7 replies to this topic

[fib_1618]

It looks as though that you, and the other real estate bears, now have something of substance to work with.

For others, this interest rate sensitive sector has been leading the way as far as the direction of longer term rates by about 3 months, so look for a "stringent" challenge of the 10 year note yield at the 5.25% level in the fall. But it's also important to keep in mind that we have yet to see the "sense of urgency" to buy housing that has accompanied price tops in the past, so this is something we should start to see once the 5.25% level is violated to the upside.

After that, well, we'll cross that bridge later.

Fib

[greenie]

Thanks Fib. Excellent analysis as always !!

we have yet to see the "sense of urgency" to buy housing

Not sure I understand you well. "Sense of urgency" came in March-April 2005, if I remember. The "Time cover" peak came in July.

[ed rader]

It looks as though that you, and the other real estate bears, now have something of substance to work with.

For others, this interest rate sensitive sector has been leading the way as far as the direction of longer term rates by about 3 months, so look for a "stringent" challenge of the 10 year note yield at the 5.25% level in the fall. But it's also important to keep in mind that we have yet to see the "sense of urgency" to buy housing that has accompanied price tops in the past, so this is something we should start to see once the 5.25% level is violated to the upside.

After that, well, we'll cross that bridge later.

Fib

when that sense of urgency does arrive there are thousands and thousands of new condos and townhouses under cosntruction in san jose to accomodate the desperate. there are two very large complexes being built near my home.

KB's monte vista complex (google it) has units listed at $530k to $750k. i'd say there has to be 500 -- 1000 units packed into this one hi-density development.

real estate bulls better hope for that second half recovery....which i think will occur in about a decade if we are lucky .

ed rader

Edited by ed rader, 24 June 2007 - 02:53 AM.

[ChickenLittle]

when that sense of urgency does arrive there are thousands and thousands of new condos and townhouses under cosntruction in san jose to accomodate the desperate. there are two very large complexes being built near my home.

KB's monte vista complex (google it) has units listed at $530k to $750k. i'd say there has to be 500 -- 1000 units packed into this one hi-density development.

real estate bulls better hope for that second half recovery....which i think will occur in about a decade if we are lucky .

ed rader

In San Diego County the builders are building smaller numbers of homes while others are trying to work off their old inventory. REO property is not common in most neighborhoods . . . yet.

In the early 1990's the downward spiral didn't end until the housing inventory had been completely worked off. The seller either liquidated or pulled their house off the market. People are currently chasing foreclosures for a good deal (investment???). In my estimation it's too early for foreclosure deals. In the mid-1990's the man in the street was completely turned off of real estate investment. I'm sure this time won't be any different.

I personally know many people who are highly leveraged with multiple homes (several with more than 6 houses) waiting to make millions when their homes increase in value. Most of these people have incomes of about $150,000 and could have sub-prime loans. They will likely be forced into complete or partial liquidation if a house can't be rented or their personal income falls. They are all upside down on the house payments (expenses greater than the income).

I bought foreclosure property in the early 90's and there was only a couple of investors at these auctions (6 or fewer bidders). Later in the 1990's I quit foreclosures because the public began showing up and bidding the prices up (20 or more bidders). Property turned first along the coast in 1995 and spread inland. People with money started the turn and about a year later Joe Average began comming out of his hole.

Bob

[jawndissedi]

Thank you, Fib. I actually saw these charts over on your website earlier this weekend and wondered how significant they were. Two other data displays that you might find interesting appear below. The first is from yesterday's NYTimes; regardless of how the press may be spinning the story, I assume that Haver Analytics treatment of the actual data is accurate. The second is from CalculatedRisk, a site with a definite bearish bias but one that I believe still presents data accurately, though perhaps selectively. I believe the inventory build-up has not been adjusted for population growth, and therefore presents a somewhat grimmer picture than is appropriate.

[jawndissedi]

But it's also important to keep in mind that we have yet to see the "sense of urgency" to buy housing that has accompanied price tops in the past, so this is something we should start to see once the 5.25% level is violated to the upside.

I believe da cheif has also expressed the view that, as rates rise, potential buyers who have been sitting on the sidelines will rush into the market before it's "too late." At the risk of contradicting two seasoned observers who have watching this market longer than I have, I am inclined to believe this phenomenon will be offset during this cycle by two more significant factors:

1) Speculative enthusiasm for real estate has pushed home ownership about 500 basis points above its historical average: ~69% today vs. ~64% over the last 5 or 6 decades. The liquidation of speculative investors may counter any boost from hold-out buyers.

2) Home buying during this cycle has been facilitated by unprecedented creative financing strategies. As the availability of stated-income and other controversial mortgage products shrink, would-be last-minute buyers may lack the means to execute the "sense of urgency" purchases you are anticipating.

[greenie]

We are long way from a bottom in RE. When it comes, I will let you know within a month. A simple rule of thumb - sentiment at the bottom will be as out of whack from norm, as much as it was at the top.

[OEXCHAOS]

I'm going to suggest that the psychology has changed quite a bit. Folks are holding off buying because they see and hear a lot of bad news about real estate right now. They also see a lot of folks who can't sell their homes.

They see rising rates as a sign that there will be better bargains later, instead of a signal to "get a move on".

I predict that the low in real estate will be a stealth affair. We'll suddently look up and realize that improving markets are no longer the exception but rather the rule.

Now, what will that take? I have no idea. I'm guessing that the need to buy will just marginally begin to exceed the excess supply. Around here, the data is very interesting. Our city saw 19% more sales at a 17% lower price, on average. Our city is undergoing a redevelopment surge. Our neighoring town on the river already had theirs and they saw about 5% lower prices and sales last year. The next town over on the river saw a big increase in sales and an 89% increase in the average price paid. They had just completed some major development. Note that these three towns span perhaps 5 miles of river front. It looks to me like investors are buying values, but at the fully priced zone, things are dead as a door nail.

I'm thinking it'll be a very spotty, complex low, very location sensitive. Nothing like a stock market low. We'll probably see a pick up in the market right around here as more development finishes, as we're becoming a pretty sexy community for not much money. Other areas will probably require a new employer moving in, or something similar. Others will just bottom out because folks want to live there and finally found a buyer for their house. And other still will just have gotten so cheap that folks can afford to live there.

Mark

But it's also important to keep in mind that we have yet to see the "sense of urgency" to buy housing that has accompanied price tops in the past, so this is something we should start to see once the 5.25% level is violated to the upside.

I believe da cheif has also expressed the view that, as rates rise, potential buyers who have been sitting on the sidelines will rush into the market before it's "too late." At the risk of contradicting two seasoned observers who have watching this market longer than I have, I am inclined to believe this phenomenon will be offset during this cycle by two more significant factors:

1) Speculative enthusiasm for real estate has pushed home ownership about 500 basis points above its historical average: ~69% today vs. ~64% over the last 5 or 6 decades. The liquidation of speculative investors may counter any boost from hold-out buyers.

2) Home buying during this cycle has been facilitated by unprecedented creative financing strategies. As the availability of stated-income and other controversial mortgage products shrink, would-be last-minute buyers may lack the means to execute the "sense of urgency" purchases you are anticipating.