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Lower prices and more incentives have failed to spur interest as buyers wait for even bigger bargains, leaving builders with a glut of unsold properties. A jump in mortgage rates and stricter rules to qualify for a loan will probably reduce demand even more in coming months, economists said.
``There is way too much supply,'' Joshua Shapiro, chief economist at Maria Fiorini Ramirez Inc. in New York, said before the report. ``If you're a homebuilder with inventory, the market is skewed against you.''
Economists surveyed by Bloomberg News forecast starts would fall to a 1.473 million pace, from a previously reported 1.528 million in April, according to the median forecast of 68 economists surveyed. Estimates for starts ranged from 1.43 to 1.59 million units. Permits were forecast to rise to 1.47 million, according to the survey.
Of course, the NAR will attribute the continued slump to the rising interest rate, the weather, etc, but it's blatantly obvious, to those who want to buy, that the problem exists in the price of the existing homes.
It's a standoff between buyer and seller. Depending how badly the seller wants to sell, the buyer will win this standoff.
I think homes that were purchased in pre 2003 bubble prices will be reduced until they are back to close to what they paid for and then sell.
The homes that were purchased mid 2003-2007 that have to be sold will not be able to be reduced much due to being underwater. These homes will either go to short sale or go into REO. Once the banks have them, they will hold on to them at their own wishing prices for a while before they start doing mass auctions.
I firmly believe the best deals will be starting in the Fall of 2008.
Right now the best deals are in rentals and even at that rent prices are going down. Once renting is more expensive than buying we are out of this mess.
I think homes that were purchased in pre 2003 bubble prices will be reduced until they are back to close to what they paid for and then sell.
The homes that were purchased mid 2003-2007 that have to be sold will not be able to be reduced much due to being underwater. These homes will either go to short sale or go into REO. Once the banks have them, they will hold on to them at their own wishing prices for a while before they start doing mass auctions.
I firmly believe the best deals will be starting in the Fall of 2008.
Right now the best deals are in rentals and even at that rent prices are going down. Once renting is more expensive than buying we are out of this mess.
I absolutely agree with you. There are people that are trying to sell right now who are trying to get what they paid for their homes during the boom. No one wants to lose money on their home and I understand that.
Others, who have older houses that they bought over 5 years ago, can make a profit selling them for 180k, but are demanding 2005 prices (250-350k) and/or the asking price of what people who bought their homes more recently. Those people are nuts in my books. A few will sell at those prices. Most won't, IMO.
California, Florida at highest risk for home-price drops
Index targets housing markets with low affordability
Tuesday, June 19, 2007
Cities in California and Florida dominate a list of areas where a private mortgage insurer expects home prices are the most likely to decline in the next two years.
Eleven of the 15 metropolitan statistical areas (MSAs) facing a 50 percent or greater chance of a price decline are in those two states, according to PMI Mortgage Insurance Co.'s latest Market Risk Index.
MSAs in Texas, Ohio, Indiana and Pennsylvania were among those with the lowest risk of price declines, PMI said, with less than a 10 percent chance of lower prices in the next two years.
PMI said it has changed the way it calculates the index, giving additional weight to recent price volatility and taking into account the use of adjustable-rate mortgages. The index also looks at trends in appreciation, unemployment, interest rates and affordability.
The list of top 50 MSAs was also updated to reflect demographic changes, with Memphis, Tenn., and New Orleans, La., removed to make room for two Florida MSAs, Jacksonville and West Palm Beach.
The markets with the greatest risk of decline share a history of price volatility -- rapidly rising rates of price appreciation above the long-term average, followed by a recent sharp slowdown in the rate of appreciation, said Mark Milner, PMI Mortgage Insurance's chief risk officer.
"Markets with a history of volatility are more likely to see price declines in the future, Milner said in a press release accompanying the release of the index. "MSAs with a history of low to moderate rates of volatility in house-price appreciation have a lower risk of price declines."
The average risk score for the 50 largest MSAs as a whole was 346, which translates into a 34.6 percent chance that prices will be lower in two years.
Average scores by region were highest in the West (483), followed by the Northeast (292), South (246) and Midwest (163).
The 15 MSAs with a greater than 50 percent chance of price declines were:
Riverside-San Bernardino-Ontario, Calif. (652)
Phoenix-Mesa-Scottsdale, Ariz. (646)
Las Vegas-Paradise, Nev. (614)
West Palm Beach-Boca Raton-Boynton Beach, Fla. (607)
Los Angeles-Long Beach-Glendale, Calif. (586)
Santa Ana-Anaheim-Irvine, Calif. (577)
Oakland-Fremont-Hayward, Calif. (572)
Orlando-Kissimmee, Fla. (563)
Sacramento-Arden-Arcade-Roseville, Calif. (560)
San Diego-Carlsbad-San Marcos, Calif. (555)
Ft. Lauderdale-Pompano Beach-Deerfield Beach, Fla. (542)
"All 15 of the MSAs in (the highest risk groups) have a common history of several years of rapidly rising rates of price appreciation, coincident with substantial declines in affordability, followed by a sharp decrease in the rate of price appreciation," PMI analysts said in their overview of the index.
Price appreciation in the 15 highest risk MSAs averaged 22.7 percent during the first quarter of 2006, but fell to 3.1 percent in the first quarter of 2007 -- a "deceleration" of 19.6 percent.
Phoenix saw the biggest drop in the rate of appreciation, from 37.3 percent in the first quarter of 2006 to 4.52 percent in the same quarter a year later. In-migration from California has slowed, PMI noted, reducing upward pressure on home prices even as affordability continues to drop.
The higher-risk MSAs had much lower affordability scores -- 66.7 on average, compared with 123.79 for the seven MSAs with less than a 10 percent chance of a price decline. Scores exceeding 100 indicate homes have become more affordable, while scores below 100 mean they are less affordable.
MSAs with the lowest affordability scores were Riverside (57.2), Miami (57.2), Los Angeles (59.5), Ft. Lauderdale (60.8), and Santa Ana (63.2). All were all categorized in the two highest risk groups.
Affordability remains "extremely challenging" in California after a prolonged period of rapid price appreciation, despite the fact that the Oakland, Sacramento and San Diego MSAs registered price declines, PMI reported. Current low levels of unemployment continue to support California's housing market, PMI concluded, but weakening housing demand and prices have resulted in high risk scores.
The seven MSAs with less than a 10 percent chance of price declines were:
Pittsburgh, Pa. (64)
Ft. Worth-Arlington, Texas (74)
Dallas-Plano-Irving, Texas (75)
Houston-Sugar Land-Baytown, Texas (79)
Indianapolis-Carmel, Ill. (84)
Columbus, Ohio (93)
Cincinnati-Middletown, Ohio (97)
Low-risk MSAs shared low rates of price volatility and appreciation, PMI said, plus affordable housing prices and low unemployment.
The MSAs the best affordability scores were Pittsburgh (128.6), Indianapolis (128), Ft. Worth (126.4), Dallas (123.6) and Cincinnati (121.9). All were ranked in the group with the lowest risk of price decline.
These low risk areas tend to be concentrated in the Midwest and Southern states, although some MSAs in those regions have a 20 percent or better chance of prices declines in the next two years. Midwestern and Southern MSAs at risk of price decline included Detroit-Livonia-Dearborn, Mich. (284), Philadelphia, Pa. (237), Warren-Troy-Farmington Hills, Mich. (236), and Atlanta-Sandy Springs-Marietta, Ga. (212).
While volatility has been fairly low in the industrial Midwest, high and increasing rates of unemployment in those MSAs caused by continued layoffs in the auto and related industries are driving these risk scores higher.
But despite that fact that Detroit and Warren have seen negative price appreciation, those MSAs enjoy lower risk scores than some more volatile markets where prices are still on the rise.
The longer price growth stays in negative territory, PMI analysts said, the lower the probability of future price declines.
"Simply put, prices can't fall forever," PMI's report said. "At some point the market will revert to its mean positive growth rate, resulting in a reduced probability of further declines."
Many MSAs in the Northeast and Northwest fall into the middle of the risk spectrum, in part because price appreciation has already slowed or reversed.
The Cambridge-Newton-Framingham, Mass., MSA, for example, has seen the rate of appreciation decline to -0.5 percent. Although the affordability index remains low at 90.7, PMI puts the MSA's risk of price decline at just 33.6 percent.
Other MSAs in the Northeast where price appreciation has slowed but not reversed have relatively low risk scores because prices have been less volatile. Those MSAs include Nassau-Suffolk, N.Y. (445), Providence-New Bedford-Fall River, R.I. (397), Baltimore-Towson, Md. ((400), Edison, N.J. (362) and Newark-Union, N.J. (314).
In the Northwest and Rocky Mountain states, some MSAs remain more affordable than California or Florida. But continued price appreciation and volatility pushed MSAs like Seattle and Portland into the mid-tier of risk. The Seattle-Bellevue-Everett, Wash., MSA scored 343 on the risk index, which corresponds to a 34.3 percent chance of a price decline in the next two years. The MSA encompassing Portland and Beaverton, Ore., and Vancouver, Wash., saw price appreciation of 11 percent in the first quarter, helping push its risk index score to 389.
It's going to take time for this to work itself out. A lot of sellers that bought in the last three years probably cannot even afford to lower their prices because they would literally have to bring cash to closing to sell their own home. They will either wait things out, face foreclosure, or pray that they find a clueless buyer.
First off, some sellers are being forced to sell their homes they bought a few years ago for outrageous prices due to taxes going up, electric bills, gas, maybe they had an APR loan or interest only...so now they are forced to put their homes up for sale, however, they can not ask for less then they bought it for, so they are going to have to hold on tight to what they paid for it and try to get the most they can!
So we get it that you are happy that a large amount of homeowners have a 50/50 chance of the value of their house going down in the Tampa area.
Conversely this would mean they have just a good chance of the values going up.
I understand you missed the buying period before prices shot up and are now looking to buy. Well you can wait it out and see if the prices come down but if you didn't buy in 2003 or 2004 are you ever really going to be happy about where the prices are.
The article did also mention that "The longer price growth stays in negative territory, PMI analysts said, the lower the probability of future price declines.". Since Tampa has been in a down market for a while now I would say that brings the probability of further decreases down.
Last edited by Marka; 12-19-2007 at 02:07 AM..
Reason: edited quote
So we get it that you are happy that a large amount of homeowners have a 50/50 chance of the value of their house going down in the Tampa area.
Conversely this would mean they have just a good chance of the values going up.
I understand you missed the buying period before prices shot up and are now looking to buy. Well you can wait it out and see if the prices come down but if you didn't buy in 2003 or 2004 are you ever really going to be happy about where the prices are.
The article did also mention that "The longer price growth stays in negative territory, PMI analysts said, the lower the probability of future price declines.". Since Tampa has been in a down market for a while now I would say that brings the probability of further decreases down.
You know, as well as I do, that the homes are severely overpriced. I'm not opposed to paying market value for a house.
One of the houses I'm tracking was bought in 1991 for $108k. It has a Just Market Value of $203k and is on the market for $287k. Its idiots like this that are so greedy, in thinking their house has appreciated $179k in 16 years, that there's such a glut in the market. If the house was being sold at market value, I might consider it. Apparently, the seller must think there's a moron out there dumb enough to overpay that much for his home.
There are too many houses on the market for the price of houses to rise. That won't happen anytime soon in the Tampa area, and I'd bet just about everything I own on it, if I were a betting man.
MY PREDICTION: This slump will take its toll on the existing home market, due to:
1. the increasing amount of preforeclosures, foreclosures and REO's.
2. new home builders slashing their prices
3. lowering of the comparable market value due to foreclosures.
4. Interest rates jumping to 6.74%
If you see this as a sign of the RE market improving, then you may be Lawrence Yun in disguise.
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