Where do I start today? Negative news regarding housing is hitting the presswires fast and furious. First, CNN published a headline story describing that Nationally, housing has faced a record year-over-year decline in October. Biggest Recorded Drop Ever In addition, I was able to catch a glimpse this morning on CBS MarketWatch a headline story posting “Housing Sligthly Rebounds.” This story was pulled because opening the article I found that sales increased by a meager .5 percent, stopping (pausing?) a slide since February. In addition, the major factor that should have headlined was the record year-over-year price drop (kudos to CNN). My only conclusion to this journalistic faux pas was someone trying to spin the data; after all this is data from the National Association of Realtors, otherwise known as Bozo the circus clown of housing.
Next, the Wall Street Journal published an article showing areas that are overvalued. Take a look below for a snapshot of the article:
The article can be found here but take a look at this brilliant quote from the Jack in the Box talking head, David Lereah:
“David Lereah, chief economist of the National Association of Realtors, expects that nationwide prices will bounce back in 2007.
He adds that one-third of the country is primed for growth -- a claim that Mr. Winzer's research supports. And if you don't have to sell your home, the short-term turmoil underscores the point that it seldom makes sense to obsess over your home's value the way you'd obsess over, say, your Google shares. Better to sit back, enjoy your mortgage-interest tax deduction, and wait for better days.”
I’m hoping that you haven’t choked on your tongue after reading the above paragraph. This idiot is such a maestro when it comes to spinning bad news, maybe he should apply for the position of Ambassador to Iraq. One-third of the country is primed for growth? You mean like Texas, Montana, North Dakota, and so on and so on. How in the world he sees real estate bouncing back in 2007 is beyond my knowledge but it certainly won’t be the case for the coastal areas including, guess what, California! Oh my, more and more the media is finding it more difficult to spin the absurdity of what these morons are spewing.
Take a look at the chart again. San Diego is overvalued by 60 percent meaning prices should be around $210,000. Does it look like we will reach those prices anytime soon with all these delusional home owners thinking their 1,000 square foot box is worth half a million? I do agree with Lereah that prices will bounce; bounce off a cliff that is in 2007. As the housing lemming mafia marches to their doom, the drum beat of massive mortgage resets, recession, declining dollar, and housing related job losses is getting louder each day. My guess is that September of 2007 we will finally get the full effect of what is occurring and sellers will understand what it means to be underwater. You think someone that just lost $100,000 of equity is not going to feel the psychological effect? At this moment the Doctor recommends do not buy ANYWHERE in California until this mess clears up.
What is your guess for the turning point in housing psychology?
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>> What is your guess for the turning point in housing psychology?
Spring/Summer 2007, after Fed rises interest rates second time.
>> What is your guess for the turning point in housing psychology?
By the fall of 2007 we should have 12 consecutive months of year-over-year declines. Bulls will have no way of denying the downward trend, and buyers will be unwilling to buy at inflated price levels without the perception of continual appreciation. Defaults and foreclosures will force product on the market putting prices in free fall. This in turn will cause a dramatic tightening of credit terms as lenders try to protect themselves. Credit tightening will take buyers out of the market at a time when lenders need these buyers most (to bail them out of bad loans). Once the “free fall” gets underway, other sellers (anyone who bought after 2002) will get desperate to get out before they go underwater. This will put even more product on the market at a time when there are no buyers to absorb it. This price “panic” will probably cause the steepest price drops early in 2008. Prices may start to bottom as investor psychology hits a low in late 2008 (The conventional wisdom then will be that only a “fool” would buy real estate.) Prices will bottom out when a few people have enough savings to afford a 20% down payment and use a conventional mortgage. These “fools” will buy when the total of payments, taxes and insurance is less than the cost of renting. My guess is the real bottom will be sometime in 2009, and giving some allowance for continued earnings growth, at prices about 40% lower than they are now.
I think Lereah missed his calling as "Chief Information Officer" for Iraq. I still remember that clown saying the Iraqis were beating the American forces back while the American tanks, meeting zero resistance, were rolling into Baghdad.
Lereah's comments may actually cause some of the naive to buy in this market. If he manages to convince enough, his prediction comes true. Unfortunately, he is likely leading lemmings over the cliff.
Can any job be worth that? How much would you have to be paid to do that? Has he no conscious? How do you sleep at night knowing your recommendations drove people into bankruptcy and had them thrown out on the street? Particularly when you know its complete BS when you’re saying it? Buying a home is a very important decision with long-term ramifications to people’s lives. Lereah should be ashamed of himself.
What is your guess for the turning point in housing psychology?
There is no turning point to housing psychology, only miscreant bubble bloggers nipping at the heels of the most magnificent organization ever conceived in the mind of man... the magnificent NAR!
Housing will continue its upward ascent through the stratosphere to the moon. The median home will soon reach $1M, then $10M, then $100M. Homeowners will all be rich beyond all imagination, a single US homeowner could buy the entire country of China or India with a HELOC, anyone who does not buy a home in the next 6 months will die an ignominious death without a penny to their name, and their children will be shamed from afar by wealthy landowners. Even condo owners will drive Mercedes Benzes and Aston Martins while renters are forced to lease Big Wheels and tricycles.
We have reached a new paradigm...
everyone wants to live here...
We are all rich, rich, rich!
Take a look at the chart again. San Diego is overvalued by 60 percent meaning prices should be around $210,000.
And this is just simple a reversion back to the mean! However, just as bull markets can be wildly delusional to the upside, bear markets can be equally devastating to the downside, as well.
Just popping in to clarify the math-- if San Diego is overvalued by 60%, the price should be $325,000, not 210k.
Still pretty impressive, though. BTW, I hope you don't mind the input from a math geek. :)
Anon:
Thanks for clarifying the numbers (math geeks are always welcome here!). I was assuming a 60 percent drop (median price X (1 - .6)) = future price. Your math is correct however since you are taking the initial price and reverting it.
Good stuff. Either way, prices are highly overvalued.
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