Housing Deterioration Continues

Just heard a zinger on CNBC- the realty lady said, upon reporting that homebuilding in the West was down, “The West, which has been a tricky market, down %1.9. That’s, you know, there’s not a lot of land out there, so not a lot of building going on…”

How does one get that job?

my synopsis of the video:
“it is definitely a buyer’s market”…”it’s a buyer’s market”…”this is the best time to buy”…”prices will remain very consistent, so it is a very good time to buy”

why do rich people think their houses are immune from price deterioration?

“well, it’s the amenities…”

thank you for your lack of insight, paul.

Who holds all this bad debt?

“OFHEO pricing data only covers “conforming mortgages” which doesn’t include most of the upper end of the housing market.”

Also, OFHEO includes appraisals based upon refinances. Case-Shiller includes only … what? … 20 markets? NAR reports only median prices. None are as comprehensive as we might like.

LOL, Bill Gross uses “tramp stamp” in business vernacular.

Next week, Bill’s thoughts on the shocker and its implication on tightening PRC monetary policy.

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+July+2007.htm

I’m bothered so I will rant… Apologies in advance for the length of this comment.

Look at the area under the curve. The “positive” area extends from 1996 to 2007, and it’s huge. The area is a graphic representation of the extent of home price increases over this period.

By comparison, look at the “negative” area that has formed over the last few months, indicating home prices decreases. It’s tiny! Just a little bit of “down” following ten healthy years of “up”!

Media have been calling this a “housing debacle”. Yeah, right… Comparing the extent of the price decreases so far with the cumulative extent of price increases since 1996 shows that this is a “blip”, maybe barely a “correction”. Keep in mind that homes have become much more liquid over the past decade or so, so we are justified in bringing in a little bit of equity terminology and standards (e.g. 10% as a “correction”).

So if housing from 2006 to now is a “debacle”, then what would it be if prices decrease- even for a short time- at the same magnitude that they increased for all of 2003-2005 (12%+)??? What would the media call THAT, having already used up most of their poignant negative terminology? And hasn’t the media’s use of this heavy-duty negative wording given the impression to the public that this, right now, is the worst it can get… and thus lead the public to exclude the possibility of, say, 12% annual declines in home prices for a year or two.

And why is that not feasible? Home prices increased at that sustained rate for three whole years, so there’s no reason why it can’t happen in the negative direction. You can look at the evidence yourself and make a prediction, but you have to admit that such a negative downturn is a non-negligible possibility.

Here’s a much more reasonable description of what’s going on: Since 2006, we’ve had a SLOWDOWN in home price appreciation. For the last four months, we’ve had a DOWNTURN. The whole thing so far is a mild CORRECTION.

It ain’t a debacle in the least… yet!

If you want to talk about the subprime mortgage problems, which might be appropriately labeled a “debacle”, then fine. But keep that separate from the home price issue. There might be some spillover, but the subprime issues are more due to aggressive lending with little regard to proper underwriting standards. The whole subprime unwinding has been exposed because of a mild correction in home prices, not because of a “crash”. I’d hate to see what the result of the Wall Street Subprime Wizardry would be in light of full-blown, sustained decline.

Based on past housing long-term trends (dangerous thinking in this “new era”, I know), wouldn’t we necessarily expect a decline in housing prices until the point at which housing is roughly trending with typical inflation again?

Thus, the large speculative boom should lead to a smaller-by-a-factor-of-inflation anti-speculative crunch, until we have the two forces in alignment once more – either via a crash or a slow many year bleed off. Housing, to a point, has always been an oscillating function around the inflation trend. The degree of oscillation varies (Florida in the 1920s, California in the late 80s off the top of my head) with the amount of speculative excess or lack thereof, but it always reverts to the mean.

Of course, complicating this is that the inflation measure from the fed isn’t really measuring inflation well, so you have to do a bit of a back of the envelope calculation to figure out the inflation rate. Hopefully, we can be more accurate than random guessing.

Thus, anyone claiming the housing market is robust at this point is probably insane. On the flip side, I might argue the previous speculation is “healthy”, because it’s going to help weed some of the weak ones out of the market…

Wow, what complete and utter nonsense in that video. Housing was national during the run up but now it’s local?

The fact that you see this stuff on WSJ, CNBC and even Bloomberg on an almost daily basis makes me a bit nervous. Why would they be this blatantly misleading in the face of mountains of data?

CNBC talking heads were blaming weather and the media yesterday. I’m at a total loss.

For those of us waiting to buy, this downturn is not quite everywhere…..not yet anyway…..oh well….

Seattle-area prices for existing houses in April were up 1.3 percent from February and 9.6 percent from April 2006, according to Standard & Poor’s S&P/Case-Shiller Home Price Indices.

the denial is at record level IMO…..

My question is where do these spinsters take it from here? It’s not like it will be improving anytime soon and we still have this election cycle that is rapidly approaching, closer than we all think.

Two over 100pt reversals in two days……yep come on in the water is fine. See first sentence..

Ciao
MS

Seattleite… We do have quite a few houses new and resale in the Kirkland area that have been reduced in recent weeks in the range of 10% or so. Buyers in the $1m-$3m range have a lot of options.

Cheap debt was a secondary factor.

If cheap money was the main cause of the housing price increases then we would have seen prices rise simultaneously at about the same pace in all parts of the country. However, the various local markets had dramatically different rates of price increases – even with the same available interest rates.

Today we see some areas rising while others decline – all with the same interest rates.

The cycle happens with or without cheap mortgage money. History shows this to be true.