By Michael Olenick, creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data
The normally astute Bill McBride of Calculated Risk has joined the chorus of cheerleaders to argue that an alleged decrease in housing inventory means that house prices are near their ethereal bottom.
Living in W. Palm Beach, FL, the epicenter of the foreclosure crisis, it seems more likely that analytical ethics related to housing finance is the only element nearing a bottom, and only then because the home price pundits on which people like McBride rely can’t go much lower.
McBride uses data from the National Association of Realtors (NAR), analysis by Goldman Sachs, trends in completed foreclosures, and traditional seasonal housing patterns to make his case.
My first inclination was to cross-reference whether the NAR data McBride relies on is before or after the NAR’s massive adjustment late December, when the real estate group admitted to overstating home sales by over one million in some years.
However, when I went to do preliminary research I found the NAR revised their post revision December sales estimate from +.5 percent to -.5 percent. I could almost hear them playing “Oops, we did it again,” as they wrote the press release. This group is so devoid of credibility nobody should use their estimates except maybe scholars writing about business ethics.
I’m one of the very few borrower-friendly analysts who somewhat admires Goldman Sachs, though in the same way I also admire a Bengal Tiger: they’re somewhat ruthless. But GS staffers, when faced with public policy versus morality issues, are like the characters in the movie Idiocracy who find the only thing they have in common is that they all “like money.” Their analyst may be correct, or they may be working — to quote prior internal email — on pumping another “shitty deal” like exploding CDO Timberwolf, structured-to-fail Abacus, or the financial destruction of Greece. Their reputation is better than the NAR, though their motives are not always clear.
Then there are those completed foreclosure figures. Yes .. they’re down. But only because the foreclosure processing packing-house came to a virtual stop, especially in high-volume states, thanks to a fraud-fest unlike any ever seen in US history.
Finally there is the argument that seasonal trends show a slight decrease in January inventory, which will nudge inventories higher (as in the some of the fall in inventories in January may be due to factors like sellers taking homes off the market, which means some of the reported improvement may not reflect fundamentals). I agree with this point: banks tend to ratchet down evictions during the holiday season and buyers tend to avoid moving in the middle of winter. But this seasonal adjustment will just make inventories higher. As the snow begins to melt away, and the unofficial foreclosure moratoriums end due to the AG settlement, if the banks open the floodgates inventory stands to spike.
I don’t want house values to fall through the floor. I own a house in Florida and expect the value to take a massive hit if the rocket-docket judges resume their reckless quest to throw fellow Floridians to the street. I stand to personally benefit on the tiny chance this relentless drive to deceive people into buying homes in an unstable market succeeds and stabilizes prices. But I’m neither delusional nor dishonest: there is not a single credible data point I’ve seen that home prices will increase anytime soon. They may stabilize if banks control inventory, but by definition that means buyers can wait to see what actually happens rather than what’s predicted to happen.
Cheerleaders should bet with their own money rather than just encouraging others to do so. There are many beautiful Florida houses for sale or in foreclosure within walking distance from my own home. If Jamie Dimon genuinely believes it’s a great time to buy a home then JPM should fund these loans, and retain the loans on their own books. If Bill McBride believes the same, he should come buy one.
Only government-owned Fannie Mae and Freddie Mac, the GSEs, are funding home loans, and they’re charging steep market risk premiums regardless of personal credit. Every borrower pays a quarter-point “Adverse Market Delivery Charge” regardless of his risk profile. Borrowers with, say, a FICO score of 810 and a loan-to-value ratio of 65% are going to pay an extra quarter-point in interest just because the GSEs say they cannot predict a market bottom, even if Bill McBride can.
Besides the GSEs there is the private secondary loan market. I’d argue it doesn’t exist but I searched EDGAR and it does: I found one publicly registered private MBS last year. That’s not a typo: Sequoia Mortgage Trust 2011-1 bundled 303 loans, the only apparent new publicly listed MBS. In comparison Countrywide had some months during the bubble where they’d create an MBS each month, usually for thousands of loans.
It’s noteworthy that the second densest population in Sequoia’s MBS is New York, NY, which has, by far, the longest foreclosure period anywhere in the country. So much for the theory that prolonged foreclosures, as opposed to anticipated housing gluts and uncertain markets, alienate investors.
As long as the private secondary market remains effectively dead and the gavels continue to slam on the foreclosures home prices will sway like a Banyan tree in a hurricane. Like that tree prices may go up a little, or down a little, but the real question is whether that tree, and the price of the house next to it, will be planted in the ground or floating in the Atlantic when the storm passes.
Alpha housing analyst Laurie Goodman of Amherst Securities estimates shadow inventory is about ten times higher than does housing data provider CoreLogic. Having worked through my own study of shadow inventory, comparing state-by-state delinquency rates cross-referenced to housing stock volume I concluded Goodman’s analysis makes more sense. However, there’s almost no point arguing because the fact that they are so far apart is a strong indicator that nobody has a good grasp on these vital metrics needed to call a market floor.
Warren Buffet noted in his 2011 roundup letter that last year he predicted “a housing recovery will probably begin within a year or so.” He goes on to note “I was dead wrong,” showing a level of self-confidence seldom seen in this field. Buffet predicts “housing will come back,” and he goes on to illustrate some positive trends, but declines to call out a specific timeframe.
As I’ve written in my own shadow inventory analysis the OCC reports there are about 52.25 million US homes with a first mortgage. But the 2010 US Census reports there are 74.8 million owner-occupied homes and that that 50.34 million of those have a mortgage. There are 131.8 million “housing units” to shelter about 313 million people. These housing figures simply cannot be reconciled except to the conclude that a) the US has an enormous number of post-bubble houses, b) many of those were mortgaged during an enormous housing bubble, and c) far too many American’s remain overleveraged with housing debt, and d) young people who could and should be forming houses are buying are saddled with too much student loan debt to do so.
For buyers who want a home, not a house — that is, if your primary purpose is to shelter your family rather than your money — and you don’t want to rent because you plan to make improvements, don’t plan to move for a decade or longer, and can purchase with cash, it may not be a bad time to buy.
But for all other buyers, which includes virtually everybody, heed the hindsight of those who purchased homes at every other phantom market bottom and who are now underwater. Wait until you see price appreciation, in the region you want to purchase, for a quarter or two. Your house may cost a few thousand dollars more in the short-term than at the genuine bottom but, in the long run, it’s a safer bet than losing tens of thousands of dollars in an unstable market.
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I knew the jig was up when I got to “and can purchase with cash…”
Housing prices remain about twice their pre-bubble 1997 levels. So there is still lots of potential fall that would take us back just to baseline.
There is plenty of room for prices to fall as you say. I think that price will fall significantly again but the existing structure could eek out two quarters of what looks like price increases before crashing again to suck in the gullible. This IS an election year and hopium will be selling real cheap.
I would wait at least 3 quarters after perceiving a movement shift/stabilization of the market…..supply will exceed ability to buy for years to come but maybe the super rich will start a bidding bubble within themselves for the conversion to rental stuff becoming available from this mess that looks like price stability/rise.
Dear Psych;
I’m at present working as a trades ‘specialist’ in a big DIY box store, and deal with the henchmen (and women,) who do the ‘dirty work’ for the “conversion to rental…super rich.” Their actions show that, first, there are two levels to the rush to rentierdom. Level one is the individual ‘semi-rich’ who do one or two units. They are on restricted budgets to begin with and usually ‘cheap it out,’ as the saying goes. The second level are the ‘Property Management Companies’ who work for faceless investors. They deal with larger numbers of individual homes, and apartment complexes. These people are also under severe budget restraints, imposed by the rentier oriented dynamics of the ‘Housing/Rental Investment Market.’ When return on the investment is the primary focus is on just that, return. Everything else goes by the wayside, especially quality. The only group I see taking serious care with the quality of the housing stock is the owner occupiers group. As the article shows, that group is the fastest shrinking. Everyone else is just treading water now. Look to see a serious degradation in the nations housing stock over the next decade. When that runs its’ course, then the new housing market might have a chance, if there is anyone left with a good enough job to afford one.
Thanks for the insight. You’ve confirmed my suspicions, which were just guesswork until you chimed in.
This is just embarrassing.
“there is not a single credible data point I’ve seen that home prices will increase anytime soon”
Umm, CR said that prices may have *bottomed* now, not that prices would increase anytime soon. In fact, he specifically said it was likely that prices would not increase until an extended period of time had passed. CR is not a cheerleader. That’s just idiotic to use that term. There’s no better term for your charges than “idiotic.” The very idea that CR is being accused of telling others to go out and buy. It gives me shivers to read such idiocy. The idea that a sentence like “If Bill McBride believes the same, he should come buy one” appeared on this great site makes me want to hurl. Yves, please, if you need an editor to week out stuff like this, let’s please have another fundraiser. Please.
And for the “analysis”, CR was talking about somewhat mythical “national indices”, not what’s going on in the specific housing markets hardest hit by foreclosures like Florida. Get your facts straight or stop wasting our time.
Listen, when you misrepresent the views of the person you are “attacking”, you lose all credibility. Try harder, and Yves, seriously, this stuff can’t get a free pass just because it was written by a guest poster. It’s a serious black mark on your site. I have no idea which way housing prices are going to go, and I would never encourage anyone to buy (I think buying is usually stupid because people rarely get enough facts to justify one of the biggest financial decisions of their lives), but this poor excuse for a blog post is not acceptable.
For the sake of credibility … would you kindly disclose your identity and whether you have any connection with CR? What credible data points would you provide that suggest that “home prices will increase anytime soon”?
I am not a professional – just a concerned reader who admits to having a bias towards negative housing forecasts, and am willing to look at data to debunk such bias if needed. Until such time, I will retain a perception that we are at best experiencing a momentary upward ABC correction in a deflationary trend, and at worst that we are being deliberately duped by comprehensible (albeit dishonest) vested interests. As the article suggests …
THe CR piece said we’ve hit bottom, and we will plateau for a while.
To wit:
“The bottom line is the decline in listed inventory is a big deal, and will lead to less downward pressure on prices. Just like last year, inventory will be something to watch closely all year.” Nothing at all about upward swings.
The OP’s and your criticism of CR’s position is straw-manning. Yes, the government at all levels and industry players are working to manipulate supply downward, in order to produce an “artificial” bottom which can be maintained until the fundamentals catch up with it, but their actions appear to be working, thus driving down the supply- which was what Bill was reporting on.
Housing Bears, like yourself and Olenick have a strong case, but everyone in power and who owns a home are doing everything they can to avoid a catastrophic crash to cash level markets for real estate. Leaving morality out of it, they are likely to have some effect, simply because there is too much at stake for too many people.
McBride predicts a plateau, not a rise. If you want to argue against huckster boosterism, find another target. He is describing a documented phenomenon, not pushing for people to buy.
was seeking evidence … not arguing “against huckster boosterism”. I share your perspective vis-a-vis the dynamics at work, not the confidence in the outcome, nor that morality can EVER be left out of it.
I’ve cited specific point-by-point issues w/ CR’s analysis. Rebutting it as “idiotic” is an ad-hominem that’s somewhat, well, idiotic.
More to the point there’s no question that CR relied heavily on NAR data: note the two charts. Further, there’s no question that NAR data has extreme credibility issues: note the two revisions, one which went back to 2007. Until the NAR has at least a few quarters of accurate reporting relying on their data as the central piece of analysis makes no sense.
CR asks what would happen if inventories increase by 200 or 400 thousand units, which I’ll presume means nationally. He should ask what will happen if volume increases at two, three, or even four times that rate because there are a massive number of houses sitting in the shadow. Many people haven’t paid but also haven’t been foreclosed upon.
Banks may hold that inventory back, by basically ignoring the borrowers until the market shows some signs of stabilizing, or they may just “rip the band-aid off” and flood the market. We don’t know, and neither does CR. [I’m beginning to think neither do the banks; they may be making it up as they go along.] Until we do we should listen to Buffet (OK, except maybe on the hormone thing: kids are too strung-out on student loan debt to buy houses) and punt when asked about a housing bottom.
doctorhousingbubble is still saying what he’s been saying — with fresh observational data daily. When “normal” (mean, median, modal — your pick) house prices stand at about 3 times the annual wage of the “normal” householder-wannabe, then housing prices have probably stabilized. DRHB calls for lots of empty space under todays prices, since California is his beat. Other areas might show more stability — have to do the numbers locally to be sure. HOWEVER, any bad news anytime on wages can wipe out years of hope for high house prices.
Anonymous Jones: “I would never encourage anyone to buy (I think buying is usually stupid because people rarely get enough facts to justify one of the biggest financial decisions of their lives)”
What, and miss out on the greatest joy of homeownership: being able to fire a pistol in one’s own bedroom.
Dear Sir;
If I remember the Canon correctly, the good Mr. Holmes performed that feat in his living room.
BTW, the practice of indoor target shooting was quite popular “way back when.” The trick was to use 22 cal. BB Caps. Light loaded rounds, they usually wouldn’t even penetrate a stout wall. There is a scene in one of the Thin Man movies showing Nick Charles, played by actor William Powell, doing just that one Christmas Morn. The Good Old Days.
Yes Tanta is rolling in her grave … That would be Doris “Tanta” Dungey who was Bill’s partner in starting Calculated Risk. She died tragically of cancer way too young.
Unfortunately McBride has forgotten the gritty number crunching that made Calculated Risk a “name” in the economic blogosphere. Time for McBride to WTFU.
At some point, there will be a bottom (barring a major catastrophe), and many will try tp predict it, why not Bill McBride? Tanta would approve. Bill’s blog lives from his critical insight into real estate data, and I think Bill would be self-critical enough to admit having called a false bottom.
Come on…in fairness, Mr Olenick doesn’t attribute what you’ve quoted to McBride. It was a separate conclusion based on his own analysis. He openly chides McBride for his hasty ananlysis and poor conclusion, arrived at using notoriously gigged NAR data; junk in junk out.
The broader narrative here is the annual call of a housing bottom which is indeed a form of cheerleading in that it serves as an inducement to housing consumers straddling the sidelines to catch a falling knife. Every year they wheel these rags n bones out and every year it is BS. It is shameful.
Meanwhile, I think Yves runs a damn tight ship here at NC, and your castigation of her site by way of hosting Olenick’s commentary is both weirdly personal and presumptuous.
McBride has been playing a “cheeky” game ever since He and Krugman were exchanging love letters on the net.
Although I can not prove it all indications point to McBride being “enlisted” to soothe the animal spirits post 2008 crash.
McBride/ Calculated Risk was noted in several national MSM publications and the economic situation was so dire that He was called on to “temper” the outlook.
Everybody makes good points both pro and con on whether Olenick took McBride to the woodshed, and whether he gave him CR a necessary paddling, or not.
I have no opinion the woodshed paddling thing. I also think it doesn’t matter. I do have an opinion on the piece, however; I found it very well written and informative, and I am –and have been for quite some time– in fast agreement with Olenick’s conclusions.
One reason: This super cool and colorful chart that Calculated Risk has been providing for us the last two or three years, sums up what I like to call, THE TERROR:
http://1.bp.blogspot.com/-F_jy8qw6qkc/Tyv9ubc6_CI/AAAAAAAAMDc/MBYHtXWcFjk/s1600/PercentJobLossesAlignedJan2012.jpg
Another reason: American/Consumer households have a 13.5 trillion dollar debt load. Students and recent grads (good luck and God bless em), all by themselves, are carrying close to 1 trillion dollars in student loan debt.
Now the American/Consumer may not want to voluntarily deleverage. In fact, I have personally arrived at a conclusion that the American/Consumer would love to continue doing their Patriotic Duty by consuming (like there is tomorrow!), especially if they were allowed to consume mostly unnecessary items with money they don’t actually have.
Unfortunately, I have also concluded that the American/Consumer is going to forced to deleverage, whether they like or not, by the people who loaned them the money in the first place.
In fact, I think the people who loaned the American/Consumer the money in the first place, are going to be prying it out of them for many generations to come.
In other words, they’ll be prying it out of the American/Consumer’s dead bodies, if it comes to that (which it will), and I think this prying of the living, and the dead, does not bode well for the future of our American/Consumer based economy.
“there is not a single credible data point I’ve seen that home prices will increase anytime soon” –
You mean like price discovery? Who would have thought that a couple with an income, with no debt, making $100k a year, can actually only afford a home worth $300k?
Three times your salary, minus your debt, is what you can afford. Why vary from tried & true? In a fraud of an economy, I guess anything will do, especially for people dumb enough to buy into it.
I think that it’s important to look at different market segments separately. Certainly at the inflection points, more expensive neighborhods and cheaper ones do NOT march in lock step. Many people were fooled by this when the bubble burst. Mean prices continued to move up in some metropolitin areas because the subprime loan market was the first to seize. With small houses in marginal neighborhoods not selling, and only the upper end selling, it looked like prices were still going up.
We may see similar issues at the bottom like we did at the top. Certainly in my working class nabe, actual selling prices are getting fairly close to what they were in 1999 when I bought. The lower end fell fast and hard, while well off borrowers had savings or at least more credit to fall back on. On the other hand, when there is an oversupply of housing, as prices fall, people tend to “upfill” until the worst housing is abandoned. And as pointed out above, high levels of student loan debt may depress the demand and therefore price of starter homes.
But the one thing that we ALL seem to agree on is that the bottom will will be long and flat. A couple of percent up or down, but ~20% appreciation/yr is something we’re unlikely to see again in our lifetime.
Dear Jim;
I would take issue with the assumption that the ‘upper end’ of the housing market will continue to ‘do fine.’ A lot of said upper end market was comprised of middle class types aspiring to upper class lifestyles. This requires a continuing expansion of the class as well as their incomes. All data suggest exactly the opposite is happening. When the aspirational class’s nerve finally breaks, (a problematic prediction I grant you,) watch upper end housing also take a big fall.
As for the ‘upfill’ phenomenon, I haven’t seen much of that around here, the Deep South. One reason, I suspect, is that ‘upfilling’ probably requires either some liquidity or the ability to sell the first house within a reasonable price range and time frame. Both are lacking at present. No one knows when the bottom is coming, and no one, except the highly liquid, (I would argue Rentiers, and thus subject to different rules,) can obtain affordable financing.
Finally, I see too much willful ‘suspension of disbelief’ among those who got into the market too late. They, as most people probably would, don’t want to admit they made a mistake and are going to loose their shirts. Thus, they are absolutely loath to bring asking prices down to reasonable levels. It has become a buyers market, and they can’t admit it to themselves. When their nerves finally break, you’ll see a very large downward correction in housing prices. It may take a few years to play out, but that 20% correction, (yes, I did read the “in a year” caveat,) looks to be a conservative prediction.
However, let us look on the bright side of life. All the ’empty nest’ refilling will end up doing society a service. It will force the generations to learn how to cooperate in living as a civilized culture. Or die trying.
I NEVER meant to imply that the higher priced market segments would do fine or were immune to falling. Merely that the time-frame involved was different than lower segments. And you have pointed out that people are reluctant to lower prices to ones that will clear the market. I really don’t any real feel for how severe price declines in the various segments will be. I’m just saying that the TIMING of price changes can make people think that market is doing different things than it is if they just look at mean, or even median prices. Another factor is the bigger rental market for cheaper houses. This means that the bottom can be set by intentional, cash-flow landlords rather than owner/occupiers in a way that is difficult for McMansions. The upper end may well still be falling even as the lower end is bouncing around at the bottom. A big question is: what is the makeup of the hidden inventory. I suspect that percentage-wise up market homes are over-represented in it.
Dear Jim;
Sorry if I misunderstood you. Your point about the timing of market corrections feels to be more a political phenomenon than economic. (All the talk about “cheerleaders” etc.) Thus the question becomes, what are the motives behind such short lived trends? (I’m sure the Commentariat here can fill in a few of the blanks!) In such cases I usually fall back upon the theory of “Manufactured Consent.”
As for McMansions being more problematic, well, during the Depression, big old Petite Bourgeoisie Mansions from the previous era did yeoman service as rooming houses. It probably is starting to happen again. Rent by the week motels are way too expensive for ordinary folk. Although I’d be very wary of the one named the Bernanke Motel.
I don’t think that the timing is political so much as three economic effects:
1. On average wealthier owner occupiers have more reserves and more equity to fall back on. So they can hold on and keep asking for their “wishing prices” longer.
2. The Casey’ Serin’s of this world tended to invest in more cheap houses instead of a few McMansions.
3. The banks are slower to foreclose on the wealthy. The losses are more and they may be able to convince themselves that these “prime” borrowers will be able to catch up.
The big problem for McMansions and Lux Condos is that much of the oversupply of recent years has been built for those markets. As prices inevitably become more in line with incomes across the economic spectrum, there simply aren’t enough 1%ers for all that delux housing. With the hollowing of the middle class, there’s likely to be a big dropoff for some of those houses.
Dear Jim;
Good points. Considering the ‘oversupply’ in multistory condo projects, will it be long before we see some ‘Roarke Demolitions’ as developers decide to take a total loss rather than kowtow to the ‘Rabble?’ Perhaps I’m being too unsympathetic to the developers. However, I grew up in the Miami of Florida region and remember one particularly notorious developer named Turchin. Generally despised locally for having constructed some of the ugliest and most offensive high rise projects anywhere. Just look at the Roney, or the 41st Street Tower. Pure boxes, no esthetics at all. However, I digress.
A more probable occurrence would be a ‘mysterious’ outbreak of “electrical” fires. The near term looks to be a busy time for accident investigators.
For buyers who want a home, not a house — that is, if your primary purpose is to shelter your family rather than your money — and you don’t want to rent because you plan to make improvements, don’t plan to move for a decade or longer, and can purchase with cash, it may not be a bad time to buy. Michael Olenick [bold added]
Yep, depressions are when the savers finally have their day, such as it is. The crooked boom is offset by the at least equally crooked bust but the winners and losers swap positions. And some call that justice. Meanwhile the innocent suffer.
If the depression is severe enough that a social upheaval ensues (or an economic/monetary reset of some kind), then the savers stand a very good chance of losing everything.
The lesson we can learn from the Fed/Treasury machinations over the past 5 years is that you were a complete idiot to put aside any money for your retirement. All the massive losses, as well as the subsistence windfalls for bankers, politicians, and felons everywhere, are being socialized across the whole population.
The savers would be wise to advocate a universal and equal bailout of everyone including themselves.
As a saver and skeptic of both the dot.com and housing bubbles, I honestly wouldn’t mind if the risk-embracing, debt-embracing, and consumption-embracing elements of society got a bailout.
However, it would be good for those of us who consider it a duty to our families to live beneath our standard of living to receive a benefit of equal value for having done so.
The Macro reality is that America has overbuilt urban single family homes. The standard tract 3 bedroom, 1/4 acre lot is expensive to build,maintain and far from employment centers.
The boomer RE market driven by cheap energy and converting valuable farm land into tract housing has reached its end life but economist will endlessly try to measure the new reality based on economic data points of the past market.
I’m actively looking to purchase a home in the nicer eastern suburbs of Cleveland: Shaker Heights, parts of Cleveland Heights, out to the Gates Mills area. If you’re familiar with the region you’ll know that these areas are generally white collar, upper-middle class.
I say that only to frame the conversation, not to incite any type of class-warfare discussion.
Cleveland Heights and Shaker Heights are filled with early 1900s mansions that have been beautifully maintained. We’re talking 3,500 – 6,000 square foot six bedroom three bedroom homes. Prior to 2007 these homes in the better parts of those neighborhoods were selling for $500,000 – $600,000. Yesterday my wife and I went to an open house for one of them – on a complete whim. The asking price had dropped from $525,000 in January 2011 when it was first listed to $325,000 as of last week.
In another part of Shaker Heights I found a series of homes now listing for between $225,000 – $300,000 that had last sold for between $425,000 – $500,000 in the early 2000s.
Moving out to Gates Mills we’ve found homes that have dropped from $450,000 down to $255,000 and one that has been dropping steadily for *three years* from $399,000 and is now close to $200,000.
These declines are nothing short of dramatic. In some of them you can tell that they are elderly people who have died and the families are looking to unload the property quickly, but in others it’s very evident that these are younger families who are going to be taking extraordinary baths when they go to sell.
The declines are such that my wife and I are legitimately nervous about placing bids. We’ve followed several of these homes for months, each time thinking the price has come down enough to warrant an offer, then the asking price drops again by another $10,000 – $15,000. So logically we’re wondering if, even though some of the prices now look very fair, the time to buy is still wrong and values have further still to fall.
In many of these homes it’s the total cost of ownership that’s the problem: many people may be able to afford the principle+interest+insurance, but the killer is property taxes. In Shaker and Cleveland Heights we’d be looking at $10,000+ property tax bills on top of private school – that in itself is a deal killer.
At the end of the day the problem is affordability and income deflation. Home values will continue to fall until overall affordability is restored, and while I think that we may be close, my gut tells me that in the areas I just mentioned there is still another 10-15% to go.
This won’t help you ascertain the bottom of the RE market, but I would recommend to you a book, “House” by Michael Ruhlman. The author and his wife bought a century-old house in Cleveland Heights, and had the first two floors remodeled while they lived on the third floor. He talks about the history of the area, about neighborhoods and a sense of community.
The book helped to inspire us to plan to build a front porch on our house, the better to engage with people passing by on the sidewalk.
From the dust jacket: “…We are a land of itinerants in love with the idea of home, the truth and sentimentality of it intertwining so tightly they are almost indistinguishable. What does a house and home mean anymore to us generally in this country? Why do we idealize it? Why do we long for a home of our own? What is the source of and reason for this longing, which runs counter to the American spirit of renewal and reinvention, the open road, flight?…”
At one point he offers interesting advice on how to locate historical information. They couldn’t find accurate information on when their house was built. But they did find property tax records for the parcel, and noticed a sharp rise in the assessment one year a century ago, so they deduced that was the year of construction.
I think many people would find the book interesting and enjoyable — perhaps as an antidote to thinking about the mortgage mess.
ozajh –
Good point, and we’re actually having that discussion now. What makes it hard is the speed and depth of the price decline – akin to catching the proverbial falling knife.
Don’t know the contents/point of that particular book, but any book devoted to the economics of the boom and following bust would best be titled Land, not House, since the boom was all about the peculiarities of markets with completely inelastic supply.
TG,
I know this is going to sound like realtor-speak, but since you apppear to already have your area picked out, you and your wife should sit down and calculate the point where you don’t care whether you’ve picked the absolute bottom or not.
(The blog http://ochousingnews.com/ has some very good posts in its library on how to pick this point.)
And surely property taxes going forward will reflect your buy price, if you can prove an arms-length transaction.
“Shaker Heights (is) filled with early 1900s mansions that have been beautifully maintained.”
…and Paul Newman was born there!
Older homes have character but they require extensive upgrading of plumbing,wiring along with normal maintenance items that goes along with aging wood homes. I have several friends in San Francisco that have beautiful turn of the century homes but keeping up with maintenance is a constant time and cost problem. We restored a 1926 craftsman in early 2000 and sold it during the bubble a fun project but only in a up market from a dollars and sense point of view. We have been renting since 2005 and on the verge of buying a home built in 1953 that has been upgraded, wiring,plumbing, baths,kitchen floors,windows in 2005 then sold for big dollars and now a Short Sale for a fraction of the cost. This is the type of older house one might be on the look out for, not a quick flipper remake but a home that someone upgraded with permits using high quality materials and now is a foreclosure or Short Sale.
I think the problem is with what CR said and what conclusions everyone else made. CR did call a bottom, but did not say that means prices would now go up. The problem is that most everyone else took that to mean that prices would now start to increase. It just seems the idea prices could bottom and just stay there for years and years is just too much for most people to comprehend. In their minds they still cling to the idea that prices MUST increase back to pre-crisis levels. So, to them a bottom implies that prices MUST now rebound.
I would like to know where people are finding all these “foreclosures”. I search the web in my area and every site asks me to pay a fee to access information I am not sure is accurate. Yet the stories of “so & so” finding a bank owned foreclosure really cheap are common. Where does a person go to find out foreclosed property? I would like to buy for living and renting. I think real estate agents are keeping this information to themselves so they may have some control on the market and the buying and selling.
CR, Housing Shill
*rolls eyes*
For some one who reads CalculatedRisk and Naked Capitalism regularly, I have noticed that CR, a generally good site for data, has lately been pushing the case for “bottoming out.” Bill McBride seems to rely too much on NAR and a crazy guy from Loudoun County (a DC suburb) who seems to be a hype-meister for real estate. All healing takes time, the issue is how long, the severity of the wound and the inherent/genetic ability of the patient to heal. Ditto for real-estate. The shadow inventory is huge by my reckoning, labor market mobility limited, and wage growth and job markets quite abyssmal. New home formations are hence quite limited. I think that Bill McBride/CR is smoking or pushing “hope.”
I used to read CR but it has totally gone mainstream and is unduly deferential to authority. It links to and only seems concerned with mainstream economics–like it’s trying to get into the big leagues by sucking up and mimicking some of the worst habits of mainstream economists.
CR only reports “happy news.” I don’t know exactly whom he’s shilling for, but a shill he is. And he should be ashamed to be relying on NAR data, and for suggesting that housing may have bottomed. I hope no-one relies on *him.*
52.25 million US homes with a first mortgage [close enough to census figure of 50.34]
74.8 million owner-occupied homes; 50.34 million of those have a mortgage. [consistent with 33% no mortgage ownership, historical]
131.8 million “housing units” to shelter about 313 million people. [about 2.4 people per unit]
What is so remarkable about these numbers? I don’t understand your conclusions.
If 50 million owner-occupied homes have mortgages then there must be some number of single-family rentals that also have mortgages. If we add the mortgaged rentals and empties then the size of mortgaged residential RE goes through the roof. Either the census and the OCC are far apart, or they’re both only counting owner-occupied homes, or they’re counting all properties which seems impossible to believe since it’d suggest virtually all rentals and empties are paid-off.
Rents have remained miraculously sky-high so maybe those rentals are performing. But they’re bound to fall given the high number of vacancies that will eventually be rehabbed and the spike in new multi-family housing. Once rental prices begin to decline those rentals are vulnerable to foreclosure and when a foreclosed property hits the market it’s prior status becomes irrelevant: it’s just one more house/condo vying for a tiny number of dollars.
About 30% of owner occupied are owned outright, no mortgage (30.14% of 74.8 = 52.25)
57M are rentals (131.8M units – 74.8M owner occupied)
Some number of these 57M must have a mortgage. The OCC says it’s 52.25M, but the census says it’s 57, so there’s a descrepancy of 4.75M (57 – 52.25 = 4.75). There’s some number of vacant units that would increase this number. 2010 census has it at almost 15M. So that’s around 20 million vacant or uncounted.
They break out rentals: there are 37 million, and about 17 million empties. The remainder are things like time-shares, houseboats, trailers. They only break out mortgage status on owner-occupied (because apparently some people to used to mark ownership as “no” if they had a mortgage, so they added the clarification starting in 1990).
Many of those rentals, empties, and “other” category must carry mortgages, and plenty of those mortgages — especially the empties — are likely to default. I mean, who would abandon a paid-off house?
I suspect the OCC is using the figures for owner-occupied mortgages. But if that’s the case the base of mortgaged residential RE — when the empties, rentals, and exotica are factored in — increases sharply, and so does the scope of the housing problem.
Mr. Olenick;
A question about definitions. In the other category you list “trailers.” Now, around here, the Deep South, a great deal of the lower class housing consists of “Mobile Homes.” Basically, bigger and heavier trailers. In fact, the term “Trailer” is generally used to denote these units, despite years of propaganda trying to remove the tag and the stigma attached. Does the Census and economic agencies make a distinction between “Mobile Homes” and stick built housing? Present day “Mobile Homes” are quite expensive and come with their own class of mortgage I believe. Where are they in the grand scheme of things? Also, as an added bonus, “Mobile Homes” of all classes are generally accepted as being assets that depreciate, rather than appreciate, over time. Modern Shotgun Houses comes to mind.
Thanks in advance for the information.
I’m surprised Olenick made no mention of problems associated with securitized mortgages and clouded/defective titles, especially with foreclosed property. I know that I’d be disinclined to buy a foreclosed property where the mortgage was securitized. Even with a property that has a clear title, I would still worry about adjacent properties (that share a property line) where the mortgage was securitized.
Perhaps I’m being too cautious and rational. Surely there are pooled funds of uninformed investors where the manager just goes out and buys foreclosed properties with other people’s money on a premise of hopefully realized increases in valuation along with rental income to be disbursed among investors. Then there are those that buy foreclosed properties, repair and flip for a quick profit (never mind the future possibility of the cost to defend yourself in litigation).
Lastly, let’s not forget that our fellow citizens are programmable roboton zombie sheeple that are easily swayed with an often repeated, overly simplistic statement from authority. They will make that decision to buy a property based on emotion while embracing denial, rationalization, the audacity of false hope and suspension of disbelief. So maybe the real estate market has bottomed.
I’ll believe it when I see it.
CR has said in the past that he would use better sources for data if he could find it. He has some sources that he likes very much, but those sources tend to focus on the Western U.S.
(I’m personally really frustrated that the data available isn’t better. Most average Americans have traditionally thought of their homes as their largest investment. Imagine if, instead of the Dow Jones or the S&P, those Americans who had most assets tied up in the stock market only had Zillow and Trulia to look to for their most accurate daily method of price discovery on their stocks and bonds! It’s very unnerving!)
CR has a good readership–and I think the readers of CR know that they are getting a slow and steady customer in Bill McBride. He’s a great bell-weather, actually. When CR really starts to panic he’ll tell us–and we’ll trust that the panic is well-founded!
I think it is important always to have a guy like Bill McBride at your table. He’s no shill. He’s just calm. (And, besides, we who frequent his forum, Hoocoodanode, are usually the hysterical types, and tend to balance out Bill’s laid back manner! :-))
Personally, I can’t imagine a blogosphere without an Yves Smith or without a Bill McBride. They are totally different personalities with totally different backgrounds. Technically, Yves is better because she’s a female and females are just , you know, superior–as humans go.(duh) but we still need male voices and I think Bill McBride is widely-read for a reason.
Yves Smith and Bill McBride are my two favorite bloggers. There’s plenty of room in the blogoshere for both of ’em!
p.s. To Michael O: I played around with a great new tool at the GSCCCA website last night. I’m now going to be able to get much more relevant and reliable data for Georgia foreclosures. (I have to pay an extra $15 a month, though. Bummer!{:o}) But I will get you the data that I have once I feel really good about it. I’m noticing some interesting trends. I think. (!) bye
There are two maxims that generally hold true:
1) No one ever picks the exact top or bottom of any market.
2) All real estate is local.
CR’s perspective comes from Orange County, California and Michael Olenick comes from Florida. Two very different markets in real estate, inventory and law (whether a foreclosure be judicial or non-judicial and homeowner protection or lack thereof in bankruptcy).
Having attended the court auctions in Los Angeles and Orange County the LA/Oc market is much closer to a bottom trough. There are significant number of bidders and prices are bid up”.
Mr. Olenick cites the well know Laurie Goodman report. Ms. Goodman also has well discussed the large institutional sales of foreclosures being proposed by Wall Street Houses and which she appeared before a Congressional hearing late last year. This insitutional type sale would have a dramatic impact on inventory, backlog and value.
The banks have constricted the inventory. They will and can continue to constrict inventory especially given their cost of funds is 25 basis points. Whereas the exising MBS are selling at a discount to their net cash flow they too can sit and wait. All of this bodes against the argument of the flood of inventory we all have been waiting to see.
No question Case-Shiller will be lower tommorrow and for next few months, partially due to lag and seasonal factors.
As for data points I would suggest the following three:
1) Consumer Confidence is up smartly in last three months.
2) GDP of 2.8% in 4Q 2011
3) Weekly unemployment claims have trended lower to 351,000 per week.
Most importantly one cannot look at price levels alone. Terms/ interest rates are equally important if not more important than price alone. Long term rates below 4% make the economics much more compelling for homeowners. That being said the single biggest hurdle is the market lacks financing, but for those that can obtain financing it is compelling.
I have no expectations of prices to rebound to 2006/2007 levels.
But I truly question whether one can pick the absolute bottom and when the bottom hits is fortunate enough to find that right home, in the right neighborhood with low interest rates that also happens to be a distressed sale. In my opinion, if you are deliberate enough in your search which may take up to 6 months now is not a bad time to start the endeavor.
Housing is so market and submarket specific that macro-national level analysis is essentially useless. The NOVA area of DC is screaming hot – new condo construction all across Alexandria and Arlington (within walking distance to metro, at least).
Suburban Atlanta low tier is selling at 1/3 of replacement cost in almost every area outside the perimeter. It just cannot go any lower, IMO. But mid and upper tier there will still feel some pain, especially for older product.
Birmingham is humming along with mid- and upper-tier new construction breaking ground. But B’ham did not overbuild.
and to think that the ‘housing dead cat’ has yet to bounce; the artificial stimulus of 1st time home buyer credit, HAMP, and ZIRP driving interest rates to historic levels is creating what appears to be bumping along the bottom patterns. Acting like a housing market defibrillator. When “Real” unemployment goes down, then you may see a recovery in housing. But it will be a slow process in price growth as the pain from the bursting bubble will have lasting impact. Remember our parents & grandparents memories of the G-depression.
I have found Bill McBride a man of high integrity. He may be wrong with his housing bottom call, but to characterize him as a shill is ridiculous. Remember, this is the man who with great clarity called the top of the housing bubble. Not really what one would expect a RE shill to do.
It is worth noting that Mr. McBride is retired. He probably makes a modest income from his site, but I doubt that was his intention in starting it. It is also worth noting that Mr. Olenick has a vested interest in making sure his name is out in the blogsphere as he owns a legal services company which is utilized by lawyers in foreclosure fraud cases. His motives may be pure, but one way in which notoriety and readership is gained is by trying to take down well respected figures such as Mr. McBride.
Um, CR only reports “happy news,” unless something is way too enormous to ignore (and even then he often ignores it). He seems to have a devoted following; I guess shills can have devoted followings, too.
Additionally if Mr. Olenick is going to challenge Mr. McBride to buy a home if Florida, I would challenge Mr. Olenick to show us his broker statements showing his large, leveraged bets against the homebuilders.
And his suggestion to pay “all cash” for a home when a 30 year fixed mortgage can be had for 3.5% is insane. I think quite probably locking in an after tax interest rate of 2% may well be one of the best decisions anyone could make today. If treasuries get back to anywhere near their historic yield in the next several years you can simply invest your “all cash” pile in long term treasuries and use a portion to pay off your mortgage and go on vacation every month with the rest.
I didn’t bother going against home-builders but did well with put options against BOA last year, though closed off the positions towards the end of 2011 sensing “irrational exuberance” about bank stocks building. You’ll find the disclosures on some of the pieces I wrote back then.
Right not my positions are closed because while it’s reckless to call a market bottom it’s also iffy to argue it absolutely won’t happen. I don’t know what banks will do with all that shadow inventory and they may choose to trickle it out, or let people remain without paying, to avoid an enormous drop. But I do know that any “regular” buyer is best off waiting to see what happens.
As for locking in a mortgage at low rates that sounds great .. unless you factor in the losses if the house declines in value, then you’re facing potential steep losses. I’ve seen too many people who subscribed to the “cash out the equity and invest it theory” lose their homes and the investments. If you can afford to pay cash, but aren’t willing to, you shouldn’t be in this market.
For the record, having read 4+ years of every post Calculated Risk has make, I vote in favor of CR and vote against weird ramblings against analysts.
I’m sure this is repetitive, but CR always said housing starts and would bottom first. He then said there may be a time where prices continue to fall, but then they’ll level out and they may not have real price gains for years, but the he said it was a process. Different things would happen in stages. I would not know that housing is a process if it weren’t for CR. That’s how good he is. He covers the market better than most and is open to changes in the data.
I’m not CR nor am I related to CR. I just think calling CR out is unjustified.