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yes Oakman doubled from 1% to 2% somehow I am not nearly as impressed when it is stated in actual numbers rather than your blanket doubled!!
a 2% foreclosure rate is disastrous. When 1 out of 50 people are losing their homes, it's not small. In face, this country went 50 years with it barely hitting 1%. This is not a small number. In fact, it's double what a historically large number was!
a 2% foreclosure rate is disastrous. When 1 out of 50 people are losing their homes, it's not small. In face, this country went 50 years with it barely hitting 1%. This is not a small number. In fact, it's double what a historically large number was!
A 2% foreclosure rate is only disastrous for those being foreclosed on.
It is when the rate is more like 20% that it becomes disastrous. The rate has been over 20% in many parts of Florida, Arizona, Nevada, and California for a few years now. Take those 4 states + Michigan out of the picture and the financial collapse would not have happened in the finance industry.
Foreclosures really start to affect the real estate markets and the values when 20% to 50% of the sold listings month after month are Bank Owned Foreclosures selling at cheep prices. That is when it becomes disastrous. I have friends who are strong Realtors in Florida and Arizona who talk of the foreclosure market basically dominating their real estate markets. That is totally not the picture you have with a 2% foreclosure rate.
The other funny thing I heard on NBC news tonight was that the loan portfolio that the government took over from Bear Stearn's is actually making the government money. 92% of the loans in it are performing. When Bear lost it, people were pricing that portfolio as if 80% of the loans would default. Totally overblown. There are many loan portfolios at many institutions that the market values at almost $0 but in reality the portfolios are performing are reasonable levels. Things like this give me hope.
If you lost your job yesterday, and I offered you a great house for $100.00, you wouldn't buy it? See you are a buyer, AT THE RIGHT PRICE. I know this is an extreme example, but it proves the point that buyers still exist, just at the right price.
The market conditions dictate that prices have to come down to meet the demand of the buyers. Inventory is high so there's no reason for buyers to jump at high-priced homes.
Even if a house was priced extremly low I wouldn't; in this economy I am too nervous that I wouldn't be able to afford the taxes, the upkeep, the utility bills. I am a cynic, and would think this would sink me.
A few years ago, people who were not investors were buying houses to make money, people had steady incomes and could afford to take more risks. I think there are buyers out there, but not near as many as there used to be.
The same standards apply really. I still believe the doom Sayers are being way to negative. Unlike the stock market, many times when people feel they cannot get a certain price for a home they just decide to keep it.
The seller in denial factor (to be a little more precise, the psychological tendency to "value" a place at something other than current market price) doesn't alter the fact that prices will correct.
But you are correct in your observation that this is a factor that prevents a fast correction. One reason that the stock market corrects quickly is that it is possible to short-sell. If the people in the market with long positions are holding on to their stock, a short seller can borrow those shares and sell them -- so the lack of willingness of stock holders to sell does not result in a reduction in trade volume.
Housing is different. You can't "short" a house. So when demand dries up, there is a lack of willingness to sell, and sales volume drops. This is ultimately a deflationary environment. As long as the market is in this state, prices are not going back up.
The mechanism that eventually forces a correction is that buyers are forced to sell.
Again, this does not prevent a correction from occurring. And it sure as hell isn't preventing an inventory from accumulating ! What it does, is increase the amount of time that it takes the market to correct.
The seller in denial factor (to be a little more precise, the psychological tendency to "value" a place at something other than current market price) doesn't alter the fact that prices will correct.
But you are correct in your observation that this is a factor that prevents a fast correction. One reason that the stock market corrects quickly is that it is possible to short-sell. If the people in the market with long positions are holding on to their stock, a short seller can borrow those shares and sell them -- so the lack of willingness of stock holders to sell does not result in a reduction in trade volume.
Housing is different. You can't "short" a house. So when demand dries up, there is a lack of willingness to sell, and sales volume drops. This is ultimately a deflationary environment. As long as the market is in this state, prices are not going back up.
The mechanism that eventually forces a correction is that buyers are forced to sell.
Again, this does not prevent a correction from occurring. And it sure as hell isn't preventing an inventory from accumulating ! What it does, is increase the amount of time that it takes the market to correct.
Though I agree with you for the most part, I believe it is going to take massive unemployment to force a correction on anything like the scale that has recently been talked about on the forums (25% from here).
My idea of massive unemployment would be something on the order of 15% to 20% continuing on for 12 to 24 months or more. Anybody see that coming? I know I don't.
As to inventory, there really does not seem to be that much inventory piling up actually. Though I am sure if the news media let up on the bad news for a while more homes likely would come on the market, At least for the towns I work, the current inventory levels seem to be normal.
Though I agree with you for the most part, I believe it is going to take massive unemployment to force a correction on anything like the scale that has recently been talked about on the forums (25% from here).
How much of a correction do you expect ? In my area (Journal Square), it seems that there are some places on the market that are priced consistently with the rent I am paying. But that's in part because a large portion of places there are not owner occupied, so prices are constrained by rents.
In of the places where I'd seriously consider buying a house (e.g. Montclair and neighbors), someone earning the median income in those neighborhoods cannot buy there. Median household income in Montclair: 89k. Median house price: 525K (source trulia, Oct-Dec '08). For the median resident to live in the median house, prices would need to be under 300k (this would put them in line with pre-bubble valuations).
Now maybe Montclair is doomed to be unaffordable for ever, but all the surrounding towns as well ... ? I'm hard pressed to find a valuation metric that doesn't say that the bubble is still due for plenty of deflating.
A 2% foreclosure rate is only disastrous for those being foreclosed on.
It is when the rate is more like 20% that it becomes disastrous. The rate has been over 20% in many parts of Florida, Arizona, Nevada, and California for a few years now. Take those 4 states + Michigan out of the picture and the financial collapse would not have happened in the finance industry.
Foreclosures really start to affect the real estate markets and the values when 20% to 50% of the sold listings month after month are Bank Owned Foreclosures selling at cheep prices. That is when it becomes disastrous. I have friends who are strong Realtors in Florida and Arizona who talk of the foreclosure market basically dominating their real estate markets. That is totally not the picture you have with a 2% foreclosure rate.
The other funny thing I heard on NBC news tonight was that the loan portfolio that the government took over from Bear Stearn's is actually making the government money. 92% of the loans in it are performing. When Bear lost it, people were pricing that portfolio as if 80% of the loans would default. Totally overblown. There are many loan portfolios at many institutions that the market values at almost $0 but in reality the portfolios are performing are reasonable levels. Things like this give me hope.
If those things were actually making money, the banks would be begging for them back. There are two things to consider. A lot of people who are in those portfolio's are receiving government assistance, so the government is getting back the money they gave away. It's cooking the books. Furthermore, the fed has artificially manipulated the interest rates so that the adjustable mortgages aren't resetting to ridiculous interest rates. Regardless of what happens in the short term performance of the assets, there's a 0% chance of getting a return on value from those portfolios because the people they were sold to have almost no chance of ever paying off the principle. You yourself have been saying that they interest rates will have to rise in the future (and possibly near future). At that point, you'll see those things go underwater again, if they aren't already. The whole point of the TARP was to overpay for the assets. The government isn't going to make money on them. In fact, I wouldn't doubt if it's just false information being planted by the government to make us feel good about the bailout (kinda like they tried to telling us all year that we weren't in a recession with their phony GDP and CPI calculations). I would love to see if someone could get access to the assets via OPRA. It's not really going to matter. By the time these things fully mature, inflation would wipe out whatever supposed profits existed.
Rick Santelli said it best: "The history of the government making money for us isn't a good one".
As for the foreclosure rate, by any historical measure, 2% is high and a doubling of the rate since last year is very damaging and shows no sign of slowing. As long as foreclosures keep increasing in this state, it will continue to put downward pressure on sales and prices. With the state hellbent on taxing businesses forcing them to move out along with their insane property taxes (which are only poised to increase), I don't see how this gets any better.
The worst part about it is, there is no way to stop it. If they start bailing people out, recent data has shown that 50% still end up defaulting again in under a year. Furthermore, it encourages more people who normally wouldn't to default on purpose.
I'm not hoping for large amounts of foreclosures in this state because it can lead to deteroition of neighborhoods if the banks are slow in moving the inventory. But there is no easy solution.
your comparison is to simple, and reflective of your lack of experence and knolledge of how things work overall.
Oh really? My comparison (if house price today > house price tomorrow, buying it today is not a great deal) is too simple? I don't understand the complexities of the market?
Oh really? My comparison (if house price today > house price tomorrow, buying it today is not a great deal) is too simple? I don't understand the complexities of the market?
Enlighten me.
The first problem with using future prices as a valuation measure is, you don't know what the future prices are today. You can only know yesterday's future prices.
So using this approach, you can only know if yesterday's price was a good deal given information that was not available to you yesterday.
Price momentum is a lousy way to value anything. It's exactly the mindset that led to the bubble in the first place -- it was "a good deal" in 2006 because prices "were going up".
The second problem with forecasted prices as a valuation is that it's possible that prices are good both today and tomorrow. Timing the bottom of the market is very hard, but it's possible that today's price is a sensible one given what you know today (that would exclude tomorrow's price!)
That's not to say that prices aren't inflated (see some of my other posts). It's just that speculating on the direction of the market isn't a sound way to decide whether something is or isn't overpriced.
It's just that speculating on the direction of the market isn't a sound way to decide whether something is or isn't overpriced.
Yeah yeah yeah ... price to rent ratio, median price to median income ration ... all much better indicators, no doubt. I understand well enough the traditional real estate market valuation metrics. (All of which, by the way, lead me to the inescapable conclusion that home values are still drastically inflated from the recent bubble.)
But my comment was directly only to defense of my statement that we should reserve judgment on whether people are getting "great deals" today until a year from now.
Show me a town where the median home price is back in line with historic relationships to median income, show me a town where median home price is back in line with accepted price-to-rent ratios, and then we'll talk about whether something is a "good deal".
Until then, saying people are getting "good deals" is just sales talk, from people with no basis for saying so other than "Now is a great time to buy!"
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Charles Ponzi is dead.
