Welcome 2007, SCREBC Blog Style
Chuck Ponzi January 11th, 2007
Hi all. After this last pause, I have had a chance to regroup. I took some time off, got sick, took care of year-end in my real job, and planned out the coming year.
During that time, I had a chance to put together a roadmap for what we all can expect for the year 2007 in Southland Housing. Some good, some bad. Here are my ‘07 predictions.
1. The Bubble Will or Will Not Burst
Ok, that’s flaky, but it’s all in your definition. If you see a 5-7% decrease of the median price in most counties as the bubble bursting, we will be having a bubble burst. If you’re expecting even lower sales numbers (-10% to -20% from 2006) while the standoff between sellers and buyers continues until nearly the end of the year, then yes, you will also be satisfied in saying that it burst.
There will be many who will disagree that this is a bursting bubble. However, many others will be threatened by losing their home due to resetting mortgages, and that is the essense of a bubble by our definition.
The saying goes, “If your neighbor loses his job, it’s a downturn. If you lose your job, it’s a recession.”
2. The Subprime Mortgage market will shrink considerably.
Like try 40% or more. Nonperforming loans are all the speak now. Right out of the gates, default rates on 2006 vintage loans are seeing first payment defaults of heretofore unseen rates. And the risk spread between subprime and prime is dangerously thin. So are commissions. This means that many brokers will be throwing in the town this year.
However, it’s the back end that will create the credit event. The brokers are just the salesmen, but when the wholesale trading business dries up, then the real pain begins. This should be happening sometime later this year (and it has already begun with Secured Funding’s wholesale in Costa Mesa)
3. Gary Watts will not realize how bad he is at predicting things, and he will still make a lot of money this year.
What can we say? Some people are just gluttons for punishment; and I’m not talking about Gary. I’m talking about the people forking over hard-earned money to hear him talk about how bazillionaires are all moving to Orange County. Too bad we haven’t seen too many of them around here lately, we need some more since the current smug people aren’t quite rich enough without their housing gains.
4. We will have asset deflation with stable (high) CPI inflation.
This one’s a tough one, and nearly impossible to predict, so I’m just throwing it out there. We’ll see how it really turns out.
5. I will be spending more time on posts… no really, this is just and excuse to get going again. More commentary in the coming days promised.
Thanks for bearing with me while I took a vacation from the bubble.
John Doe
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Great to have you back. Are we living in Wonderland? According to Gary Watts we are. If you read their statements it is as if you are in some sort of crack induced daze. Inventory is building, prices are declining, and appreciation is zero to negative and we are in a healthy and stable recovery? Yes my fellow bubble readers, we are fools to think that prices going down simply mean that we will have more pent up demand and a bigger jump in the summer; because the more you go down the more you go up. These are the laws of housing according to the real estate selling machine.
There is so much hope that the second half of the year will bring the 2nd coming of the housing gods that these folks are blind to the reality of what is going on. Inventory is rising, prices are declining, and appreciation is zero to negative. Does this sound like a recipe for a 2nd half bounce?
Dr. Housing Bubble
“Inventory is rising, prices are declining, and appreciation is zero to negative.”
Considering this is exactly how the last two real estate crashes occurred, I don’t understand how the bulls can honestly believe it is going to be different this time. Nothing has been different so far.
if by chance the market does somehow take off later this year it doesn’t mean that there is no bubble, rather that it will crash even harder when it does comes down. it’s so far off of the fundamentals that one way or another it has to come down significantly, whether it’s this year or next.
Glad to read some more of this good stuff. One of my favorite places to visit on the web. Still unhappily renting in Rancho Cucamonga waiting for my house to sell in the south sound of Washington State where things are moving about as fast as down here.
I’ve noticed four things:
Existing homes inventory has declined by 15 homes or 7% in price range 500-800K in Rancho Cucamonga.
Generally prices have come down about 5-10% since summer. Some sellers aren’t paying attention as there is WIDE variation in prices in homes of similar location/sq footage/condition/lot size.
The new home developers really aren’t serious about lowering prices yet.
Finally, very few closed transactions are being reported in the Daily Bulletin section on the weekend in this price range. Maybe 1-2 per week.
I’m not buying anytime soon. Probably in 2008 unless sellers get a clue.
Conclusion: this is really going to get interesting this summer.
In reference to the above comment, the decline in inventory has been over the past month (which, of course, includes the holidays).
Great to have you back Mr. John Doe. This is by far the best housing blog I’ve been on. You seem to have your ears real close to the ground and always seem to make a argument.
My question to you is, what do think about the “fact” that housing stocks (kbh, phm, tol, etc) have historically recovered prior to the housing market? I put quotations around the word “fact” because this is only something I have heard (Jim Cramer on Mad Money CNBC to be exact) and have yet to confirm myself. Although, I have seen a newspaper article saying the same darn thing.
If this is true, we should see a recovery sometime this year as the housing stocks have been recovering slowly but surely in the last 3-4 months. And, on a personal note, with this in mind, I have been loading up on KBH and MHT.
No answer here, but could housing stocks “recover” due to cost-cutting measures (like many non-housing related companies do in order to improve the bottom line)?
i.e. they cut jobs, write off non-performing ventures, and whatever they can to reduce costs and then despite a downturn, they actually show a profit to keep shareholders happy.
I need help . . . i want to buy a 4000 sqft house in N. Fontana. Asking price 525 but i put in offer at 480 and they are considering . . . is this a good deal . . . i thought it was untill i read all of tis stuff, Please help !!
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