If you think Housing is at a bottom, think again... excellent article

[C-Gold]

American Homeowners Still in Denial but Less in Denial than Last Year


I was bemused reading surveys a year ago about how many homeowners still thought the value of their home was rising and/or at least flat, while the reality was almost everyone was losing value. Must be the narcissism theme - this pain is around me, but certainly I am not subject to it. You could see this when so many people were putting homes on the market for prices that made little sense than sat aghast as no one came to their open houses.

Per Zillow.com, we are "up" to 60% who believe their home has lost value (even though the reality is 80%), but thankfully the majority now believe we have reached a housing bottom. These are the same majority who thought their home had not lost value 12-18 months ago. But I will say this - so much of this "shopping" economy is based on confidence, and I will give the administration credit for a great campaign of installing confidence - we've now hoodwinked the majority of Americans into believing housing has bottomed, and the banks would be solvent with just another $75 billion.
If so please let's take back rates to 4-5%, and withdraw all government support for said banks... you will see how quickly we have "bottomed". But as with the stock market - perception is reality, and if you can get enough people to believe housing has bottomed they will run out there to soak up some inventory. Granted, they will promptly be underwater in many cases within 3 months, but that's ok - you sold them on the thesis and they did their part.

Already, 75% of Americans believe their home value will be flat or increase in the next 6 months.

• Most American homeowners believe their home's value has declined over the past year, but a majority also think a bottom has been reached, real estate website Zillow.com said on Thursday.
• A majority, or 60 percent, believe their home lost value during the past 12 months, according to the Zillow Q1 Homeowner Confidence Survey. In reality, 80 percent of homes across the country lost value during the past 12 months, according to Zillow's first-quarter Real Estate Market Reports.
• Additionally, 18 percent believe their home gained value in the past 12 months, and 22 percent believe its value remained the same, according to the survey.
• "The perception of American homeowners is finally catching up to reality, which is that 80 percent of all homes in the country lost value during this past year," Dr. Stan Humphries, Zillow's vice president of data and analytics, said in a statement accompanying the survey.
• "While homeowners are now more realistic when looking backward, they are still pretty starry-eyed when looking forward, with three out of four homeowners believing that their own homes' prices will increase or be flat over the next six months. Unfortunately, there are few markets we expect to perform this well," he said.

This is my favorite part - yes, home values might be dropping around me but NOT MY house

• Most homeowners -- 74 percent -- believe their home will not decline in value in the coming six months, effectively calling a bottom to their own home's housing slide, Zillow said. Specifically, one in four homeowners, or 27 percent, think their home's value will increase in the next six months, while nearly half, or 47 percent, believe its value will remain the same.

Now, as we've stated in many pieces, there is a great amount of inventory of housing that is not on the market; these are sellers who still live in a dream parallel universe just waiting for housing to rebound (imminently) so they can get back to prices that "are fair" so they can unload their homes. After all, if you are underwater, you'd actually have to bring money to the table, and with crumbled balance sheets many simply can't do that. So all they have to do is wait "a few months" for housing value to bounce, and then BOOM - they can relist their home that they have been itching to get out of.

• It also showed a significant number of potential sellers are holding back due to the current market. When asked about future plans to sell, 31 percent of homeowners said they would be at least "somewhat likely" to put their homes on the market in the next 12 months if they saw signs of a real estate market turnaround, the survey showed.
• "Also interesting is the information we have for the first time this quarter on the levels of 'shadow inventory' - homes that people would like to sell but that aren't currently on the market, and thus aren't captured in the official number of homes on the market," said Humphries. "With almost a third of homeowners poised to jump into the market at the first sign of stabilization, this could create a steady stream of new inventory adding to already record-high inventory levels, thus keeping downward pressure on home prices."

And that folks is exactly why as the pundits breathlessly (arms waving of course) will tell you housing inventories will be decreasing in the months to come, and the stock market will rage higher when indeed the second derivative data point arrives; a new wave of housing stock will be waiting right behind it. And another. And another. But this won't stop the stock market anxious to find any green shoot, and hence we have some housing theme positions to take advantage of that "green shoot discovery anxiety disorder." As always, in the stock market it does not matter what reality is, it matter's what the herd's perception of reality is.
I will continue to say those jumping in the housing market (excluding foreclosures at 50%+ off market prices) thinking they are getting bargain prices are akin to those people buying NASDAQ stocks at 50% off in latter 2001 - thinking they were getting bargain prices. Then came 2002.


http://seekingalpha.com/article/138...l-in-denial-but-less-in-denial-than-last-year

 

[C-Gold]

I agree with this guy 100% and he brings up good points.
- People too overly optimistic
- People seem to ignore the houses that "will go on the market" once prices stabilize. The market really isn't just the current buyers... current sellers, but there are a ton of people that would sell ( push prices down) once we see stability.

- Plus there is a huge glut of unsold NEW homes.

- but the big issue is the financing. Who really has the ability to thrown down 20% cash, good credit history, good stable job history? Sure some people do, but the masses bought high and have to stick with it.

At some point prices "stabilize", but it could take 10 years before they get back to where they were before... in fact, it could take longer than that.

Prices have gone down 26 months in a row... and in my opinion they aren't even done falling....

I worked in real estate during the BOOM, and it boggled my mind the shit that went on... I am going to one day tell my kids/grandkids about the biggest real estate boom in human history.

 

[Willie99]

I don't have a crystal ball and will not predict when the bottom occurs (occurred), but there are reasons to have some optimism.

Both prices and interest rates are low, something literally unprecedented in my lifetime (maybe never before). The 90% + of people still working that want a new home will be tempted to buy now, or at least when their fears about a total economic collapse subside.

The average household income can afford the average home. After most booms, this ratio is far out of whack. At one point in the 90's in CT, the average household income could afford something like 48% of the average price of homes. Obviously, something had to give.

Of course, location, location, location is still a major player. Economically distressed areas like the rust belt and vacation destinations like Vegas and Florida are going to suffer longer.

 

[barman]

Ayuh....My contacts who know the real estate biz here in TBay area tell me that there's likely still a good 9-15 months (spring/summer 2010) before most of us need become overly concerned about pre-owned house prices moving up enough to stimulate some "buy now" urgency.

We had a goal of Dec 2009 for our first mortgage, but have decided to just grind away for the next nine months in what should be our most prosperous stretch since we got married.

I'm pretty confident that come June 2010, we'll not have lost any edge we might have had six months earlier.

 

[wolfie_cr]

I don't have a crystal ball and will not predict when the bottom occurs (occurred), but there are reasons to have some optimism.

Both prices and interest rates are low, something literally unprecedented in my lifetime (maybe never before). The 90% + of people still working that want a new home will be tempted to buy now, or at least when their fears about a total economic collapse subside.

The average household income can afford the average home. After most booms, this ratio is far out of whack. At one point in the 90's in CT, the average household income could afford something like 48% of the average price of homes. Obviously, something had to give.

Of course, location, location, location is still a major player. Economically distressed areas like the rust belt and vacation destinations like Vegas and Florida are going to suffer longer.

I agree with you that lower prices temp a lot of people, hey even I bought one and I am not an US resident (my wife is though and well, it was her idea)

The problem is that with the latest tricks that most credit card companies are pulling..........the % of people that can ACTUALLY get finance is lower (EVEN IF you have done everything right)

Look for example what I was reading about a while back............CC company #1 sees your credit line and say 'hey, this guy has too much, he is only using 2k out of 20k ...........he is a big liability to us.......and well, we are 'sort of' broke too.......so lets cut him to 2.2 k'.....

SUDDENLY without anything bad being done, the credit score sees that in one of the credit lines he is pretty 'maxed out'.....shoot.....well that is going to lower his score

credit card company #2 and #3 see this 'shoot.this guy is in trouble, lets cut his credit lines TOO' >>>credit score sinks even more

and voila.........no credit for you..........

plus the job situation keeps getting worse......meaning more and more people that might have been ok BEFORE are now pretty screwed....

I don't think there will be a rebound in housing until the job situation stops deteriorating

 

[Presto]

Anyone read the article by NY Times reporter Edmund Andrews?

Excellent example of how crazy the housing market was, and how it's not even close to being over. He has gone 8 months without paying on his mortgage and the bank has yet to contact him due to a massive backlog. The guy is a great writer.

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?_r=1&pagewanted=all

 

[Dawoofdaddy]

Great article and thanks for posting it C-Gold.

However, for whatever reasons, some people are just as ignorant now about real estate and the overall economy as they were a few years ago.

The link posted below will provide you with some great reading just how ridiculous some people have been about real estate.

Too many Americans are reading, listening, and trusting the opinions of the same people that incorrectly predicted the real estate crash in the first place.

http://forum.therx.com/showthread.php?t=291308

<table width="100%" cellpadding="0" cellspacing="0"><tbody><tr><tr><td> </td></tr></tr></tbody></table>The economy looks fine down here!

 

[leisure]

Great article and thanks for posting it C-Gold.

However, for whatever reasons, some people are just as ignorant now about real estate and the overall economy as they were a few years ago.

The link posted below will provide you with some great reading just how ridiculous some people have been about real estate.

Too many Americans are reading, listening, and trusting the opinions of the same people that incorrectly predicted the real estate crash in the first place.

http://forum.therx.com/showthread.php?t=291308

<TABLE cellSpacing=0 cellPadding=0 width="100%"><TBODY><TR><TR><TD> </TD></TR></TR></TBODY></TABLE>The economy looks fine down here!

Maybe some people do have crystal balls!!! OMG that thread was epic Woof and you had it right from page 1.... hilarious....

 

[tiznow]

just way too much inventory to work through still

most bullish news about housing i've seen recently is one that at the surface sounds bad....new home construction hits new lows

plus on the mortgage front come early 2010 is when the next round of resets starts flowing in big time in the Alt-A, option ARM category

regardless of when the housing market bottoms don't expect any V shaped bounce

it's likely gonna hit the floor and than scrape it for quite some time

 

[Dawoofdaddy]

Leisure, there are so many classic posts in that thread, I wont list them all here.

This one if from early in the thread, and since I dont want to read the entire thread this afternoon to find other gems, below is one of my favorites.

@)@)@)@)@)

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08-09-2005, 12:01 AM <!-- / status icon and date --> </td> <td class="thead" style="border-style: solid solid solid none; border-color: rgb(253, 222, 130) rgb(253, 222, 130) rgb(253, 222, 130) -moz-use-text-color; border-width: 1px 1px 1px 0px; font-weight: normal;" align="right"> #69 </td> </tr> <tr valign="top"> <td class="alt2" style="border-style: none solid; border-color: -moz-use-text-color rgb(253, 222, 130); border-width: 0px 1px;" width="175"> NoTax <script type="text/javascript"> vbmenu_register("postmenu_2100829", true); </script>
I win every year!!!!!!!!!!



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<hr style="color: rgb(253, 222, 130); background-color: rgb(253, 222, 130);" size="1"> <!-- / icon and title --> <!-- message --> Personally I think that housing in certain areas like California are undervalued. I personally think that many people will be priced out of the state. It is the best state in the country.
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[tiznow]

in related news i was about to start a seperate thread about this but fits well with the above post LOL

what's your o/u on us all bailing out cali woof?

----------------------------------------

California One Step Closer to the Brink
Posted May 20, 2009 12:30pm EDT by Joe Weisenthal in Recession, Banking
Related: spy, dia, ^ixic, xlf

From The Business Insider, May 20, 2009:

Another night in the great direct-democracy known as California.

Facing a minimum $15 billion budget shortfall, voters rejected a series of ballot items that would've closed the state's crisis-level deficit through tax hikes and spending cuts (it's the tax hikes that were the real no go). All of the measures had been expected to fail, even though Governor Schwarzenegger supported them.

Prop 1A would have capped state spending, kept in place a tax hike for two years, while also establishing a so-called rainy day fund. That was the big one and it went down 65%-35%.

The one measure which did pass, comfortably: A rule limiting pay hikes for state politicians.

So now the onus is back on the legislature and the Governor to close the deficit, which stands at $21 billion. It's going to be brutal. The only real areas to get those kind of savings are in core services like education, prisons, health. You know, the big things.

Any affected group will cry bloody murder, no matter what's done. There's been some chatter that perhaps the negotiations could be easy, since the government has few options. We doubt it, though. The state would rather play chicken with Washington, DC and get its bailout, rather than make cuts in education and prison spending. In fact, it might just rather default.

Update: Good thoughts from Megan McArdle, who concludes that California MUST be let to fail.

http://meganmcardle.theatlantic.com/archives/2009/05/is_california_too_big_to_fail.php

 

[Dawoofdaddy]

I had to read a few of the posts from Northern Star.

Another example the level of ignorance and fantasy exists among Americans regarding this topic.

Some of the top level idiots actually become hostile when someone tries to explain to them that their fantasy is false.

I suppose hes feeling pretty hostile now the actual crash is obvious.


uke1:

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03-20-2007, 10:02 AM <!-- / status icon and date --> </td> <td class="thead" style="border-style: solid solid solid none; border-color: rgb(253, 222, 130) rgb(253, 222, 130) rgb(253, 222, 130) -moz-use-text-color; border-width: 1px 1px 1px 0px; font-weight: normal;" align="right"> #175 </td> </tr> <tr valign="top"> <td class="alt2" style="border-style: none solid; border-color: -moz-use-text-color rgb(253, 222, 130); border-width: 0px 1px;" width="175"> Northern Star <script type="text/javascript"> vbmenu_register("postmenu_3957436", true); </script>
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<hr style="color: rgb(253, 222, 130); background-color: rgb(253, 222, 130);" size="1"> <!-- / icon and title --> <!-- message --> Quote:
<table width="100%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr> <td class="alt2" style="border: 1px inset ;"> Originally Posted by DAWOOFDADDY
Again more rubbish. This example is equally blanketing every market in the entire country.

"Buy a house and everyone gets rich, everyone proclaims"!

Sorry, but markets dont operate this way and real estate, is no exception.

Thus, this is exactly why this is a huge bubble and in most markets the bust will be tremendous.

:drink:
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More complex concepts are confusing for you. I just pointed out why not to pay off your mortgage and invest the difference and why. Later you argue you should have made a million by investing in the stock market and use an example of Cisco? How many people picked Cisco and held it and made a million? I could just win 100 sports bets in a row with last weeks newspaper.

I think you can only use history as a guide to the future and possible returns. Historically the stock market has a return over a long period of time of 10+%. Take any 10 year period. You can't judge a long term plan on a one month or one year result. Housing market has a long term increase of approximately 3%. In a free market supply and demand drives prices, if the market you are buying in has demand the prices will go up. If you are in a market where there are no jobs and people are moving it will go down. If you are buying in a area with a strong economy the risk of depreciation decreases and the likelyhood of the housing market increasing in value increase.

The recent housing slump and now the subprime fallout is going to present some good buying opportunities just like the stock market crash. I think the rental market is going to be much stronger and the ability to demand higher rents by us slum lords is going to increase because with the fall out of the subprime market is that some people that want to buy wont be able to buy. They will be forced to rent. Back to supply and demand, more renters will result in higher rents.

And renting is not the number two way to become a millionare, it is not the stock market, it is real estate!!!!
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[Dawoofdaddy]

Ok, so I lied about reading the entire thread.

After Tiznow and Jdog bumped the thread, I couldnt resist finding a gem or two from WC Bias...arguably among the top real estate sheep.

His below swiss cheese post again shows the bubble. More amazingly, is he made this post AFTER the bubble began crashing.

@)

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08-01-2007, 02:07 PM <!-- / status icon and date --> </td> <td class="thead" style="border-style: solid solid solid none; border-color: rgb(253, 222, 130) rgb(253, 222, 130) rgb(253, 222, 130) -moz-use-text-color; border-width: 1px 1px 1px 0px; font-weight: normal;" align="right"> #216 </td> </tr> <tr valign="top"> <td class="alt2" style="border-style: none solid; border-color: -moz-use-text-color rgb(253, 222, 130); border-width: 0px 1px;" width="175"> WC Bias <script type="text/javascript"> vbmenu_register("postmenu_4339438", true); </script>
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<hr style="color: rgb(253, 222, 130); background-color: rgb(253, 222, 130);" size="1"> <!-- / icon and title --> <!-- message --> The "hissing bubble" is just another word for correction. I'm sorry, we are not headed for another depression because of a correcting market that got overheated with a very small number (in relation to actual home owners) that played with monopoly money. The vast majority of homeowners can and will continue to make their payment, despite what happens to their equity. Just like the housing recession before, and the one before it. At the end of the day, the home they bought 30 years ago is worth hundreds of thousands more than when they bought it.

You can research real estate cycles and trends for the past hundred years. It will take a total collapse of the economy before real estate becomes a bad investment long term...and even then it will rise from the ashes.

As long as people are working and can afford their payment, they are not going to leave their home just because they have lost their equity, or worse, are upside down. Unemployment is a far bigger threat than rising interest rates. Again, the number of "investors" trying to make a quick buck is a marginal figure compared to long-term homeowners. Many of those investors are already out of the game, or are in the process of losing their ass as we speak (I know a guy with 27 homes all going back to the bank)

By the way, I've read completely contradictory data to that cited in Post 55. The sky is hardly falling in San Diego. I lived through the last recession and this one has a long way to go before it reaches the bottom in that city. I remember the chicken little stories well and how there had never been outmigration ever in the city and that there was a major oversupply of housing there. It took four years to rebound and when it did, prices averaged at least 10% growth for 10 years. It is an insulated market...at worst there is a price correction, and so far the correction has been minimal. San Diego has always been at the top of the least affordable index for a reason, people will always want to live there, only more so if and when prices drop.

As for Las Vegas, there is a rebound effect in any growing housing market when it comes to inventory. When you are building 5,000 new homes per month, there is a real good chance you are going to be hit with an oversupply of housing when the engine slows....and here we are. Regardless, the city continues to generate new jobs, and your average joe with a hammer is making at minimum $60,000, that makes it real easy to afford a $250,000 to $300,000 home. I expect another 20% to 30% price correction....At the end of the day I'm still over what I paid for the house, and when the market emerges prices will increase again.

Bubble...correction...call it what you want. The real estate market was due to decline and will continue to do so for a few more years. I expected it a few years before it really started.

At some point the correction will end and prices will rise well above what we see today. People still bought houses when interest rates were double digits, some near 20%...prices still rose. We are in a down cycle, but the sun will shine again. We as a people are always going to not only want, but need a place to sleep at night, to keep our shit. You can't sleep on a bond or a stock dividend.
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[C-Gold]

I don't have a crystal ball and will not predict when the bottom occurs (occurred), but there are reasons to have some optimism.

Both prices and interest rates are low, something literally unprecedented in my lifetime (maybe never before). The 90% + of people still working that want a new home will be tempted to buy now, or at least when their fears about a total economic collapse subside.

The average household income can afford the average home. After most booms, this ratio is far out of whack. At one point in the 90's in CT, the average household income could afford something like 48% of the average price of homes. Obviously, something had to give.

Of course, location, location, location is still a major player. Economically distressed areas like the rust belt and vacation destinations like Vegas and Florida are going to suffer longer.

NO NO NO NO NO!

Prices are LOW-ER, but they are not low. Unemployment is around 13% for real....

Do you really think the average person has...
20% for a down payment
A mortgage that won't be more than 33% of their income
* and the desire to actually BUY a house*

Fuck now.

Do you know what current housing inventory is?

Do know what what inventory does to prices?

Do you know that some people want to "trade up", but can't sell their old homes?

Do you know that there are still tons of forclosures to be sold?

You say that "plenty of people want to buy"... but in the greatest housing boom in human history, everybody that wanted to buy bought.

The people that wanted a house ( and could afford it) bought...
The people that wanted a house ( and couldn't afford it) bought
Speculators bought

NOW, there is a lack of buyers, over supply, and falling prices...

IN fact, prices fell 26 straight weeks in a row ( 2 and 1/6 years) and they aren't done even falling yet.

Once prices do come back... YOU ARE NOT GOING TO SEE RAPID PRICE APPRECIATION.

 

[C-Gold]

Anyone read the article by NY Times reporter Edmund Andrews?

Excellent example of how crazy the housing market was, and how it's not even close to being over. He has gone 8 months without paying on his mortgage and the bank has yet to contact him due to a massive backlog. The guy is a great writer.

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?_r=1&pagewanted=all

I read that entire article too, and of course he's a NY Slimes writer....

I was fascinated by his incompetance.... He might " be smart", and have a college degree, but that guy is a fucking fool.

It was like watching a train wreck.

The housing mess is NOT done. I worked in the industry and I was the most bearish person in my entire company ( and the most correct). It used to sicken me to see what was going on. It was so fucked up I almost wanted the house of cards to all collapse. I told everybody I knew NOT to buy to the point that made me look like an asshole.

 

[C-Gold]

I had to read a few of the posts from Northern Star.

Another example the level of ignorance and fantasy exists among Americans regarding this topic.

Some of the top level idiots actually become hostile when someone tries to explain to them that their fantasy is false.

I suppose hes feeling pretty hostile now the actual crash is obvious.


uke1:

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<hr style="color: rgb(253, 222, 130); background-color: rgb(253, 222, 130);" size="1"> <!-- / icon and title --> <!-- message --> Quote:
<table width="100%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr> <td class="alt2" style="border: 1px inset ;"> Originally Posted by DAWOOFDADDY
Again more rubbish. This example is equally blanketing every market in the entire country.

"Buy a house and everyone gets rich, everyone proclaims"!

Sorry, but markets dont operate this way and real estate, is no exception.

Thus, this is exactly why this is a huge bubble and in most markets the bust will be tremendous.

:drink:
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More complex concepts are confusing for you. I just pointed out why not to pay off your mortgage and invest the difference and why. Later you argue you should have made a million by investing in the stock market and use an example of Cisco? How many people picked Cisco and held it and made a million? I could just win 100 sports bets in a row with last weeks newspaper.

I think you can only use history as a guide to the future and possible returns. Historically the stock market has a return over a long period of time of 10+%. Take any 10 year period. You can't judge a long term plan on a one month or one year result. Housing market has a long term increase of approximately 3%. In a free market supply and demand drives prices, if the market you are buying in has demand the prices will go up. If you are in a market where there are no jobs and people are moving it will go down. If you are buying in a area with a strong economy the risk of depreciation decreases and the likelyhood of the housing market increasing in value increase.

The recent housing slump and now the subprime fallout is going to present some good buying opportunities just like the stock market crash. I think the rental market is going to be much stronger and the ability to demand higher rents by us slum lords is going to increase because with the fall out of the subprime market is that some people that want to buy wont be able to buy. They will be forced to rent. Back to supply and demand, more renters will result in higher rents.

And renting is not the number two way to become a millionare, it is not the stock market, it is real estate!!!!
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Sounds exactly like words parroted from the scam artist Robert Kypsaki, poor dad poor dad...

Leverage up with as much real estate as possible, rent it out and become rich...