Posted on 11/09/2006 5:17:47 PM PST by MeneMeneTekelUpharsin
The recent rise in new-home sales doesn't herald a housing turnaround. Rather, desperate home builders are simply resorting to extreme measures to keep inventories of unsold homes from mounting sky-high and prices from going into a free fall. Builders are willing to take huge hits to their profits just to unload empty properties, which bring in no income and incur financing costs. In addition, the 5.3% rise in new-home sales in September and the 3.8% advance in August should be viewed with a healthy dose of skepticism because many of those sales are likely to be canceled in subsequent months. Statistically, once a contract on a house is signed, it vanishes from the official numbersthe new-homes data compiled by the Commerce Department aren't adjusted for cancellations. This also suggests that sales declines in previous months were probably worse than they appear on paper, given that cancellation rates are hovering around 30%-40% of sales this year.
The average value of upgrades and other sweeteners offered by home builders is now equivalent to about 5% of the purchase price, similar to what builders offered during the steep downturn of the early 1990s. The implication here is that the median price decline of 9% for new-home sales in the past 12 months actually works out to about 14% on builders' books. Sellers are offering all sorts of enticements for buyers, including customized bathrooms, delayed mortgage payments and flat-screen TVs. One builder, knowing that a prospective buyer would soon return from vacation and take another look at a house, left a new car in the garage as an inducement to sign on the dotted line. We see several more months of pain ahead for the housing market, until enough excess inventory is mopped up to balance supply and demand. Total sales of new and currently owned homes will drop 7% next year after a 9% swoon this year. We see the median sales price declining about 3% in 2007.
Apartment rent hikes will peak during the first half of 2007 at about 4.7%. That'll be the national average for renewing rental deals or signing new ones. In the second half, expect a 4% average rise, still not at all shabby in historical terms. The steep drop in condo conversions will increase the supply of rental properties. Sales of condominiums are falling even faster than sales of houses, taking the luster off conversions. But the condo market isn't collapsing. At 7%, the national average condo vacancy rate is at a 13-year high. To cause serious damage, the vacancy rate would have to exceed 10%.
Sacramento.
There is no frickin way the gains can be sustained that we have seen in the past couple years. Salaries are not increasing at a 20% gain year after year right now.
I have watched many people, including myself, completely priced out of even the condo market here in Seattle and have given up.
Something has to give sooner or later, no matter how many exotic loans the banks keep pushing to the masses.
Don't forget the fed leaving interest rates too low, for too long, thus dumping a gallon of gasoline onto this bbq.
It can't happen. If they cut the rates too much there will be no one to buy our government bonds -- the way we finance our public debt -- and then we are really screwed (unless we cut spending). It's a delicate balancing act.
I'm living in my 3900 sq ft 3 br 2 1/2 BA on 1/3 acre house in the Pocatello area. Free and clear. Just annual property taxes. In Feb 2005 I took a $9300 state and federal tax refund and used that a total cash out of pocket to purchase a 2068 sq ft home 2 BR, 1 BA on 1/4 acre for $82,900. I'm in no hurry to rent it. The tax and interest comes off my income tax and principal is going into equity. It's a 30 year loan at 5% fixed. I did that to keep the monthly payment low relative to fair market rental values. It takes about 2 hours every Sunday to mow the lawns.
yes, but housing is still based primarly on the "supply vs demand" factor.
And in Seattle right now, inventory has doubled since May of homes for sale, but prices continue to rise. Supply vs Demand has been thrown right out the window and is currently sinking to the bottom of Puget Sound.
While the market will eventually self-correct. That doesn't mean its going to self correct in a nice easy way.
Don't forget all the billions in subprime loans that get packaged into mortgage backed securities and sold to domestic and foreign investment firms.
As the default rates on these loans increase as they readjust, there is going to be some blood flowing.
Though, it may just be the nature of Florida -- the whole state is just so flat that powerful hurricanes can easily do major damage as they cross over from the Atlantic to the Gulf (or vice versa).
No matter, it's a harsh situation for you or anyone else that wants to sell.
Actually those who remain ignorant of tulip mania, the dot-com bubble and every other get rich scam are to blame for not knowing their history.
Actually the fed is to blame for propping up a faltering economy with cheap dollars (low interest) instead of letting the downturn run its course.
That's not true. Longer term bond rates are set by the market. The Fed rates only affect the shortest term securites.
The yield curve has been flat to inverted for some time now, so in no way has the Fed been propping up the economy.
Wasn't there a point where the Japanese cut their interest rates to zero percent and the real estate market nevertheless continued to fall?
How very true.
If you want to learn more about why the Japanese housing market never recovered just take a look at the tax liability on any capital gains realized from a sale. It's staggering and effectively kills any motivation to sell.
Are you claiming that market corrections aren't healthy and need to be blamed on someone? When the stock market corrects do you blame greedy speculators, stupid investors and indescribable stock brokers? What are the long term trends with respect to the stock market and the value of real estate? Who should those trends be blamed on?
Also, a 0% interest rate was actually too high because the economy was contracting.
==I'm in real estate, although anectdotal, prices are going down in a lot of areas and houses are not selling at all, a lot of houses aren't even getting any showings, these same houses would have sold in a weekend.==
Well I wonder why what with the crap they're building these days and the money they expect for it.
While there are a few similarities, I never like to compare what happened to the Japanese, to what goes on in the US.
They have very different ways of doing business over there and how their banks operate. A person or business can have the worst credit in the world, but if they have the right political contacts, they can get whatever loans they want. Most European and US banks have found it impossible to setup shop there and succeed or buy major interests in the japanese banks and bring some western style banking practices in.
Japans problems started with years of trade and financial manipulation against the US. It slowly but surely inflated the value of the yen against the dollar to obscene amounts. This let them go on major shopping sprees gobbling up real estate all over the US, even when what they were obscenely over paying. The banks were pressured to hand out these loans. When I was living on Oahu throughout all this, for a couple years, we would get knocks on our doors by japanese people. There would be a white limo parked on the street and some translator who would ask us if we would like to sell our house. The offers would be atleast 10 to 20 percent above resonable market prices. One Japanese businessman, I remember his last name was Kawamoto, probably bought over 100 homes in our suburb within a year by doing this.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.