? Where I want to buy, at least a quarter of the inventory is Shadow inventory."

No - it clearly does exist, and is a big part of the market out in loudon and PWC counties. However, close in where things are selling, and there really havent been that many foreclosures, short sales, & REO's to begin with, its really not very impressive. Right now at least, the close in consensus is if put it on the market, give a 5% concession and closing help, it will move and move relatively quickly. Translation - there is no need to hide it in the first place.

"Let's put it this way, when Indymac goes under... you'll feel it out there in DC."

Maybe - Hopefully. Although Ive been burned so much by believing that "this will do it" or "that will do it" that I really arent getting my hopes up. Im still convinced job losses will do it. The rest of it, I take with a grain of salt.

wannabuy said...

Im still convinced job losses will do it. The rest of it, I take with a grain of salt.

A reasonable attitude. Housing prices should always be tied to job and income growth.

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