Posted on 01/28/2008 8:00:22 AM PST by shrinkermd
Sales of new homes plunged by a record amount in 2007 while prices posted the weakest showing in 16 years, demonstrating the troubles builders are facing with a huge backlog of unsold homes.
The Commerce Department reported Monday that sales of new homes dropped by 26.4 percent last year to 774,000. That marked the worst sales year on record, surpassing the old mark of a 23.1 percent plunge in 1980.
The government reported that the median price of a new home barely budged last year, edging up a slight 0.2 percent to $246,900, the poorest showing since prices fell by 2.4 percent during the 1991 housing downturn.
The new report reinforced the view that housing is currently undergoing its worst downturn in more than two decades, with the slump threatening to surpass in some ways the severe housing recession of the early 1980s.
(Excerpt) Read more at biz.yahoo.com ...
Homes will sell, when the prices fall to where they should be.
And, just how do you know when the bottom of the “credit market” is?
My observation is that this will be the worst year in the past five years but the fifth best year ever (based on houses sold).
Many areas and many homes will not sell because the lending standards aren’t going back to where they were in 2004-2006.
The lending standards the banks are now using mean that a significant percentage of the people who previous bought homes will never qualify for loans again.
AHhhh, for the good old days of Jimmah Cawta that he brought us.....20% prime, stagflation, "turn down the furnace"-wear a sweater, closed gas stations etc etc etc ....
In my area builders are still building and selling homes. In a new development just down the street, the last 25 lots in a 500+ house development sold in December and there are now 14 of those houses just started construction this month.
The housing boom may have slowed, but it is still relative to local conditions. ie, the hottest markets are the first and fastest to fall.
I think some of the fundamentals may have changed in this downturn, making the longterm prognosis somewhat different from the typical down-and-up housing market.
Can’t quite put my finger on it, but it seems to me that people’s mentality (for lack of a better word) on homebuying has changed and changed more or less permanently.
Remember when most everybody traded in their car after a few years and only a few people held on and on until the car really had to be replaced?
As more people kept their cars longer, more people accepted that it wasn’t necessary, or necessarily good, to trade in their car every few years.
The mentality on buying cars changed permanently.
Seems like something like that is going on in the housing market. Many beautiful homes cannot be sold at ANY price. IOW, the market doesn’t seem to care about prices like it used to. Too many other things have caused people to question WHY they wanted to move/buy another home in the first place, and question whether it was worth it.
If people no longer automatically assume that getting a bigger, nicer home is bigger and nicer, the market shrinks permanently.
IOW, without the “move up” rationale, only the buyers who “must” move for business or personal reasons are left-—and that’s only a small percentage of the traditional market.
For example, I’d bet that the vast majority of McMansion sales were to people who simply wanted to “move up.” And finding that they could sell their present homes for a bundle, found “moving up” possible.
But if the vast majority of “move up” buyers decide they’d rather just stay put, the whole home sale food chain grinds to a halt.
My experience in markets tells me that “the bottom” of any market in decline is reached when:
1. People quit trying to call a bottom. In other words, the talking heads, the so-called “experts,” magazines, policy makers, etc, etc - cease trying to call a bottom and the conventional wisdom starts to become “No sane person invests/buys/does XYZ.” In late 2002, the “conventional wisdom” on stocks quit paying attention to stocks. The tech market was done, stick a fork in it, never to come back, etc.
At this point, the last people hanging on with “hope” toss in the towel, throw up their hands and just give up.
That’s a bottom.
2. This is a different issue than just retail investors, or home buyers, etc. You’re going to need to see data from banks showing that defaults, late payments, etc have stopped increasing and that banks are no longer increasing their bad loan reserves and are no longer writing off bad debt. This will be reported in a backward-looking manner, so unless you’re working at a big bank and see the numbers on a month-to-month basis, you’re going to hear about it in a quarterly report from various banks.
Wait a second. This new tax rebate bill that Bush and the republicrats have agreed to contains a provision that raises the limit on federally insured mortgages to upwards of $730,000. That, coincidentally, is the median price of a single family home in Orange County, CA. You'll be able to buy a $730,000 home there with just 3% down. Neat!
So Californians will still be able to get rich by selling each other real estate at inflated prices with 3% down using other peoples money now insured by the government.
First time the rates start up again. Those watching the rates over the last few years knew they would go up again, it was just a matter of when. The increase will be relatively small, when that happens make the move.
It’s not scientific or anything, but if you look at the history of these things there’s usually a time when you can be sure the rates are as low and they’re going to go for that round.
That's exactly how I interpret it. So, how much do non-union construction workers in southern CA earn? I figure their pay is somewhat 'median' and they must make a wad to buy a median price ($730,000) home.
Guess the Silicon Valley phenomena with respect to the remainder of CA set in and continues to fight for survival? How many dotes have to have enough sub-prime junk paper in their hands before the picture becomes clear?
Yep...that's where WE are....corporate relocation
Chauncey Gardner? Is that YOU???? ROFL!
That is true, but that’s the conforming loan limit. Fannie/Freddie aren’t making the loan, a mortgage lender is making the loan and then selling the loan to Fannie/Freddie.
Loans are going to examine your credit history, your ability to pay, whether you have a job, how much that job pays, etc, etc.
I have talked to dozens of people who, during the lending spree, said they were prepared to submit information for a mortgage that they expected the banks to ask. The banks waved their hands, asked only for a SSN and a name and then made the loan - ie, if you had a pulse and a SSN, you got the mortgage. Didn’t matter what appraisals on the property said. Didn’t matter what your spouse’s SSN was, whether you had a spouse, what his/her credit was like. They only used your SSN for a quick FICO score pull and then they wrote the loan.
In California, there is a ton of what are called “stated income” loans - ie, the banks asked what you made, you told them, and then the banks believed you. They didn’t check up on what you told them, they didn’t confirm what assets you had, they just believed what you said.
I’ve seen stats that say in 2006, about 90% of these stated income loans sampled for conformance (after the loan was made, of course — no point in shutting the door before the horse is gone) spotted material misrepresentations. ie, people lied on the loan app.
Banks aren’t doing those loans any more. They’re going back to old-fashioned applications, and actually verifying what you tell them. A large percentage of the people who were able to get mortgages from 2003 to 2006 will simply not qualify for a mortgage until such time as their finances improve radically, or banks get stupid again.
As someone who just started looking for a house, this is fabulous news!
Chauncey Gardner? Is that YOU????
Winter is the time for waiting and watching. In the Spring, wait until the ground thaws, then plant your seeds.
I don't know jack about the housing market, though.
Cheers!
Good points, but I always liked what Louis Rukeyser said, nobody rings a bell at the bottom. I also notice the stock prices of home builders are up today.
Still making the cracker head posts I see!
Buying opportunity in 1...2...3...
That’s very true. I miss Lou, especially at times like this. What Lou would have to say about the “Bond Ghouls” would doubtless be very funny.
I’ll nibble at the best capitalized and most sound of the homebuilders when I see how they play when (not if) the market pulls back after this technical rally.
There’s absolutely nothing wrong with what you say.
All I’m saying is that there has been a LOT of housing built in a LOT of markets that assumed a demand financed by suspect deals. There’s a huge inventory of homes to work off, and that inventory is just getting bigger.
All housing markets are local, what may be a good rule of thumb in one area may not be true in another.For you local market, look are the price of a home 15 to 20 years ago, appreciation of the home should only be slightly higher than the value of money over the same period, given a little for inflation. If you are a buyer that would be a good starting point for an offer. But it still depends on your own local market.
Builders are now trying to lure buyers by dropping prices and throwing in incentives like new appliances. They have also cut back on new construction.
But the strategy has failed to make a dent in inventories: the backlog of new homes on the market ticked up last month to 9.6 months’ supply based on the current sales rate, the Commerce Department said.
As I said, we are in a period where, in many cases, you can't give a house away.
If that represents a fundamental change in how people think---a change from "move up whenever you get the chance" to "let's hang on to this place awhile; what's so great about taking a chance on another house"---then the market will shrink more or less permanently.
Add to that, as this HUGE inventory sits out there, over time it will, essentially, have to be "given away" by former standards. That, too, will reinforce any shift in thinking away from "real estate is always a sure bet" to "real estate can be a good deal if you hold and hold and hold for the long-term."
Funny thing about stock prices of builders:
They go down when all around them hell is breaking loose, but they keep building anyway (that’s why stock price movement often are inversely correlated with building starts). And . . .
They go up when they finally STOP building and recognize that the bubble is burst.
I’m lookin for “short sale”. ;-)
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