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Housing Prices: The Infamous Double Dip Is Here! « Diane’s Blog
Housing Prices: The Infamous Double Dip Is Here!
We’ve been expecting it for a year and hoping we were wrong, but the double dip is here as home prices are plunging again. It seems that last year’s uptick was a result of the Congressional tax credits for home buyers. That pumped some life into the otherwise moribund housing sector, but the air all leaked out this year.
How bad is it? Nationwide, home prices are down 5.1% from last year to levels not seen since 2002. Home prices have now lost an average of 32.7% since the highs reached in 2006. Almost 30% of homes with a mortgage are now underwater and many of the rest are hanging on by their fingernails. Here’s a graph from CNN Money that shows the decline from 2006, the uptick last year and the plunge again this year.
It’s starting to look like Niagara Falls, and it appears poised to get worse. What is actually causing this depressing negativity in real estate? Why can’t the nation and our Golden State seem to pick ourselves up and start all over again?
Causes of the Continuing Decline In Housing
Many factors are contributing to this stubborn stalemate–high unemployment, lack of consumer confidence and spending, outsourcing of jobs–but the major reason is the same as at the beginning of the recession–the big banks.
Most of us now understand that the push for deregulation of the banking industry which culminated in the lifting of the 1930s-era Glass-Steigal Act functioned like a giant gold rush for the so-called financial services industry or, better yet, a red flag to a bull. The Wall St boys almost literally went crazy dreaming up creative ways to make money [for themselves] without much consideration for the consequences.
In those heady days, intoxicated with the freedom from almost all regulation, the banks shoveled out loans. Almost anyone could get a loan. Bad credit scores, no down payment, low or no income–none of it mattered. The bankers had a loan for everyone and raked in the money doing refi after refi as everyone cashed out their new-found equity as the housing bubble grew.
When it burst, the first to explode were the sub-prime loans. That was back in 2007 and 2008. Those were the really terrible loans with horrendous interest rates given to completely unqualified buyers. That was the first wave of foreclosures and short sales.
Since then we have been dealing with the ARM loans, the adjustable rate loans that so many qualified buyers anxious to get into the hot housing market were advised by their lenders to undertake “to get into the property.” At the time lenders pitched these as “starter loans” because down the road, when they adjusted, buyers were told, with the rise in equity, you could easily refi when the rates went up.
Now we know better of course. Those ARM loans, so lucrative for lenders five years ago, are now time bombs exploding all over the place. Here’s another graph showing how all these 3- and 5-year ARMs are now adjusting. Owners can’t refi now due to plunging real estate values. On the other hand, they can’t pay $1500 more a month either. Naturally, the banks aren’t budging–no help for you, partner.
Thanks to Sean Chapman for the graph.
This year, as we can plainly see from the graph, we can expect a huge number of resets for these adjustable mortgages. Since the properties are usually now either underwater or nearly underwater, even those who could pay will quickly determine that it is not in their financial interest to do so. The result will be an even deeper crisis for the housing market as home values plummet ever downwards.
Monday, May 23, 2011
Pasdena Short Sale: Has Real Estate Turned the Corner? | Pasadena Area Short Sale Blog
Pasdena Short Sale: Has Real Estate Turned the Corner? | Pasadena Area Short Sale Blog
Real estate news these days is nothing short of confusing. Prices are going up. Prices are going down. The market has stabilized. The market will be bad for 5 years. Everybody seems to have an opinion, and nobody agrees. What is really going on? Is it good or bad?
Homes Sales Are Sinking
According to the latest data, the real estate market in Southern California is quite volatile. A major piece of data tells us, for instance that the number of home sales has dropped and by quite a lot. L.A. County, for instance, showed an almost 10% drop in the sale of homes since April of 2010. In fact, we are now at the lowest level of home sales in the last three years, the worst in recent memory. Even in Orange County, usually almost immune to the volatility experienced by the rest of SoCal, homes sale dropped nearly 7%. As usual, both Riverside and San Bernardino Counties, the hardest hit during the recession and which had seemed to be rebounding as investors flocked to bargain properties, took the brunt, showing drops in home sales of almost 14% and 12% respectively. Only San Diego managed to maintain itself almost at the same level of home sales as last year.
Why Do Home Sales Matter?
But, really, so what? Sure, it’s bad for real estate agent and lenders, but who really cares if homes are not selling? Here’s the connection to the wider economy. If homes are not selling, then those who want to sell will drop their prices to attract whatever buyers there are. If, or, rather when, that happens, prices will fall more than they already have. Once the prices fall, more Pasadena and SoCal homeowners will find they have little or no equity in their homes which will drive them to abandon their payments. Then, of course, the banks will foreclose or, to avoid that, the homeowners will do a Pasadena short sale to avoid that stigma. All this activity will drive prices down more and the cycle will continue ad infinitum.
In fact, prices, which had been modestly rebounding, are now either stagnant or sinking again. In the entire SoCal region, encompassing six counties, median homes prices are now almost flat at $280,000. This is slightly above the April 2009 median of $247,000, but well below the July 2007 high of $505,000. Those halcyon days for homeowners appear to be gone for good or at least for a good long time into the future. So, with prices so low why are buyers not rushing to buy?
Where Are the Buyers?
That’s the big question: where are the buyers? Homes aren’t selling because buyers aren’t buying? Why not? As with everything else, many factors are at play here. First and foremost is the recession and the jobless rate. The recession does seem to be slowly abating and the unemployment rate has dropped a tad, but still 12% of Californians are out of a job. Not too many of them are going to be looking to buy a home.
Another, major factor is the shakeup in the mortgage market.Responding to their past irresponsibility, banks and other mortgage sources are tightening lending criteria substantially. Too, it looks as though in the light of substantial government obligation under Fannie, Freddie and FHA, even the 3.5%-down-payment FHA loan, now responsible for about 50% of this year’s loans, will have to add more stringent qualifications and raise the down payment ceiling. The government is just too exposed. So, tougher loans mean few buyers can qualify.
Then, there’s the psychological element. Despite a 50% drop in prices from 2007 and mortgage rates at historic lows, many buyers are still hoping for even better deals if they wait. Timing the market is an old Wall Street pursuit and it seems to have hit the housing industry as well. Everyone, investors, first-time and move-up buyers, all seem to be waiting to see the market tumble even further before they take the plunge.
Monday, May 9, 2011
Corporate Stupidity Contest: Plenty of Winners!! « Diane’s Blog
Corporate Stupidity Contest: Plenty of Winners!! « Diane’s Blog
I thought real estate had the world's quotient of dumb bunnies, but I guess I was wrong!!
'As of tomorrow, employees will only be able to access the building using individual security cards. Pictures will be taken next Wednesday, and employees will receive their cards in two weeks.'
(This was the winning quote from Fred Dales, Microsoft Corp in Redmond WA)'What I need is an exact list of specific unknown problems we might encounter.' (Lykes Lines Shipping)
'E-mail is not to be used to pass on information or data. It should be used only for company business.'(Accounting manager, Electric Boat Company)
'This project is so important we can't let things that are more important interfere with it.' (Advertising/ Marketing manager, United Parcel Service)
'Doing it right is no excuse for not meeting the schedule.'
(Plant Manager, Delco Corporation) (WRPS uses this philosophy also)Greg, 'No one will believe you solved this problem in one day! We've been working on it for months. Now go act busy for a few weeks and I'll let you know when it's time to tell them.' (R&D supervisor, Minnesota Mining and Manufacturing/ 3M Corp)Quote from the Boss: 'Teamwork is a lot of people doing what I say.' (Marketing executive, Citrix Corporation)
My sister passed away and her funeral was scheduled for Monday. When I told my boss, he said she died on purpose so that I would have to miss work on the busiest day of the year. He then asked if we could change her burial to Friday. He said,'That would be better for me.'
(Shipping executive, FTD Florists)'We know that communication is a problem, but the company is not going to discuss it with the employees.' (Switching supervisor, AT&T Long Lines Division)
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