Quote of the day


"Home sales are in the process of reversing
all the gains of the past two years and reverting to 2003 levels."

– Robert Mellman, economist, J.P.

The WSJ’s Afternoon Report reports that mortgage apps sank 5.5% last week; According to the The Mortgage Bankers Association,  applications for purchase fell
4.7%, while refis slid 6.6%.

Not coincidentally, borrowing
costs ticked higher: the average rate on a 30-year fixed mortgage is 6.50%, while the one-year Treasury adjustable-rate mortgage rose to 5.97%. These are the highest rates have been since April 2001.


Trade Reprieve
Tim Annett
WSJ, April 12, 2006 12:34 p.m.

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What's been said:

Discussions found on the web:
  1. Mr. Bubbles commented on Apr 12

    I laugh when I read statements like this from economists. What’s so magical about 2003 price levels? I recall that in 2003, prices were already unreasonable in my area, when compared with incomes and comparable rents. I think he must have meant reversion to year 2000 levels. That would bring prices back in line with historical valuations.

    This has been a bubble of unprecedented proportions. There will be an equivalent mean-reversion in home prices, and it won’t be just 2 years worth of price gains that are erased.

  2. HARM commented on Apr 13

    Mr. Bubbles is spot on. Perhaps a retrenchment back to 2003 levels is what the economists are WISHING FOR (the much-hyped “soft landing” scenario). To get back anywhere close to the historical inflation-adjusted mean or where cash flows are close to equalling carrying costs, prices in CA would have to revert to 1998 levels at least.

    Strap yourselves in –we’re in for a long, bumpy ride ahead.

  3. GRL commented on Apr 13

    Something to look into:

    I cannot find the fed study referred to as “revolutionary” in this article from Bloomberg:


    The study projects a slower pace of workforce growth than most economists now forecast, suggesting the economy can’t keep growing at the present-day pace without generating pressure for higher wages and inflation. To prevent that, the Fed will have to enforce a lower speed limit on the economy by pushing up interest rates.

    According to the aritcle, the study is supposed to come out in July, but there is some sort of “preliminary version” is available on the Brookings Institution website. (That’s what I can’t find.)

    If Barry could find it and provide a link, it would be helpful, as would his comments (i.e., is the study bogus, or are the people saying it is wrong themselves wrong?).

  4. Michael Nierenberg commented on Apr 13

    Maybe i’m missing something, but I think he’s talking about sales volume not prices. He says “Home Sales” not “Home Prices” – and its also in the context of mortgage apps, which are generally considered a leading indicator of sales, and only indirectly an indicator of prices. A return to 2003 sales volume would be a futher decline of about 10% according to NAR’s historical data.

    I agree with the above comments in general, just wanted to point this out…

  5. drey commented on Apr 13

    you guys can quibble about how fast or far prices will revert to the mean but it’s meaningless unless you take region into account. I suspect high end markets such as San Diego and SF will get hammered while moderately priced homes with less toney zips will do just fine over the long haul.

    My motto: there will always be a demand for entry-level housing.

  6. Dru Nelson commented on Apr 13

    I agree with all of the above. However, a couple of points.

    i’m amazed at how well the SF Bay area is holding up on the prices. There must be a lot more money flowing around here than I suspect. It is slowing, but just from super super hot to still damn hot. It would be interesting to see how this area pulls through this without any effect on employment and venture investment.

    Regarding “there will always be demand for entry level housing”.. Without qualification, that is kind of a non-statement. What do you mean by “demand”? For example, there will always be a demand for horse shoes.

  7. Back2Renting commented on Apr 14


    In my neck o’ the woods (SF Bay area), I just sold an “entry-level” house for over $800k. That is simply too much for a reasonably minded person to pay for a 50 yr old 1200 sq ft house in a decidedly non-tony neighborhood. One neighbor has an RV parked on the street, another runs a mini motorcycle shop out of their garage. 2 blocks away are tons of lower income apt units. BTW, the buyer used 100% financing- first loan was over 600k @ nearly 8%.

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