Reading a recent article on Bloomberg about the sorry state of affairs related to new housing, I came across a new gem of wisdom… something it appears still hasn’t happened for the FED or NAR.
This shocking admission was made here:
New home construction in the U.S. may take until 2011 to return to last year’s level, said David Seiders, chief economist for the National Association of Home Builders in Washington.
If that’s not a lead-in to a great story, I don’t know what is.
You may ask yourself, what does this mean? Why should I care, other than that the homebuilding industry is finally admitting to something I already know? And, frankly, how does this affect us?
I think, honestly, based on the recent news coming out of the new home builders association groups, that they have the most realistic approach to engineering a soft-landing for housing.
Basically, the NAR and the Federal Reserve have denied the existence of a housing bubble. Why? Does it serve them when prices are high? Does it serve them when prices are low? Are they indifferent?
I believe that the NAHB has realized that the whole denial thing actually works against their business model… stack ‘em deep & seel ‘em cheap. That lower interest rates are in their best interest. If they can create a public awareness of how bad the business is (even if it’s not as bad as they say), they can create a better business environment.
It reminds me of the recent tack that John Burns of Real Estate Consulting. If you’ve read the report, you’ll remember this line.
The housing market has softened much more than is being reported. We have been advising our retainer clients for more than one year about misleading national sales information, both with the Existing Home Sales and New Home Sales data. We are now going public with our concerns because we are concerned that policy makers are relying on national data to conclude that the housing market correction has not been severe.
What for the NAHB is a veiled attempt at garnering some crumbs from the Federal Reserve’s table of interest rate cuts, John Burns, at least is openly begging for any sort of doggie treat he can get.
And therein lies the problem:
1. Those who benefit from a weak housing market will likely want to scare people away from housing.
2. Those who benefit from a strong housing market will likely scare people into housing.
While the NARs members would likely benefit from lower prices in housing, they have to at least for the present time, present a face to their members that now is a good time to renew their membership in their Realtors’ association.
Especially when Realtor Association membership is decreasing in the face of increased number of real estate agents; losing market share (for those not aware, to be a Realtor means you are an agent and pay additional dues to the Realtors association for the rights to call yourself a “Realtor”TM which is supposed to signify something, but noone knows what that is.
The number of real estate sales license-holders in California is continuing to rise despite the downturn in the housing market, but the number of Realtors statewide is falling.
Membership in the California Association of Realtors trade group is declining, meanwhile, with statewide rolls forecast to drop to 185,000 this year from a peak 199,168 in 2006.
With all of this gloom in the air surrounding the housing market (much of it is warranted), we need to make sure we don’t throw the baby out with the bathwater. Basically, that financial innovation is good, so long as it finds its intended recipient. And, that good agents can steer their clients into making better housing decisions and actually save them money. Conversely, a poorly performing agent or poorly suited loan product will likey sink your ship either way. Buying a home, after all is not a decision that should be rushed by thoughts that it’ll be too late if you take time to consider your options and you’ll be priced out forever.
Bringing this full circle… just how bad is the market? We’ll likely never know until after the fact. But, any way that it is, we are a long ways from the bottom when vested interests are just now calling the bottom and it’s likely that John Burns may be more right than we thought.
Let me know interested in seeing specific examples where we are already priced below 2003 pricing in Southern California. Next stop… bottoming out, or falling more?
Wouldn’t reversion to the mean require 2000-2001 prices, rather than 2003? And don’t corrections usually overshoot?
Here’s hoping for 1998 levels if not lower, and expecting at least ’00…
My father use to say hope in one and sh#t in the other and see which one fills up first..
No way back to 00 prices maybe 02,03.. but I’m hoping as well!
This is going to be so brutal guys. The only people that are going to be thinking about buying are going to be cash buyers by 2011.
The rest of us are going to be sorting through a lot of mess.
Look at the great depression. Things are heading that way.
Not to mention the boomers are going to start upchucking homes right about 2011-2012.
Think Japan and 20 yrs of price destruction. Unless we have that nifty little war i’m working on.
A little Iranian agression. Little russian and french help.
Pull us right back out of it.
Chuck… I know you’ve taken some times off… but please keep on posting your comments and such.. those help me out alot.. and help me feel better..
) I know that’s it’s wise to wait for another couple of years to make a purchase.. especially in the IE… but I need constant reassurance.. 
)
Thanks a Bunch
Sorry about the lack of posting lately. I have a real job that takes real time. Pesky paychecks.
Anywho…
It is wise to wait a few years if you can. At the very minimum, wait until late this year. There is a rush to the exits which is being packed by short sales, REOs, and builders. No chance for anyone else but very motivated sellers. Buyers dried up just in time for summer fun.
There are some houses in North County SD that I track that have already lost more than 40% of their value. I would expose them on my blog, except that there is ZERO traffic to these places. I mean Zero, so if I went public on them, my cover could be blown by the listing agent.
I’ll be posting more soon now that I believe I have solved my forum spam problem. G(* D!@#$ spammers. Die spammers, die!
Chuck Ponzi
JimAtLaw
I agree with you that the fundamentals support 98,99 prices but I don’t think that will happen. Intestest rates are low right now and will remain low for some times to come. The feds are not going to allow a major housing crash. However, I think that price will steadily drop over the next 5 years or so… eventually it will make sense to buy. Houses do not increase in value… they merely keep up with inflation at best. The last 5 years have been very unique.. It will take time to reverse… I think that in 2013/2014, prices will be where they are today.
I think prices will do one of the following:
1. They will drop alot, then go back up after… or
2. They will remain relatively unchanged.. until 2013/2014
Either way, a house would be worth the same in 2013/2014 as it is today… the question I usually ask myself is “why not wait until 2013 to buy ?” Chuck.. am I making sense ?
Huge risk to the downside. Take a look at an amoritization table and see what a couple of percentage drop does to your “equity”.
So, if you are renting like I am its not worth it to buy right now. My costs are 1500$ per month.
Similar houses are running around 525000 in my hood. That is 2700 per month AFTER taxes. Subtract the amount going to principle and its still 2300 per month.
When my renting cost gets pretty close to purchase cost then I’ll think about buying.
That will kind of zero out inflation for me.
Of course the FED may dump out a lot of currency and make hyperinflation.
Then… who the hell knows.
I have noticed that KHOV home builder Sage dropped it’s price on it’s one story house by 70,000 compared to six months ago. That is a very good sign. I still wouldn’t buy at this level, but any drop is good for my family. I, too, am renting now but would buy if the right house dropped about 100,000. Might happen in the next year or so, but I agree that for the most part, buying now makes zero sense.
If you look at those houses that are listing for sale, those owners are still asking for the sky, the stars. A house in the ghetto.. in Riverside, asking price ? 400k… 1500 sf… wow.. lol. Anyways… let’s see what happens in a year… you know, lots of agents are still saying the market will rebound and we’ll see decent appreciation this year. The funny thing is, there are lots of people out there that believe… hahahahaha
I have a very close friend that owns a place in OC that went from 350k five or six years ago when he bought it to 900k last year and maybe 800k now (according to him… maybe less in the real world), and he absolutely refuses to believe it can fall any further.
I keep telling him to sell now, and he won’t, I think because it’s his DREAM that massive appreciation can make his goals and dreams possible, a dream he can’t possibly bear to let go of. If home price appreciation bought millions of plasmas and Hummers, and millions of people watched their neighbors get rich, then how many people do you think are out there that are truly desperate to believe the gravy train won’t end, desperate enough to cling to any hope no matter how unsupported?
It’s sad, really… so many lives will be ruined…
Chuck… do you think that the median price in the IE will ever be around 200 k again ??? thanks
It might. It’s too hard to say… and newer developments will be hit harder through the tsunami of foreclosures and short sales that are coming.
It’s hard to say what will happen exactly, but newer developed communities will have worse problems than established communites, just by virtue of the seasining of the people holding homes there.
Chuck Ponzi
Thanks Chuck for the quick response. At least you don’t think it’s impossible. I love it here in the Riverside area because it’s not too heavily populated. But the bubble made it impossible to for me to buy a decent home. Me and my partner earn over 90k per year (both of us are recent college grads) but we can’t afford to buy a condo… lol.. anyways, thanks again
JimAtLaw:
I totally agree with your observations… these people are in total denial. They never think that the prices will drop. They still refi. their houses to purchase gigantic SUV’s and LCDs… hahahaha… and they don’t even make that much. I mean, these people are often not even college grads… they usually do not have professional degrees… I am not degrading those without college education and hold labor jobs. What bothers me is that a machinist believes that he deserves to live in a McMansion… lol… I mean, what !!!!!!!!!!!! And then there are these Real Estate Agents who were lucky enough to earn 100 k plus per year during the boom. Now that they make less money, they actually think that’s it’s unfair… lol… Unlike you Jim, I do not feel sorry for these people, they ruined their own lives . maybe I’m just bitter… lol
What is so difficult in this market is trying to predice what is going to happen. So. Cal and the IE in particular right now are microcosms and really I don’t think the national news and national organizations/associations really have any weight in predicting what will happen here.
There are twice as many houses on the market from 500-550K in Rancho Cucamonga comparing June 1 with mid Dec 2006. Lots to choose from but I don’t see prices precipitously dropping. I have the same question many of you have: who can afford a starter home at 400K? Very few and it is going to be fewer.
My recommendation is to not buy now and stop trying to predict what will happen. Many of us have suspicions that the prices will go down and I think we are right. The amount it will go down and the timeframe are truly anyone’s guess.
In any case, I’m on the sidelines now and most sellers both builders and of existing homes seem to have fixed delusions about what sales price their house will bring. There has been no spring re-bound of any sort, yet.